Major changes to pay and rewards systems in the public sector are necessary to get the most out of staff and achieve a step change in service delivery, according to a new CBI report published today (Monday).
The number of public sector employees has increased by over half a million over the last six years and pay now accounts for more than a quarter of total Government expenditure. The CBI calls for smarter use of pay and reward to incentivise and motivate staff, in order 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organisations need to take account of market rates, reflecting what is paid for equivalent roles, rather than using outdated national structures.
The more rigid pay structure in the public sector allows less scope to reward employees for outstanding performance. The public sector needs to give managers more flexibility in determining pay or bonus schemes.
The report dispels the myth that pay in the public sector is lower than in the private sector. In fact, the Government’s own figures show average earnings in the public sector are higher, 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 million and £1 billion.
John 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
- Ensuring tight pay discipline in the coming spending round.
John Cridland concluded:
"The Government is working to professionalise key financial functions and has used the recent department capability reviews to embed stronger management practice. It now needs to shine the spotlight on HR to ensure that pay and rewards are properly used for the benefit of all."
Note to Editors:
The CBI report, For What It's Worth? Managing public sector reward 2008-11 is attached.
Media Contacts:
CBI press office on 020 7395 8239 or out of hours pager on 07623 977854.