There has been a great deal of comment in the past few months about public sector pay, some of it ill informed and much of it missing the point. Peter Smith, director of public sector consulting at Hay Group, looks at five myths that seem to have developed and comments on the real issues in each case.
 

Myth one: The public sector is overpaid
This belief is based on a recent ONS figures showing that public sector pay is rising faster than in the private sector – and that the overall average salary is higher in the public sector.

Reality: These figures do not tell us whether the public sector pays more when we look beyond salary to the whole package. They also fail to take into account job size, content and type.

The public and private sectors alike are effectively a multiplicity of job markets – comparing an overall ‘average’ figure is not a reliable yardstick. We also need to remember that many lower level jobs in the public sector have been outsourced to the private sector, distorting the average salary in each.

All the fuss about how much public sector employees are paid distracts attention from how they are paid.

Myth two: Nobody in the public sector should be paid more than the prime minister
This increasingly common comparison assumes that public sector jobs operate in the same market as that of the PM.

Reality: They do not. The public sector comprises a complex web of pay systems and markets designed to recruit, retain and motivate. These have nothing in common with the route to PM.

The PM has a number of extra benefits (two final salary pension schemes, the use of two houses, chauffeur driven cars) – not to mention lucrative earning opportunities after his or her tenure – which are rarely mentioned in such comparisons. On the other side of the coin, the PM’s basic salary increases have not kept pace with the wider market – the basic salaries of chief executives in major companies have risen twice as fast in the last twenty years.

This meaningless comparison ignores two critical issues: performance and value. Whatever a senior public official is paid, we have to make sure they are worth the money and that their performance continues to justify the salary. Yet in many public service organisations performance management disciplines at top levels are weak; there are lots of targets but little agreement on the definition of good and excellent performance.

Myth three: It’s impossible to manage performance in the public sector
The prevailing wisdom is that the absence of measures such as profit or share performance makes public sector performance impossible to manage.

Reality: It may be complex, but it can and should be done.

Government agencies, hospitals and local councils all have a wide range of targets to meet, making it difficult for people to get a clear overview of how their organisation is performing.

However, though measuring performance in the public sector can be difficult, it is by no means impossible. The ingredients to a successful approach include:
 

•    A clear and common understanding about what the organisation exists to achieve and its priorities
•     A similarly clear and agreed view about how the organisation will work (culture, values and operating model)
•    An understanding of what constitutes effective performance for the whole organisation
•    Agreement among post holders at all levels about their respective roles and accountabilities
•    Effective line management.

Managing performance effectively is worth the effort – the alternative, not managing performance or managing it badly, can only cause trouble.

Myth four: Bonuses don’t work in the public sector

Reality:  It makes perfect sense to reward people based on their performance.

Bonuses are smaller and less common in the public than the private sector, and concerns about bonuses in public services are long established.

However, bonus schemes have the potential to provide a flexible and cost effective form of reward which communicates performance priorities. Many schemes are poorly designed and they need frequent review to ensure that they can deliver the intended benefits. But properly designed and managed bonus schemes can make a big impact even in the most unwelcoming environments.

And the alternative to using bonuses as an incentive – paying everyone the same whether they perform or not – is neither a sensible, effective nor good use of public money.

Myth five: Disclosure of executive salaries in the public sector causes trouble

Reality: Every organisation funded by the taxpayer should disclose annual accounts and remuneration packages for top executives.

Rather than being seen as a threat, this level of scrutiny presents an opportunity for public sector leaders to communicate the value they are delivering to their communities via the four Ps: Policy, Process, Performance and Publication.

Public sector organisations which deal properly with disclosure will be in a far stronger position on top pay than those who don’t.

Peter Smith is Director of Public Sector Consulting at Hay Group. For more information, please contact 0207 856 7000 or visit www.haygroup.co.uk