Growth in senior public servant remuneration
3.1
Some submissions have drawn attention to the increased difference in pay between senior public servants and the average Australian worker.
3.2
Professor Andrew Podger AO, a former Australian Public Service Commissioner who submitted in a private capacity, noted that it is 20 years since secretaries' remuneration was at a level around the Bill's proposed cap of five times average weekly earnings (AWE).
Table 3.1: Secretaries' Total Remuneration relative to AWE
|
|
Level 1 ($pa)
|
Level 2 ($pa)
|
Level 1 (times AWE)
|
Level 2 (times AWE)
|
|
1998
|
248,130
|
233,968
|
6.6
|
6.2
|
|
1999
|
276,000
|
258,000
|
7.1
|
6.6
|
|
2000
|
305,000
|
285,000
|
7.5
|
7.0
|
|
2010
|
503,220
|
470,790
|
7.7
|
7.2
|
|
2011
|
612,500-620,000
|
570,000-691,200
|
9.0-9.1
|
8.4-8.5
|
|
2014
|
698,880-802,820
|
649,280-691,200
|
9.2-10.6
|
8.6-9.1
|
|
2017
|
745,770-878,940
|
692,500-745,770
|
9.3-10.9
|
8.6-9.3
|
Source: Professor Andrew Podger AO, Submission 1, p. 3.
3.3
Table 3.1 shows the increase in secretaries' total remuneration compared to AWE since 1998. As the table shows, the difference between secretary remuneration and AWE was approximately sixfold in 1998. By 2017 this figure had increased to approximately ninefold.
3.4
Professor Podger explained that this increase is due in part to a major review of the Remuneration Tribunal in 2010. This review recommended reforms that increased executive pay sharply and created a firm differentiation between secretaries through the establishment of Level 1 and Level 2 secretaries. Professor Podger also stated that the review drew heavily on findings from the Egan Report, which highlighted the faster increase in private sector executive remuneration compared to the public sector.
3.5
The national broadband network (nbn) in its submission noted that total remuneration for each senior executive role is informed by a benchmark of comparable roles in the market. These external market benchmarks are 'determined by researching disclosed data from relevant Australian-listed companies and Government Business Enterprises'.
3.6
On the other hand, the Community and Public Sector Union's (CPSU) submission noted the increasing income inequality in the Australian workplace.
3.7
Though the CPSU argued that the lack of pay parity is particularly prevalent in the private sector it stated that 'income inequality in the public sector has been particularly heightened in recent years due to the implementation of a restrictive bargaining and wages policy applied by the Government to APS/EL employees'.
3.8
The CPSU noted that the slow increase in public sector wages since 2013, and the real wage decline due to inflation during this period, has had a 'macroeconomic effect' on the Australian economy.
3.9
The CPSU noted that major APS agreements since 2014 have offered an average of 2 per cent per annum pay increases over their three years of operation. By contrast the average Departmental Secretary has seen a 33 per cent increase in their wage since 2012.
3.10
The CPSU also stated that the increased use of contracting and labour hire has compounded the problem. In particular, the submission notes that the Government is 'increasingly outsourcing work to labour hire companies to be performed by employees on far inferior conditions to the APS employees who previously performed the work'. This process, it was argued, has a potentially greater effect on the wages and conditions of average government workers but is difficult to measure due to a lack of Government transparency.
Efficacy of the Bill
3.11
Submitters criticised the Bill for using a blunt instrument to constrain the level of remuneration in Commonwealth entities and companies. These criticisms include the Bill's lack of consideration regarding the mechanisms and methods the Remuneration Tribunal uses to set executive remuneration and the negative effect that pay freezes have on the Australian Public Service as well as the economy.
Remuneration cap
3.12
For example Professor Podger 'opposed such a blunt instrument to constrain the distribution of remuneration paid by Commonwealth entities and companies".
3.13
Professor Podger questioned the way executive remuneration is currently set out and whether this approach leads to some executives receiving remuneration at a level 'exceeding what is required to attract and retain the skills and experience the Australian Government needs'.
3.14
Professor Podger, in particular, focused on the effectiveness of the Remuneration Tribunal to set adequate remuneration for senior executives.
3.15
The Remuneration Tribunal was established in part to depoliticise the fixing of senior executive remuneration. The Tribunal was intended to ensure an 'independent and expert approach to assessing remuneration appropriate to the work involved and the skills and experience needed'.
3.16
Professor Podger's submission states that the Remuneration Tribunal gives too much weight to setting executive pay according to comparisons with the private market. Instead, Professor Podger believes that Commonwealth remuneration should be more weighted against State public sector remuneration.
3.17
He noted that according to the Egan Report, 'only three appointments to secretary offices in the previous fifteen years came from outside the government sector'. Professor Podger therefore argued that as the vast majority of secretary appointments come from within the public service market comparisons should include 'in particular State and Territory public sector remuneration'.
3.18
Professor Podger further stated the need for the Remuneration Tribunal to reconsider the differentiations it now makes between secretaries of different departments and the need to ensure a 'one-APS' approach to setting executive remuneration.
3.19
Professor Podger questioned the Remuneration Tribunal's approach of setting different levels of remuneration according to the perceived 'work value' of the responsibilities of the secretary. He stated that 'it is hard to be firm about the differences in work value of other portfolio secretaries' as 'all serve a Cabinet Minister (or two) and have portfolio-wide responsibilities as well as departmental responsibilities'.
3.20
Professor Podger recommended that the public should have some say over the remuneration of executives in Commonwealth companies. This, however, should not be done through a crude instrument such as a remuneration cap, but via a 'careful and independent assessment through an appropriately formed remuneration committee using qualified expect advice, and to be guided by the shareholder ministers in some broad fashion'.
3.21
The CPSU, though in favour of reducing the growing gap between executive remuneration and the AWE, was 'wary of blunt instruments such as pay caps'.
3.22
The CPSU believed that 'pay freezes are not only bad for employees but they are bad for the entire economy'.
3.23
Instead of reducing executive salary the CPSU submission states that 'the Bill addresses the wrong side of the equation and does not target the real causes of the growing disparity in wage growth'.
3.24
In this regard the CPSU stated that:
Rather than imposing strict pay cap on executive remuneration, pay parity in the public sector needs to be addressed at the APS/EL side of the equation by improving bargaining to allow agencies to negotiate freely with their staff and changing the Government's bargaining policy to remove the pay cap [on APS/EL staff].
3.25
The CPSU also warned that a remuneration cap could see many of the most senior executives and departmental secretaries in the Commonwealth take an immediate pay cut of over 50 per cent. The CPSU argued that 'such a large scale and sudden decrease in salary could have a dramatic and disruptive impact on the Commonwealth Government'.
3.26
The CPSU also noted its concern that the scope of the Bill would create inconsistencies in public sector wages. In particular it noted that there is an inconsistent approach to the roles that come within the scope of the Bill. For example, the Bill 'does not pick up some full time officers whose salaries are set by the Remuneration Tribunal that are not principal executive officers for the purposes of the legislation but have equivalent salaries'. This includes, for example, the APS Commissioner and the Chair of APRA.
3.27
Professor Reza Monem was in favour of capping pay at five times the average employee salary, however had reservations about how the remuneration cap would be formulated.
Remuneration reporting
3.28
Despite its reservations about the Bill, the CPSU did support the concept of greater transparency in relation to public sector pay and that 'agencies should track, publish and explain the pay multiples of senior executives compared to ordinary public servants over time'.
3.29
The CPSU also postulated that transparency of public service salaries should be applied to SES salaries which, though publicised, provide no individual breakdowns.
3.30
Professor Monem, however, stated that section 93B of the Bill, regarding reporting on remuneration, is inadequate. He commented that total remuneration reporting for Commonwealth entities should show a 'breakdown of each category of remuneration (fixed or variable, at-risk, short-term or long-term, superannuation, benefits in kinds, etc.).
Committee view
3.31
The committee does not support the use of a cap on public sector executive remuneration. Such a blunt mechanism will have a negative effect on the Australian Public Service and the economy more generally. Furthermore, the use of a cap will impact on the ability of the Commonwealth to attract and retain executives with the skills and expertise necessary to further the Government's needs.
3.32
The committee recommends that the Senate does not pass the Bill.
Senator Lucy Gichuhi
Chair