With public sector pay now accounting for more than a quarter of government expenditure, the CBI is calling for major reforms to pay and reward systems.

In a new report the employers’ organisation calls for smarter use of pay and reward to incentivise and motivate staff to achieve a ‘meaningful’ change in performance and quality of service delivery.

The CBI’s Deputy Director-General, John Cridland said: “Our public services have benefited from vast additional investments in recent years, a large chunk of which has gone on pay. Getting the most out of these resources is one of their biggest challenges.

“The Government is missing a trick by failing to deploy smarter HR techniques. Not using pay and reward as genuine incentives to improve performance and service delivery is a lost opportunity.”

The CBI report argues that more public sector organisations need to take account of market rates, reflecting what is paid for equivalent roles, rather than using outdated national structures. Instead, managers should be given more flexibility in determining pay or bonus schemes.

The report adds that government figures show average earnings in the public sector are higher than those in the private sector, with their median rate of pay some 15 per cent ahead of private companies.

It also draws attention to the cost of public sector pensions and says this must be brought under control in the longer term and better aligned with private sector provision, so that the taxpayer is not saddled with excessive costs. Public sector liabilities are now thought to lie anywhere between £530 billion and £1 trillion.

Cridland continued: “National pay bargaining encompassing a disparate range of roles belongs to a bygone age. It ignores external market rates for comparable jobs and doesn’t encourage workers to go the extra mile or reward star performers.

“Tough decisions have been taken in the private sector to tackle pension deficits and the public sector must now do the same. Capping taxpayer contributions to pensions should be rolled out across the public sector.”

Key recommendations in the report include:

• Determining pay locally against market rates: the public sector often sets pay for huge groups of staff through multi-employer mechanisms at levels remote from most employees. While the report says this is appropriate for some professional groups, such as nurses and teachers, it argues that for other employees pay should be set closer to the level of operating organisations or units to better match local labour markets and operating needs




• Using pay more positively to enhance service delivery: public sector pay structures are still dominated by progression based on length of service. There should be greater scope for recognising individual or group contribution




• Improving service delivery by strengthening local management: resources should be put into developing the capabilities of line managers and local HR managers to strengthen leadership and performance management




• Improving communication with employees to raise awareness and appreciation of the full value of the pay and benefits package.

But the TUC strongly disagrees. Secretary general Brendan Barber said: “’This is little more than an attack on the public sector and its fundamental values by the CBI. Good public services are delivered by teams of people working together.

“The CBI simply doesn’t get the public service ethos. Nor does it recognise that the public sector leads the way in many modern HR practices such as flexible working.

“Comparing the median pay of the whole public sector with that of the whole private sector is statistical sleight of hand. The only real way to compare pay is to compare like jobs with like.

“Lower paid jobs in the public are rightly better rewarded than many similar jobs in the private sector where exploitation still exists, while senior managers in the private sector earn far more than public sector equivalents. In between the picture is much more complex, but in general private sector employees tend to do better in take home pay than their equivalents in the public sector.”