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Appearance before the Senate Finance and Public Administration Legislation Committee
Consideration of Additional Estimates
Tuesday, 11 February 2003
CANBERRA
(Taken from Hansard)
Senator FORSHAW— I turn now to remuneration policy. Mr Podger, have you read an article in the Public Sector Informant written by Paddy Gourley, who is a former senior public servant regarding remuneration policy?
Mr Podger—I think he has had two articles on remuneration policy in the Informant late last year—two different editions of it.
Senator FORSHAW—The one I have is the September edition of last year.
Mr Podger—Yes, I have read that article.
Senator FORSHAW—So you are familiar with his—
Mr Podger—I will have to recall it but I remember the article.
Senator FORSHAW—You would recall that it was fairly strident criticism of the remuneration system. Let me just quote from the article headed ‘Costly, wasteful and pointless: the system that is squeezing the APS’: The arrangements for fixing pay and conditions in the Australian Public Service are in a mess and should be scrapped. He then goes on to argue his case. Do you have any response to the arguments that are being put?
Mr Podger—Very limited, because that is a comment on government policy on remuneration arrangements. Remuneration arrangements are very much within the province of government policy and are managed primarily through the employment portfolio, rather than my statutory commission. Some of the points he raised are interesting but some of the ones he does not raise are also matters that the government in its policy would have highlighted. For example, I think there has been concern about previous systems of remuneration which were centralised and had broad based increases across the place which did not take into account productivity within agencies and the capacity of agencies to pay. They presented significant problems in the past and successive governments have tried to open up flexibilities to ensure that arrangements are more productivity based. My own view is that Mr Gourley does not address that very well in his article, but he does raise some other interesting points about the nature of the operation of labour markets.
Senator FORSHAW—I note that you said that this is also an area for the Department of Employment and Workplace Relations, but you would acknowledge or agree, would you not, that having a functioning remuneration system is vital to the efficient functioning of the Australian Public Service?
Mr Podger—What I am saying is that, while I was willing to say something within my statutory responsibility—for example, to issue a report on the state of the service—I will touch on things around employment, including remuneration. In the report we got out last year we touched on some aspects of remuneration, so I am not going to suggest that it is outside my province to say anything on this matter, but I think the main points being raised by Mr Gourley are in fact government policy issues which would lie outside my province.
Senator FORSHAW—I understand what you have said there about Mr Gourley’s argument but I now want to focus on your responsibility and what you may have had to say or may believe is important in this area. I asked you if—and I assume you agree—for the efficient functioning of the Australian Public Service it is important to have an efficient, effective remuneration system. You state as much in your State of the service report, don’t you?
Mr Podger—I have a section in the State of the service report about wages and conditions issues in the APS and within that I talk a bit about agency bargaining and agreement arrangements. So, yes, I do comment about some aspects of that.
Senator FORSHAW—Let me quote from page 60 of the report:
The issue of the funding arrangements for agreement making is an ongoing one. Some agencies expressed concern about the funding arrangements for pay increases, questioning the sustainability of continuing efficiency dividends and indexation parameters that require the ongoing identification of productivity gains.
It goes on and then you say that this warrants further consideration. I just want to ensure that you acknowledge that this is, at least, an area that has been drawn to your attention.
Mr Podger—And I have drawn it to the attention of the parliament in this report and would hope that my comments will be considered by appropriate people around the place. I am not quite sure that it is my job to then follow all that through. The record stands for itself and I have said that these points warrant further consideration.
Senator FORSHAW—Can I take you to one area that has been identified as a problem in the system— overlapping salary ranges. Do you agree that a properly functioning promotion system should provide proper incentives for people to seek promotion, including the incentive of a reasonable increase in pay?
Mr Podger—As a general principle, yes. Indeed, one of the things we also have in the values is, of course, the merit principle. We have various arrangements to ensure that there are enough points at which there is open competition for promotion as part of the system, as well. So promotion arrangements and distinguishing between different levels is an important thing underlying the merit principle in the service.
Senator FORSHAW—Are you aware of the extent to which pay ranges in the Australian Public Service classification system have increased and the extent to which they now overlap—are you familiar with that?
Mr Podger—It is an issue that I raised in the report. Indeed, I have a paragraph on page 61 noting the matter and mentioning that it is something that needs to be watched carefully. Some overlap between the ranges is not a major issue. It may well be that, for reasons of performance or particular skills, a person who is an SES band 1 officer in one situation can rightly get paid a bit more than a person who is brand new and yet to be tested at SES band 2 in another place. In my view, that sort of thing is not in itself against the principles of merit and appropriate advancement. However, if that overlap becomes more extensive, I have some concerns that it could be used to circumvent the merit principle—that is, people could be advanced in pay without having been through a proper open competition.
Senator FORSHAW—If I understand what you are saying, that would presumably be more pronounced if the maximum of the lower classification position is substantially higher than the next highest classification level?
Mr Podger—The more there is that overlap, the more that is at risk. Sometimes the money overlap may be more than the actual incidence of people in the overlap. What I want to keep an eye on is the situation where there is both the monetary overlap and the emergence of significant numbers of people at the lower level who are being paid more than significant numbers of people at the higher level. That would raise some matters of some concern to me.
Senator FORSHAW—So it is a matter of concern to you that there is a disincentive or possibly a potential for disincentive for people to seek promotion or advancement if the salary overlaps are substantial?
Mr Podger—The disincentive issue has not been my primary concern, although I can see that there are issues around that. My primary concern has been the merit principle—that is, that there should be open competitive processes for people as they advance through the Public Service career structure. That is an important principle for the professionalism of the service. So, for example, we have guidance to departments at lower levels that moves towards broadbanding, which have brought about some quite useful improvements in career planning and training, ought to have, nonetheless, some steps in them which require a competition for advancement. It is that side of things that is my particular focus of attention. I see overlapping pay rates as potentially undermining that—not if there are reasonably small numbers or if there is not a great deal of overlap but, if the overlap becomes substantial, the risk of undermining the merit principle becomes something of concern to me.
Senator FORSHAW—You can raise your concerns about these issues in the State of the service report or in the annual report. What other opportunities do you take or means do you employ to try and raise the issue further?
Mr Podger—If the issue starts to emerge as a major one—and all I have done is flag it as a risk and as something that needs to be monitored closely—if it became apparent from the data, either the data we collect directly or the data we collect through the department of employment, that an agency was starting to have very major overlaps, it would be a matter that we would then discuss with that agency as to what they are doing. We would raise questions with them about whether they are undermining the merit principle.
I mentioned the non-APS issue and the guidance from the commission about care with broadbanding. Before that guidance came out, one or two agencies had broadbanded beyond what this guidance says. The role we have played is to monitor those agencies closely, working with them to see whether in fact this is becoming an issue, by looking at their rates of advancement, the way they are managing it, their movements of mobility in and out of their agency and that sort of thing, to see whether what is a risk problem in fact becomes a real problem. So that is the sort of thing the commission would do.
Senator FORSHAW—You have not had to do that as yet; is that what you are saying?
Mr Podger—The only ones we have done so far in directly looking at it like this have been on the below SES broadbanding issue, not on the overlap of pay. I have not pursued that specifically with an agency at this point.
Senator FORSHAW—Okay. Let us move on. What effects do you think the growing differences in remuneration across Public Service agencies are having on the staffing system in the Public Service as a whole?
Mr Podger—Very briefly, we have reported some reduction in mobility between agencies within the service over the last few years, but we do not see that at this point as being a major problem caused by difference of remuneration. We are still looking at what the underlying forces behind that are. One of the forces is in fact a positive one—that is, a number of agencies like Centrelink, the Child Support Agency and others have developed much better career management arrangements, much better training and development processes and, in so doing, reduced their turnover. That reduced turnover has actually reduced the mobility. To the extent that that is what has been happening, I am not concerned about the reduction in mobility, but I have flagged in the report that we need to keep an eye on whether in fact the variations in pay might also add to a reduction in mobility. But at this stage there is no evidence to suggest that that is a significant problem. Again, on page 60 we refer to this issue and say that we will be doing some further work on that in the coming year.
Senator FORSHAW—That is page 60 in the—
Mr Podger—The State of the service report.
Senator FORSHAW—You mentioned productivity improvements at the outset and that that is a part of the remuneration fixing system. Is there any reason to believe that a system that fixes pay and conditions based on productivity improvement necessarily aligns relative levels of remuneration with the priorities of government functions?
Mr Podger—I assume once again you are referring to some of the material in Mr Gourley’s article.
Senator FORSHAW—Not necessarily.
Mr Podger—One of his arguments, as I recall, was a concern that relying on the capacity within an agency’s budget in order to set pay within that agency might be affected by whether an agency has more money or less money according to priority policies from the government. The system, which has been around for some years, has always had that as a risk. I guess one has to bear that in mind when looking at it. But, interestingly, most agencies in setting their pay do actually address the point that Mr Gourley raised, that there is a labour market across the service, and they watch very closely what is being done in different agencies. So, while the funding arrangement is primarily a within agency arrangement, including taking into account productivity gains that can be found within an agency, agencies are also having to take into account the movements across the labour market. I suspect that that is why you have not got as much variation in the pay rates as some people suspected there would be.
Senator FORSHAW—Mr Gourley does refer to this issue in his article, as you recalled. Could it be that the present productivity based system gives some remuneration advantage to inefficient organisations, because they have a greater scope to improve productivity and make the necessary cash savings, while efficient organisations will find that difficult?
Mr Podger—I remember that argument being pressed very firmly a number of years ago when the first stage of agency bargaining came in. Before it was on pay rates, it was on conditions and a whole range of other things, with offsets required to be paid for within agency productivity. That was a very common argument. After I do not know how many years of having some form of agency bargaining based on productivity being applied, it seems to be a bit harder to continue to apply that argument, because everybody has had to tighten their belts and bring in a fair range of efficiencies over the years. I am not sure that there is anymore a major issue about rewarding the inefficient. I hasten to say that agencies do have to take into account their own labour market arrangements, so they are not just each of them doing their own thing without looking at the others, and they are required under the government principles on agreement making to abide by some general policy guidance. That, again, constrains some of the variation that might otherwise occur.
Senator FORSHAW—Do you think that the higher paying agencies would generally be those that would be more important in terms of government priorities?
Mr Podger—I see no evidence in a systematic way on that. For example, I know from material that the employment department has gathered and shown to us that there is no obvious difference in patterns of small agencies and large agencies. They have not been able to detect an obvious set of agencies who are able to pay the higher rates.
Senator FORSHAW—Do you have a view about whether it should or should not be so?
Mr Podger—I am simply saying: like other things, there is a risk. But I do not see this as a demonstrated major issue at the moment.
Senator FORSHAW—Would you know whether or not the mobility of staff moving from higher to lower paying agencies is being facilitated by special arrangements for those moving that would, in effect, put them in a financial advantage compared to staff already in the lower paying agency?
Mr Podger—I have not got direct information on that. From personal experience in encouraging somebody to transfer to an agency I have managed, on the basis that I felt the person was worth while recruiting, I have clearly had to make sure that I matched their existing pay rates. But I have also taken care that in doing so I have not got a major anomaly with my own agency’s remuneration policies, that there is a consistency with my agency’s remuneration policy. Certainly I have matched pay in order to recruit people on transfer from other agencies and paid them a bit more than the average I have been paying, but I have not paid outside the explicit remuneration policies we have circulated.
Senator FORSHAW—What about those moving between other agencies?
Mr Podger—I am not aware of any systematic problem. I have heard anecdotes, but I have not seen anything. From the commission’s database and the database we draw on from employment departments, I am not aware of evidence of that being significant. But I have heard anecdotal evidence.
Senator FORSHAW—Moving on, as time is drawing to a close, has the Public Service Commission conducted any examination of the effect of devolved pay and conditions on the working of staffing policies within the Public Service?
Mr Podger—We have not done direct work on that. We have tangentially done some work, but not directly, on what the devolved arrangements might have done overall. The sort of tangential work we have done would be like the work we did with the management advisory committee on performance management, where we identified through working with agencies that good practice in performance management came about in particular with a more integrated approach to performance pay, performance appraisal, business planning, corporate planning and so on. Returning to the business objectives and the outcomes that are required of an agency, getting that alignment is in fact good practice and has led to improvements. I will give a little example. Centrelink in their changed classification arrangements have developed much more considered career planning around their customer service offices, which they believe has led to better performance and better skilled staff in their system. They see their classification and pay arrangements as being a component of their overall success. We have not done direct work on the problems around it, but we have seen some evidence in particular cases where alignment appears to have contributed to improvements in performance.
Ms Tacy—Some information in a forthcoming report of the management advisory committee looks at a number of different staffing issues, including an analysis of graduate intakes and employment, if you include that in your concept of staffing policies. As part of that research, interviews were done with a series of agency heads. A part of that was talking to them about attraction and retention issues in a devolved environment. The view coming through very strongly was that they felt that the devolved arrangements had assisted them in attracting and retaining the capabilities that they were after.
Senator FORSHAW—Mr Podger, would you consider conducting an examination of the effects of devolved pay and conditions as part of the work you do for the State of the service report?
Mr Podger—I have indicated in this year’s State of the service report that there are aspects of that which relate to my responsibilities in ensuring that the values are being abided by. Those are the areas on which I have been focusing my attention. I am a bit nervous of my being asked to do a wider review which actually implies my commenting on the government’s remuneration policy. It seems to me that would be outside what one would expect me to comment on. What I could look at are aspects of where management by agencies within parameters that the government have set has not led to some problems around the performance, capabilities and values of the agency.
Senator FORSHAW—Are you aware of any independent studies that may have been undertaken?
Mr Podger—I am not aware of any. I am aware of commentaries such as Mr Gourley’s, but I am not aware of any detailed studies being done.
Senator FORSHAW—Mr Gourley has made a comment that relates to earlier questions I was asking you about whether one should expect to see higher payment levels reflecting the government priorities in terms of functions. He states in his article:
How do the current arrangements fit with Government policy priorities? If they did, it might be reasonably expected that agencies with higher priority tasks would pay more. The following is a list of agencies (selected at random) and ranked from higher to lower payers at the maximum of the APS Level 4 in early August 2002, an important recruitment point: Family Court, Joint House Department, Public Service Commission, Bureau of Statistics, Tax, Australian Protective Service, Attorney-General’s, Defence, DEWR, Veterans’ Affairs, Prime Minister and Cabinet, Health, and Treasury. This is the priority the industrial relations system currently accords these organisations at this important pay point. Presumably the Treasurer is content with a wooden spoon for his department.
Do you have a response to that criticism, which is fairly strident and, at least from Mr Gourley’s perspective, argues that you have got the lower pay level predominating in Prime Minister and Cabinet, Health and Treasury.
Mr Podger—If I look at it the other way around, there are always issues of supply and demand. Which departments, out of the pool of departments in which people apply for Public Service jobs, do people identify as their priorities? Quite frequently you will find PM&C and Treasury are higher than others. You have also got to take into account that you are seeing pay rates; you are not seeing other issues of conditions—the way they are handling their career planning, their promotion arrangements or a whole lot of other factors. I have not done a view on what they are like at the EL1 level or on whether Treasury has more EL1s than EL2s as their overall picture because that is the way they manage their staff. I think the issue is a lot more complicated than simply saying, ‘Here is a story which must tell you which agencies are higher priority than others.’ It is to do with the management decisions made within the agency.
Senator FORSHAW—These are Mr Gourley’s views.
Mr Podger—I know.
Senator FORSHAW—What I am seeking is your response to what he has written as a fairly critical analysis of what is happening in the Public Service.
Mr Podger—I do not see it as my job to give a commentary on all these matters. My job is to look at aspects to do with reporting on the state of the service and the values and issues of that. Some of the arguments that Paddy Gourley has put in his article are interesting things that are worthy of consideration by policy advisers and policy makers across the government, but I think on other things they are a little simplistic and you would have to look at them a lot more closely. I do not think that looking at a comparison of pay rates at one level tells you much about whether the devolved system is providing better alignment with business objectives or better performance of a Centrelink or a health department or a Treasury within a devolved environment than in a centralised system.
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