Chapter 6: The Values and workplace relations

Remuneration

Since 1997 the wages and conditions of employees in the APS have been negotiated and determined at the agency level. APS employees are generally either covered by CAs or individual AWAs. In negotiating wages and conditions agencies have significant flexibility subject to consistency with the Government’s Policy Parameters for Agreement Making in the APS. These policy parameters cover a range of matters but include the important requirements that improvements in pay and conditions be linked to organisational productivity and performance and that they be funded from within agency budgets.

Last year’s report commented on agencies’ increasing use of the flexibility available to them in the employment framework, while noting that there was scope for agencies to make more strategic use of AWAs. A degree of concern was expressed about the quantum of average annual wage increases in some APS agencies and the ongoing issue of the sustainability of the funding arrangements. The importance of transparent remuneration policies and the increasing overlaps in salary ranges, particularly for EL 2s and the SES, were also discussed. This section revisits these issues and outlines major developments in APS remuneration in 2002–03.

Certified agreements

Data provided by DEWR indicate that most non-SES employees are covered by CAs—around 98% of APS 1–6 employees and around 80% of ELs. At 30 June 2003 there were 99 CAs operating in the APS. Sixty-seven of these were third-round agreements and six were fourth-round agreements. Sixty agreements were made during the year to 30 June 2003 (compared with 36 agreements made in the previous 12 months).

Over two-thirds of operating agreements have been made with one or more trade unions under section 170LJ of the Workplace Relations Act 1996, while 29% have been made directly with employees under section 170LK. There appears to be a small increase in the number of section 170LJ agreements over the last financial year compared with 2001–02. The number of operating CAs that are stand-alone agreements that completely displace the Australian Public Service Award 1998 has increased to 94% compared with around 90% at the end of 2001–02.

The average annualised wage increase (AAWI) for all APS agreements certified in the 12 months to 30 June 2003 was 4.9% (compared with 4.1% in the previous 12 months). When calculated from the nominal expiry date (NED) of an agreement to the NED of that agreement’s replacement, the AAWI was 3.9% for the 12 months to 30 June 2003 (the same increase as for the previous 12 months). The private sector AAWI at 30 June 2003 was 3.6% (3.7% last year). The spread of NED to NED AAWI in APS CAs in the 12 months to 30 June 2003 ranged from 2.4% to 7.5% (last year the comparable data was 1.8% to 5.2%).

Measuring and comparing remuneration increases is difficult, given different timeframes for negotiating different agreements and changes in the composition of remuneration. Using the NED to NED AAWI abstracts from some of these problems. The variations in CA NED to NED AAWI outcomes in agencies may relate to a number of factors, including ‘catch-up’ for past low rates of increase (and vice versa), as well as particular market pressures and variations in agencies’ capacity to pay. However, it must be noted that the average APS wage increases in CAs, while remaining the same as last year, also remain slightly above the average for the private sector.

The issue of funding arrangements for agreement making in the APS is an ongoing one. Some agencies and commentators continue to question the sustainability of the policy parameters that require the ongoing funding of remuneration increases for CAs and AWAs from productivity improvements within agency budgets, particularly for smaller agencies. It is certainly true that remuneration levels are generally set in the market place on the basis of supply and demand, and not solely on the basis of productivity within a firm. On the other hand, the average pay increases offered by agencies continue to exceed those in the private sector. Also, there is no evidence that the levels of base salary have fallen behind in smaller agencies. In fact, if anything, the evidence suggests that larger agencies tend to offer lower base salaries compared with medium and small agencies.⁶ Accordingly, while there may be a case for reviewing the particular way in which remuneration increases are funded, there is little evidence to support any overall relaxation.

Australian Workplace Agreements

Data collected by DEWR from agencies indicate that the number of operative AWAs in the APS over the 12 months to end June 2003 increased by around 14% to around 8000 (1800 covering SES, 4500 covering ELs and 1700 covering APS 1–6). The rate of growth for AWA coverage of APS 1–6 employees was the highest (over 30%) but this classification group has by far the lowest coverage level (less than 2% of all ongoing employees) compared with around 19% for ELs and virtually all SES.

The employee survey asked employees to indicate if their salary was set out in an AWA or their agency’s CA. Consistent with the above DEWR data, nearly all SES and 22% of ELs responded that their salary was set out in an AWA. However, 7% per cent of APS 1–6 indicated they were covered by an AWA, more than three times the coverage indicated by the DEWR data. The most likely explanation for this discrepancy is a lack of knowledge of the distinction between AWAs and CAs by some employees in this classification group.

Changes in salary and performance pay

Data on the amount of salary and performance pay for those on AWAs and CAs can be gleaned from the results of an agency survey of SES and non-SES remuneration conducted for DEWR by Mercer Human Resource Consulting in 2002.⁷

Table 6.2 indicates that employees on AWAs generally enjoyed higher levels of base salary in 2002 (and in 2001) compared with employees covered by CAs. AWA employees have also received higher increases in base salaries over the 18-month period between the Mercer surveys in 2001 and 2002 than employees covered by CAs (with the exception of the APS 2 classification). Consequently, as the last two columns of the table indicate, the gap between the levels of base salary for those on AWAs and CAs has also increased over the 18-month period (again with the exception of the APS 2 classification).

Table 6.2 also illustrates the variability of actual outcomes between classifications even within the CA or the AWA stream—reflecting in part the variability in increases between classifications and different individuals within individual agencies’ CAs and AWAs. This can arise as part of a deliberate strategy in remuneration policy (e.g. to pay graduates from a certain discipline in short supply more on commencement) or because individuals move through salary ranges at different paces (as part of a performance management system) or because the proportion of employees at the top of salary ranges (and therefore generally ineligible for additional increases via movement through the salary range) varies between classifications.

Table 6.2: Median base salary comparison—CAs and AWAs

APS	Certified Agreement			AWA			Percentage difference between base salary in AWAs and CAs
Class	2001 $	2002 $	% increase	2001 $	2002 $	% increase	June 2001	Dec 2002
Grad	33150	34824	5.0	33000	41667	26.3	-0.5	19.7
APS 1	28500	29203	2.5	-	-	-
APS 2	32540	34536	6.1	34000	35841	5.4	4.5	3.8
APS 3	36360	37675	3.6	36700	40827	11.2	0.9	8.4
APS 4	40600	42241	4.0	41900	44262	5.6	3.2	4.8
APS 5	44870	46527	3.7	45000	49074	9.1	0.3	5.5
APS 6	51650	53581	3.7	53020	56790	7.1	2.7	6.0
EL 1	63760	68096	6.8	65100	69984	7.5	2.1	2.8
EL 2	78800	82839	5.1	80040	85691	7.1	1.6	3.4

Note: A median AWA figure was not available for APS 1 in 2001, therefore no comparison has been made.

Source: Mercer Human Resource Consulting ‘APS Non-SES Remuneration Survey’ for DEWR, June 2003, Table 9, p.12.

Comparable base salary movements for SES (who are virtually all covered by AWAs) are not available, as the gap between Mercer surveys for SES remuneration was only 12 months. However, the increase in median base salary over this shorter period was between 4.2% and 4.3% for SES Bands 1, 2 and 3.

Results from the employee survey and the remuneration surveys conducted for DEWR indicated that employees covered by AWAs were more likely to have part of their pay linked to performance than those on CAs (e.g. 79% compared with 52% for ELs). SES employees (89%) were most likely to be eligible to receive performance-related pay. The type of performance-related pay varied significantly between those on AWAs and CAs. Non-SES employees on AWAs were more likely to be eligible to receive one-off bonuses in addition to base salary, while those employees on CAs were more likely to be eligible for advancement in base pay through a salary range.

The more widespread access to performance bonuses for those employees on AWAs serves to increase the median remuneration gap between those on CAs and AWAs. This is not just because more employees on AWAs are eligible to receive performance bonuses compared with those on CAs but also because a higher proportion of those on AWAs actually receive a bonus. The Mercer non-SES Remuneration Survey for 2002 found that of the employees eligible for a performance bonus, 45% of those employed under a CA and 78% of those employed under an AWA actually received a performance bonus.

Moreover, those on AWAs receive, on average, higher bonuses. The size of the performance bonuses received by those on AWAs ranged from 30% higher than those received by those on CAs at the EL 2 level to more than three times higher at the APS 3 and 4 levels.⁸

Generally, the possible range of performance bonuses varies significantly between agencies from a high of 25% of base salary to 1% in 2003. On average, the size of performance bonuses increases with classification level from 1.6% of base salary at the graduate level, around 3% at the APS 3–6 level, 5.1% at the EL 2 level and 7.4% at the SES 3 level in 2002.⁹

Remuneration differences based on skill and performance factors are to be expected given that many agencies make some strategic use of AWAs to attract and retain key staff. Moreover, higher bonuses in AWAs may reflect the preference of employees on CAs for less weight to be given to performance pay. In this context the differential outcomes for non-SES employees on CAs and AWAs are not necessarily of concern. The flexibilities available to agencies, however, reinforce the desirability of clear remuneration policies that set out criteria for determining remuneration for employees covered by both CAs and AWAs. For example, where within an agency significant proportions of staff at a particular classification level are employed both under CAs and AWAs it is desirable that there be clear criteria for the basis of any differentials in remuneration. These criteria could include skill/knowledge differentials, the inclusion of job specific targets in AWAs, higher levels of ‘at risk’ pay in AWAs and/or streamlined conditions in AWAs.

Such criteria, outlined in remuneration policies and understood by staff, are important from an accountability perspective as well as for building employee confidence in, and support for, more flexible and individually based approaches to remuneration. From this perspective, it is of some concern to note that only 26% of agencies report having an explicit remuneration policy that is separate from their CA though 14% of agencies report that they are developing such a policy.¹⁰ Where an agency has low usage of AWAs the need for a separate remuneration policy other than that contained in their CA is of course less pressing, although it is interesting to note that, for large agencies, there is no discernable correlation between having a separate remuneration policy and the proportion of staff being employed under AWAs.

Overlapping salary ranges

Previous State of the Service reports have noted the increasing overlap between salary ranges for classifications across the APS. Figures 6.3 and 6.4 present data from the Mercer surveys on remuneration conducted for DEWR on the extent of the overlaps in 2002. Figure 6.3 indicates that for APS classifications there is considerable overlap between classifications, although the 50% of employees paid around the median (i.e. the second and third quartiles) do not overlap between classifications, with the exception of APS 2 and 3. Both figures indicate that the size of the salary range (i.e. the dispersion around the median) generally tends to increase with classification.

The width of the salary band for a particular classification is likely to relate to a range of factors including the variability in agencies’ capacity to pay, the market for the range of skills needed to achieve an agencies’ business outcomes, where agencies are up to in the agreement cycle for both CAs and AWAs, and agencies’ remuneration policies (i.e. where in the market agencies want to position themselves). In this context, it is not surprising that the salary range is greater for higher-level classifications, given the relatively greater scarcity of the skills required at these levels.

Last year’s report concluded that, while there is nothing of itself wrong with overlapping salary ranges, care is needed to ensure remuneration strategies remain robust. This means linking remuneration firmly to skills and performance, and avoiding strategies that undermine the merit principle. Given the Public Service Commissioner’s important quality assurance role for SES selection and promotion, the following analysis focuses particularly on salary overlaps for the EL 2 and SES classifications.

Table 6.3 indicates that generally salary overlaps at the APS-wide level between these classifications have continued to increase, with the exception of a narrowing of the overlap between the highest SES Band 1 and the lowest SES Band 2 in 2002. It also appears that there may be a narrowing of the gap between the highest EL 2 and lowest SES Band 1 in 2003 (although, given the different data sources, this result should be treated cautiously).

Table 6.3: APS-wide salary overlaps

	Mercer/DEWR surveys (a)		SOSR agency survey (b)
	2001 ($)	2002 ($)	2003 ($)
Highest EL 2	110 000	125 000	121 340
Lowest SES 1	85 000	85 000	86 660
overlap	25 000	40 000	34 680
Highest SES 1	140 000	138 000	152 170
Lowest SES 2	100 000	115 000	114 000
overlap	40 000	23 000	38 170
Highest SES 2	140 000	153 000	165 000
Lowest SES 3	140 000	135 000	134 216
overlap	0	18 000	30 784

(a) Major outliers have been excluded. Salary ranges have been ‘read’ from graphs and charts (therefore only approximate). 2001 survey results from 61 agencies for SES and 60 agencies for EL 2s. 2002 survey results from 51 agencies for SES and 55 agencies for EL 2s.

(b) Major outliers have been excluded. 89 agencies participated in the agency survey.

Source: Mercer Human Resource Consulting (June 2003) ‘APS SES Remuneration Survey’ and ‘APS Non-SES Remuneration Survey’ conducted for DEWR, Human Resource Consulting (2002) ‘APS SES Remuneration Survey 2001’ conducted for DEWR, DEWRSB (October 2001) ‘APS non-SES Remuneration Survey’ and State of the Service report agency survey 2003.

The results from this year’s State of the Service agency survey allow, for the first time, an analysis of salary overlaps between these classifications within agencies. Data provided by twenty-one agencies indicated that their highest-paid EL 2s got paid a higher base salary than their lowest-paid SES Band 1s (eight large agencies, eight medium agencies and five small agencies). For the 18 agencies that provided usable data the size of the overlaps in base salary varied from $1715 to $44,000.

For most of the 18 agencies, the fact that nearly all SES Band 1s have access to a privately plated vehicle removes the gap entirely or reduces it significantly. However, five of the agencies concerned also give their highest-paid EL 2s access to such a vehicle. Overall, after taking into account access to privately plated vehicles, seven agencies (two large and five medium) continued to have overlaps between the highest paid EL 2s and SES Band 1s ranging from $2699 to $40,000. An important point to note, however, is that in all of these seven agencies it is reported that only one individual EL 2 receives the highest base salary and vehicle package; thus only very small numbers of employees are affected.

The types of EL 2 employees receiving rates of base salary greater than the lowest-paid SES Band 1 were employees with rare and valued skills/knowledge (67% of agencies that provided information on the types of high-paying EL 2 jobs), employees with specialist skills such as research scientists or medical officers (61%) or technical specialists such as ICT officers (44%), employees performing jobs that have a high workload and are distinguishable from other EL 2s (e.g. those responsible for smaller regional branches) (33%) and high-performing employees (28%).

Overlapping salary ranges within agencies amongst the SES classifications were less common and of smaller amounts. No agencies reported overlaps between SES Band 2s and 3s in base salary while 10 agencies reported an overlap between the highest-paid SES 1 and lowest-paid SES 2. Four of these 10 agencies were also members of the group of 18 agencies that had overlaps between EL 2s and SES 1s. Overlaps ranged from $924 to $17,100.

In summary, while overlapping salary bands for EL 2 and SES classifications generally appear to be increasing at the APS-wide level, overlaps within individual agencies are confined to a relatively small number of agencies and affect only very small numbers of employees with particular skills or particular jobs. This new information moderates to a large extent any concerns about the possible undermining of the merit principle within agencies and the APS Commissioner’s quality assurance role for SES selection and promotion.

It is important, nonetheless, that all agencies, particularly the 21 agencies with overlaps, (and the seven agencies which continue to have overlaps after consideration is taken of privately plated vehicles), ensure that they have robust remuneration policies that make clear the links between skills and performance. In this regard, only ten of the 21 agencies report having an explicit remuneration policy separate from their CA while one agency reported that such a policy was being developed. Four out of the seven agencies where continuing overlaps after vehicles are taken into account could be identified, have such policies, with the same one agency developing a policy.

There are also some notes of caution about the growing salary overlaps at the APS-wide level. To the extent that such overlaps are being driven by demand for widely used specialist skills in the APS (e.g. legal, financial and ICT) agencies may avoid bidding wars for the often limited supply of such skills by more active workforce planning, including by placing more emphasis on developing, over the medium term, such skills/experience internally. There is also the possibility of broader bidding wars for talent, unnessarily increasing pay levels particularly at more senior levels.

Growing salary overlaps may be having some impact on declining interagency mobility rates within the APS. Trends in mobility are discussed in the following section.

 

6 Mercer Human Resource Consulting (June 2003) ‘APS Non-SES Remuneration Survey’ and ‘APS SES Remuneration Survey’ conducted for DEWR indicated that for eight out of 12 classification levels large agencies (greater than 5000 employees) offered the lowest or second lowest level of base salary compared to medium and small agencies (size being determined by the number of employees with five categories: less than 100; 100 to 500; 500 to 1000; 1000 to 5000; greater than 5000).

7 Mercer Human Resource Consulting (June 2003) ‘APS SES Remuneration Survey’ and ‘APS Non-SES Remuneration Survey’ conducted for DEWR.

8 Mercer Human Resource Consulting ‘APS Non-SES Remuneration Survey’ conducted for DEWR, June 2003, Table 14, p.15.

9 Mercer Human Resource Consulting ‘APS SES Remuneration Survey’, June 2003, Table 14 p.18 and ‘APS Non-SES Remuneration Survey’, June 2003, Table 19, p.17.

10 This result from the agency survey is somewhat inconsistent with the results of the APS SES and non–SES remuneration surveys conducted for DEWR by Mercer Human Resource Consulting. 72% of the 55 agencies surveyed for non-SES remuneration reported having a formal non-SES remuneration strategy. This could include those contained in CAs and is thus reconcilable with the results from the State of the Service agency survey. However, in the Mercer SES remuneration survey 72% of the 51 agencies surveyed reported have a formal executive remuneration strategy. Given that the SES would not be covered by the CA this result is difficult to reconcile with the results of the State of the Service agency survey in which only 26% of the 89 agencies reported having an explicit remuneration policy separate from their CA.