Rebalance wage scales

Public-sector compensation needs urgent realignment

Robert Wynter, Contributor

In the late 1990s, then Opposition Spokesman on Finance Audley Shaw made the revelation that the head of the National Investment Bank of Jamaica was paid an annual salary of J$7 million, setting in motion the now-infamous 'Fat Cat' salary scandal.

It was also revealed that the group managing director of the Petroleum Corporation of Jamaica (PCJ) was actually pulling two salaries, as he was temporarily overseeing the Petrojam Refinery while still in his substantive post at PCJ.

Today, there are several public-sector agency heads whose compensations make the Fat Cat scandal of the 1990s pale in comparison, even when discounting for inflation. These levels of compensation are several times higher than those of the prime minister, Cabinet ministers and permanent secretaries whom we now hold to much higher levels of accountability than before.

This misalignment between compensation, value and accountability is a fundamental governance issue which the Cabinet needs to address as a matter of urgency.

The new administration has consistently reiterated that public-sector reform, tax reform and pension reform are the critical policy levers to correct the deteriorating government debt and fiscal deficit. Of these, public-sector reform has the greatest potential, as it should lead to higher levels of public-sector performance and, consequently, improved national socio-economic performance.

While there has been focus on the wage bill as a percentage of GDP, little attempt has been made to measure overall public-sector performance. I suggest we use the GDP of government services which, according to the 2010 Economic and Social Survey (ESSJ), was J$59.5 billion in 2009-10. With a workforce of 138,100, this means that the public sector added value of J$431,221 per government employee.

Public-Sector Transformation

In order to achieve real public-sector reform, Cabinet must address the following issues and act accordingly:

a) Public-Sector Structure - How the Cabinet relates to the ministries, departments and agencies (MDAs); and how the MDAs relate to each other and to the clients they serve;

b) MDA rationalisation - Which MDAs to keep; which to divest, which to close, and which to merge.

c) Position rationalisation - Separating those public-sector positions that add value from those positions that add little or no value and decide how to treat with the latter.

d) Compensation realignment - Realigning compensation with value, responsibility and performance.

The Public Sector Transformation Unit (PSTU) has addressed, and made recommendations on structure and MDA rationalisation. However, the new administration insists that there will be no deliberate reduction in public-sector numbers as the already difficult social problem will be exacerbated.

One possible solution is for those in welfare positions to be laid off while continuing to be paid 50 per cent of normal wages for one year, with the dual benefit of providing a social safety net while driving up public-sector productivity.

Aligning Compensationwith Value

In the real world, resources are allocated to maximise impact, while individual compensation is directly related to the level of value. In an attempt to measure the relative value added by a position, organisations employ a job-evaluation system using four factors:

1. know-how (qualifications, experience, and depth/breadth of management).

2. Problem-solving.

3. Accountability/responsibility.

4. Working conditions.

Typically, organisations set the level of fixed compensation directly proportional to the job-evaluation score. The system, however, does not take into account scarcity of skills, and in those cases compensation packages have to be adjusted accordingly. Variable compensation, on the other hand, is used to reward employees when value has actually been added.

Try as the Compensation Unit in the Ministry of Finance may, job evaluation, classification and, hence, compensation management in the public sector have been very inconsistent. For instance, in the mid-1990s, the Bank of Jamaica (BOJ) hired a Canadian firm to conduct its job-reclassification exercise. So generous were the results that the governor, reportedly, agreed to accept only about 70 per cent of the recommended compensation for his position.

It was also reported by a leading trade unionist that the results were kept quiet lest other local organisations used the BOJ as a frame of reference for reclassification and open the proverbial compensation can of worms.

Examples of compensation anomalies abound in the public sector. For instance, we tend to hold our various ministers of finance accountable for economic performance, yet the compensation for that position is approximately one-sixth that of the governor of the BOJ. The only possible explanation, to which I strongly disagree, is that anyone can become a minister of finance, while candidates for governor are few and far between.

In the same manner, the transport, works and housing minister is paid significantly less than each of the heads of the Port Authority, the National Works Agency and the National Housing Trust (NHT). The permanent secretary in the Ministry of Education, who oversees, and should be held accountable for, a budget of nearly $90 billion, is compensated far less than those agency heads who oversee budgets much lower in value. School principals are compensated well below many public-sector agency positions with far less responsibility and authority!

There are those who argue that public-sector compensation, particularly at the CEO level, ought to be equivalent to similar positions in the private sector. For example, the managing director of the NHT should be compensated in line with the CEOs of Jamaica National and Victoria Mutual.

However, while the building societies must compete for every single dollar of savings used to earn revenue on mortgages, the 'savings' that the NHT collects are the result of citizens being forced by law to contribute.

Second, while the building societies compete strongly for mortgage seekers, the NHT, with its extremely low cost of funds, enjoys a virtual monopoly position in the market segments it serves. Attempts at such comparisons are, therefore, totally misguided.

Dilemma Facing Government

The compensation anomalies can be addressed by capping the level of highly compensated positions; by some upward adjustment in the compensation of some positions, by the increased use of performance-based pay and by greater application of accountability.

With limited fiscal space, this will require shedding of non-value-added positions which describe the dilemma facing the Government. The Simpson Miller administration needs to make the tough decision whether to maintain the public-sector status quo (high numbers, misaligned compensation and low performance) or real public-sector reform (shedding jobs, realigning compensation and holding persons accountable) to drive public-sector performance.

The prime minister has promised a high level of inclusiveness, and Minister Horace Dalley has reaffirmed this commitment. The Jamaica Civil Service Association and other unions must come to terms with this dilemma, as suggested by Danny Roberts, and be prepared to have frank and open discussions with their members.

Civil-society groups must lead the necessary public discussions on this matter, as all Jamaicans will be impacted. This is not an easy decision, and we must pray and hope the Cabinet makes the right moves.

Support is needed and sacrifices must be made all around. At 50 years, Jamaica is at a critical juncture in its development. More than ever before, we need decisive leadership, strong governance, strategic thinking, execution and accountability from all areas of society as we strive for the achievement of Vision 2030.

Robert Wynter is the managing director of Strategic Alignment Limited, which facilitates strategy articulation and leadership development. Email feedback to columns@gleanerjm.com nd rob.wyn@hotmail.com.

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