print this page
© Copyright Commonwealth of Australia - Australian Public Service Commission
Home page
> State of the Service reports
> State of the Service Report 2005-06 > Organisational capability > Remuneration > Next: Record keeping
‹ Previous page
Last updated: 30 November 2006
Chapter 8: Organisational capability
Abbreviations
A list of the abbreviations used in this report is available in the Glossary
Remuneration
Remuneration should be seen as an essential element of agencies’ strategic approach to workforce planning and human resource management. As noted above, many agencies are already using a combination of salary, bonuses and enhanced employment conditions to attract and retain people with critical skills.
For most APS agencies the overarching legislative framework against which agency heads manage an organisation’s business, including agency remuneration, consists of the Financial Management and Accountability Act 1997 (FMA Act), the Workplace Relations Act 1996 (WR Act) and the Public Service Act 1999 (the Act).5 Within the established accountability framework, agency heads are required to ensure that agency annual reports contain details of their agency’s remuneration arrangements including coverage information on collective agreements6 and AWAs, salary ranges by classification and a description of any non-salary benefits. An annual report must also provide information on the number of employees receiving performance pay by classification, aggregate amount by classification and for the whole agency, the average bonus payment and the range of such payments by classification.
Since the last State of the Service report the Workplace Relations Act 1996 (WR Act) was substantially amended by the Workplace Relations Amendment (WorkChoices) Act 2005, which introduced changes to the workplace relations framework including agreement making provisions.7 In response to these changes, DEWR, which has an advising and oversighting role for the implementation of Government policy for agreement making in the APS, recently revised the Workplace Relations Policy Parameters for Agreement Making in the Australian Public Service (April 2006).8 These parameters ensure that agreements:
- are consistent with the Government’s workplace relations policy, including that AWAs are available to all staff
- link improvements in pay and conditions to improvements in organisational productivity and performance
- provide improvements in pay and conditions that can be funded from within agency budgets
- include compulsory redeployment, reduction and retrenchment provisions, with any changes not to enhance existing redundancy arrangements
- facilitate mobility across the APS
- have leave and employment practices that support the release of Defence Reservists for peacetime training and deployment.
The policy parameters operate in conjunction with resourcing arrangements overseen by Finance which also affect the way in which agencies address labour market pressures. Other factors affecting agency remuneration strategies include legislated obligations in relation to public accountability, organisationalperformance and outcomes considerations, and managing individual behaviours such as supporting the APS Code of Conduct, the APS Values and agencies’ performance management schemes.
This section examines key trends in APS agencies’ remuneration in 2005–06. It covers agreement coverage, salary and performance pay issues. It also makes some comments on current funding arrangements andpotential difficulties facing the APS in an increasingly tight labour market environment.
Agreement coverage in APS
Agreement making in the APS has progressed since the early 1990s and the data suggests that a mature bargaining relationship between employers, employees and unions has become well established. Data provided by DEWR indicates that at 30 June 2006 there were 100 collective agreements operating in the APS. Seventeen of these were third-round agreements and 49 were fourth-round agreements with 16 agencies having negotiated a fifth-round agreement and 2 agencies being in their sixth round (the remaining sixteen agreements were first or second-round agreements). Forty agreements were made during the year to 30 June 2006 (compared with 34 agreements made in the previous 12 months). The 100 operating agreements cover around 95% of ongoing APS 1–6 employees and just under 80% of ongoing EL employees. It has been Government policy for some time that all SES employees are to be employed on AWAs.
Over two-thirds of operating agreements have been made with one or more trade unions (under either old section 170LJ or new section 328 of the WR Act), while over 30% have been made directly with employees (under either old section 170LK or new section 327 of the WR Act). These proportions have been much the same over the past four years and almost all agreements totally replace the award.
As shown in Table 8.2, the average annualised wage increase (AAWI) for all APS collective agreements entered into during the 12 months to 30 June 2006 was 4.2% (the same as for 2004–05 and 2003–04). 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 2006 (compared to 4.0% for the previous12 months). The spread of NED to NED AAWI in APS collective agreements in the 12 months to 30 June 2006 ranged from 3.1% to 5.0% (last year the comparable data was 2.7% to 4.7%).
| APS AAWI (a) (%) | APS NED to NED AAWI (b) (%) | Private sector AAWI (c) (%) | Comparable sectors’ AAWI (d) (%) | ABS wage cost index (e) (%) | |
|---|---|---|---|---|---|
| 1997–98 | 2.6 (f) | Na | 4.0 | 4.1 | Na |
| 1998–99 | 2.6 (f) | Na | 3.9 | 4.1 | 3.2 |
| 1999–00 | 3.3 | 3.0 | 3.5 | 3.6 | 2.9 |
| 2000–01 | 4.8 | 3.5 | 3.9 | 3.9 | 3.4 |
| 2001–02 | 4.1 | 3.9 | 3.6 | 4.0 | 3.3 |
| 2002–03 | 4.9 | 3.9 | 3.8 | 4.1 | 3.4 |
| 2003–04 | 4.2 | 4.0 | 3.9 | 4.3 | 3.6 |
| 2004–05 | 4.2 | 4.0 | 3.8 | 4.4 | 3.8 |
| 2005–06 | 4.2 | 3.9 | 4.1 | 4.4 | 4.1 |
Notes: (a) Average annual wage increases in APS collective agreements entered into during the 12 months to 30 June. Collected by DEWR. (b) The NED to NED AAWI measures the average annual pay increase from the nominal expiry date (NED) of the previous agreement to the NED of the current agreement. The NED to NED AAWI allows for particular comparisons of annual wage increases across APS agency agreements and should only be used in this context. (c) Average annual wage increase in current private sector collective agreements. Note that some figures in this column have been revised since last year’s report. (d) Average annual wage increase in industry sectors with more than half their employees having post-school qualifications. ABS data shows that there were six industry sectors with more than 50% of their employees with post-school qualifications—Electricity, Gas and Water (65%), Construction (55%), Property and Business Services (56%), Government Administration and Defence (54%), Education (77%), and Health and Community Services (61%). This data is sourced from the ABS 2001, Census of Population and Housing. The data on AAWI by industry sector was collected by DEWR. (e) ABS Cat. No. 6345.0 Labour Price Indexes, Australia. Average annual index—ordinary time hourly rates of pay excluding bonuses. It is a broad measure of wage growth in both the federal and state jurisdictions covering all employees. (f) These numbers are estimates based on a DEWR publication Pay Increases in APS Agencies—April 2001 Report which calculated that the AAWI since 1996 to the end of 2000 was 2.6% per annum. |
|||||
As shown in Table 8.2, salary increases contained in APS collective agreements (4.2%) were slightly higher than the private sector AAWI at 30 June 2006, which was 4.1%. On an AAWI basis, the average APS wage increases in collective agreements has been above the average for the whole of the private sector over the past six years. However, this wage increase difference has narrowed over the past three years and was only 0.1 percentage point at 30 June 2006.
A more accurate method of comparing APS wage increases to that of the private sector limits the comparison to those industry sectors where employees have tertiary qualifications similar to the APS.9 As shown in Table 8.2, the AAWI in collective agreements current at end-June 2006 for industry sectors with more than half of their employees having tertiary qualifications remained stable at 4.4% compared to the APS figure of 4.2%. This is the third consecutive year that the APS AAWI has been below that for private sector industries with comparable levels of educational qualifications. Results from the 2005 Mercer APS remuneration survey comparing the APS to the private sector are discussed below.
With regard to AWAs in the APS, coverage continued to grow over the past year. Data collected by DEWR from agencies indicates that the number of operative AWAs in the APS over the 12 months to 30 June 2006 increased to around 10% of all APS employees—14,800 AWAs compared to 11,823 AWAs last year. This figure comprises 2167 covering the SES (1937 last year), 7141 covering EL staff (5966 last year) and 5492 covering APS 1–6 employees (3837 last year).
The growth in AWA coverage of APS 1–6 employees continued to be very strong—up 43% from last year. This classification group, however, still has the lowest coverage level (around 5% of all APS 1–6 employees) compared with around 22% for EL staff .
Salary and performance pay
Data on salary increases, salary levels and performance pay by classification for those on AWAs and collective agreements is available from the results of an agency survey of SES and non-SES remuneration commissioned by DEWR and conducted by Mercer Human Resource Consulting (the APS remuneration survey) each December.10
As participation in the APS remuneration survey is voluntary, there are limitations concerning the generalisability of the data collected from the 55 participating agencies (in 2005) to the whole APS. In particular, self-selection into the survey has resulted in a higher proportion of larger APS agencies, than medium and small agencies, participating in the survey. Additionally, the APS Remuneration survey adopts a four-band size scale as opposed to the three-band size scale used elsewhere in this report. Caution is therefore recommended when comparing Mercer collected data to other data in this report where agency size is included in the analysis. Nevertheless, the APS remuneration survey offers a unique perspective on wage movements in the APS and has proven to be a reliable guide to remuneration trends in the APS.
Salary increases in 2005
APS remuneration survey data generally supports the finding that salary increases are consistent with those in the comparable private sector industries but that actual salary levels are generally lower than those in the comparable private sector. The 2005 APS remuneration survey reported that the median base salary11 increases across all non-SES classifications (3.7%) was equal to the private sector base salary increases at quartile one.12 EL 2 employees recorded the highest median movement (4.3%) while Graduates recorded the lowest (2.5%). The median base salary in the private sector, in contrast, was higher across all non-SES classifications, with the exception of APS 1 and APS 2, but the competitive position of the APS compared to the private sector remained stable between 2004 and 2005.
For SES employees, the APS remuneration survey data indicates that their relative remuneration position compared to private sector equivalents remained virtually unchanged. The 2005 APS remuneration survey found an overall SES median base salary increase of 4.3% (3.5% last year) with increases across classifications being 4.7% for SES Band 1, 4.0% for SES Band 2 and 4.2% for SES Band 3. The remuneration gap between the SES and their private sector equivalents identified in last year’s report continued but remained relatively stable.13
The 2005 APS remuneration survey data show no consistent trends when wage increases or actual remuneration is analysed by agency size. There were also no consistent trends in the pay rises provided to employees covered by collective agreements and AWAs.
The use of AWAs/collective agreements for non-SES employees
Consistent with the results from last year’s State of the Service agency survey, nearly all agencies (94%) reported having some non-SES employees covered by an AWA. For most of these agencies (95%), this meant employing non-SES employees at the same classification level on a mix of AWAs and the agency’s collective agreement (i.e. some employees at the same level are on AWAs while others are covered by the collective agreement). Ninety-two percent of these agencies reported that this occurred for EL 2 employees, 87% of these agencies for EL 1 employees and 81% of these agencies for APS 1–6 employees.
There has been little change in the most common reasons for having employees at the same classification level on a mix of AWA and collective agreement coverage. Of the changes that did occur, more agencies reported adopting this mixed coverage approach to implement a performance pay system, to provide flexible work practices and to maintain an employee’s pay and conditions upon moving from another agency. These increases applied across APS 1–6, EL 1 and EL 2 classifications. More agencies also reported additional duties/responsibilities of EL 2 employees on AWAs/individual agreements, relative to other positions at the same classification level, as a reason for having mixed coverage.
Overlapping salary ranges
There appears to be some increase in the extent of overlapping salary ranges between classifications this year. Consistent with the findings of the previous two APS remuneration surveys, the approximately 50% of employees paid around the median (i.e. in the second and third quartiles) do not overlap between any of the non-SES classifications. However, across all these classifications, some employees in a particular classification can earn more than the median base salary for the classification above. For example, some APS 2 employees are paid more than the median base salary for an APS 3 and this pattern applies through all classifications to EL 2. The 2005 salary overlap pattern is similar to that provided in the 2004 APS remuneration survey.
These findings are consistent with the devolved agreement making arrangements where each agency can, subject to budgetary constraints, tailor their recruitment and remuneration policies to reflect the requirements of their agency. Base salary overlaps across all non-SES classifications are also consistent with the earlier finding that agencies are using AWAs to maintain an employee’s pay and conditions upon moving from another agency. Where this is being driven by demand for widely-used specialist skills, there could be some potential for agencies to create a bidding war that unnecessarily increases pay levels. One way of avoiding the worst aspects of bidding wars for scarce skills and knowledge is through effective workforce planning strategies which place greater emphasis on developing specialist skills and experience internally.
Evaluation of APS Agencies’ Remuneration Policies This evaluation, conducted in 2005, examined agencies’ written remuneration policies as they relate to AWAs for non-SES employees, and assessed the efficacy of the interaction of these policies with other strategic corporate policy associated with workforce planning.
In the APS, tailored remuneration arrangements are predominately managed through AWAs and are generally linked to a performance bonus scheme that identifies agency outcomes, and individual contributions to those outcomes. An effective performance pay scheme can deliver several key outcomes including flexibility in remuneration levels and improved employee attitudes, behaviours and commitment.
Employee acceptance of remuneration arrangements is crucial for an individualised pay system to meet management objectives. This turns on perceptions of fairness, direct application to the individual and consistent application across an agency. The evaluation found that transparency in these processes is paramount in gaining employee acceptance, and that a written remuneration policy was critical to gaining this support. However, the 2006 agency survey found only 37% of APS agencies had written remuneration policies in place (23% of small, 38% of medium, and 57% of large agencies) for non-SES employees on AWAs.
An examination of agency-written remuneration policies showed that:
- larger agencies were more likely to offer lower level staff AWAs
- the collective agreement salary established the minimum base salary of commencement of an AWA
- regardless of agreement type, there was a direct relationship between ratings from performance assessment and reward
- remuneration policies dealt primarily with pecuniary issues of base salary and/or performance related pay arrangements with no reference to an employee’s scope to vary conditions of employment.
A benefit of longer term strategic planning identified by the evaluation was that it increased an agency’s capacity to meet skills requirements through planned skills development linked (where appropriate) to planned succession management. The more long term an agency’s strategic planning, the greater the scope to address skills requirements through less reactive approaches than the simple offer of a higher salary or bonus.
A likely inhibitor on the development of agency remuneration policies identified in the evaluation was that for many agencies, longer term, strategic corporate objectives remain unclear. As a consequence remuneration policies in these agencies tended to be reactive and process oriented, or undocumented altogether.
Performance bonuses
Performance bonuses are an important element in managing workplace performance in the APS and can add considerably to remuneration for those employees who receive them. The 2005 APS remuneration survey data shows that although 36% of non-SES APS employees are eligible for bonuses, employees covered by AWAs were considerably more likely to be eligible than their collective agreement-covered colleagues.
The 2005 APS remuneration survey found that non-SES bonuses are overwhelmingly focussed on performance. Receiving performance bonus payments is commonly associated with employees meeting high performance objectives. However, the APS remuneration survey found that, in some cases, they are also used to provide a performance incentive to those employees already at the top salary point in their classification.
A substantial minority of non-SES employees are eligible for performance bonuses. The 2005 APS remuneration survey reported that 36% of non-SES APS employees are eligible (27% last year) with APS 1–6 classifications averaging 20% eligibility. More than half of EL employees are eligible (52%). The average actual bonuses paid to staff generally increased with classification ranging from 1.7% of base salary for an APS 1 to 4.9% of base salary for EL 2s. As with the 2004 results, the 2005 APS remuneration survey found average bonuses for AWA-covered employees were considerably higher than the average bonuses paid to collective agreement-covered employees. Moreover, the difference at the top end of the non-SES classifications was larger when compared to last year, primarily due to a higher proportion of eligible collective agreement employees not being paid a bonus.
Almost all SES employees are eligible for a bonus. The 2005 APS remuneration survey reported that 87% of SES were eligible (compared to 85% last year) and, of those, 84% actually received a bonus payment (85% in 2004).The percentage increase in bonus payments from 2004 to 2005 for SES Band 1 was 2.9%, for SES Band 2, 1.7% and for SES Band 3, 6.8%.
The 2005 APS remuneration survey also found that an increasing number of SES AWAs contain provisions that provide for salary increases to be taken in the form of a bonus payment—from 5% of SES Band 1 AWAs in 2004 to 19% in 2005, from 12% of SES Band 2 AWAs in 2004 to 24% in 2005 and 10% of SES Band 3 AWAs in 2004 to 29% in 2005. This could suggest that, at the SES levels, employees are becoming more confident in the processes and outcomes associated with performance pay. See Chapter 7 for a discussion on overall employee views on performance bonuses.
Funding arrangements
The last two State of the Service reports touched on the matter of pay increases in the APS and their funding. Those reports suggested that the policy parameter that requires the ongoing funding of remuneration increases for collective agreements and AWAs largely from productivity improvements within agency budgets had not, at least at the average level, appeared to have prevented APS employees from achieving salary increases in excess of the average of the private sector. This trend continued during2005–06, with the gap between APS and the private sector average wage increases continuing to close over the past four years.
The comparison with the average increase for the total private sector is somewhat misleading in that the APS workforce is, on average, a more highly qualified workforce than the general Australian labour force. The results of the 2006 State of the Service employee survey indicated that 67% of APS employees(66% last year) had a tertiary qualification (including all post-secondary school qualifications)14; comparative data for the broader Australian labour force is 47% with tertiary qualifications according to the 2001 ABS Census of Population and Housing. When wage increases in the APS are compared to industry sectors with a similar educational qualification profile, APS collective agreements have recorded lower wage increases over the past three years, and the level of wage rates continues to be behind comparable sectors at a range of classifications. This limited evidence tends to suggest that there is little if any ‘bidding up’ of pay amongst APS agencies beyond what the broader labour market demands, at least for employees covered by collective agreements.
In an increasingly tight labour market wage pressures appear set to continue and, while the flexible wage-setting mechanisms in the APS have allowed agencies to successfully compete in the current labour market climate, our continued success into the future is not guaranteed. The generational change creating labour market supply shortages causes particular problems for the APS given our skill requirements, the concentration of the APS workforce in Canberra, the generally lower APS remuneration compared to private sector equivalents and the nature of our funding arrangements.
To help address the challenges thrown up by tight labour market conditions, agencies need to draw on the many positive features of working in the APS, including the nature of its work in strategic policy development and service delivery to the public, its unique development opportunities and its values- framework, to position the APS as an ‘employer of choice’. Agencies need to demonstrate a 21st century approach to work-life balance—an approach that caters for more mobile career patterns among younger workers, flexible work options for older workers that encourage continued participation in the workforce, and working arrangements that allow all employees to balance their work and non-work lives. Chapter 5 indicated that this is already an area of relative strength for the APS. Additionally, new technologies and more efficient work practices are likely to enable a more sophisticated APS workforce to continue to increase its productivity and to lead to a reduction in workforce numbers in some areas.
Regardless of how successful the APS is in recruiting and developing quality staff, however, individual agencies will need to confront the budgetary pressures created by these workforce challenges, including higher remuneration and increased investment in both technology and staff training and development.
The State of the Service Report 2004–05 discussed the current funding arrangements and the substantial overall productivity gains required to be made by APS agencies. The report made the reasonable assumption that, in a tightening labour market, agencies and, in particular, small agencies may experience difficulties in matching the market rates for the skills they require under the current funding arrangements. At face value, the 2005 APS remuneration survey suggests that small agencies are competing effectively. However, having a ‘small agency’ size band that includes agencies with up to 499 employees may serve to mask problems being experienced by smaller agencies.
Although some agencies may achieve the required efficiencies through genuine efficiency gains or sensible re-prioritising, others may have no choice but to fund pay increases by cutting worthwhile activities and/or reducing numbers of employees. This in turn could lead to a reduced capacity to absorb new initiatives and to deliver on core responsibilities.
To meet increasing wage and condition pressures without cutting activities and/or employees, new approaches to meeting these budgetary challenges may need to be considered. The current arrangements are likely to hinder APS agencies, particularly small agencies, competing for high quality staff in an ever-tightening labour market. Consideration of a ‘safety valve’ for agencies in stress may be warranted.
- A number of APS agencies continue to be covered by the Commonwealth Authorities and Companies Act 1997.
- In this report the term ‘collective agreement’ refers to either collective agreements made under the new sections 327 or 328 of the Workplace Relations Act 1996 (WR Act), as introduced in the WorkChoices amendments, or to Certified Agreements (CAs) made under previous sections 170 LK or 170 LJ of the WR Act.
- For a discussion of these changes see Bills Digest at <http://www.aph.gov.au/library/pubs/bd/2005-06/06bd066.pdf; 2 December 2005, no.66, 2005–06>.
- DEWR, <http://www.workplace.gov.au/workplace/Organisation/Government/Federal/AgreementMaking/APS-WorkplaceRelationsPolicyParametersforAgreementMakingintheAustralianPublicServiceApril2006.htm>
- For comparability purposes the ABS definition of tertiary education is adopted, that is formal education beyond secondary education, including higher education, vocational education and training, or other specialist post-secondary education or training. The qualification categories contained in the employee survey question included under this definition of tertiary education are: vocational qualification; associate diploma; undergraduate diploma; bachelor degree; postgraduate diploma; masters; and doctorate. It should be noted that other differences between sectors may also drive remuneration results.
- Mercer Human Resource Consulting, APS Remuneration survey, commissioned by DEWR, in 2001, 2002, 2003, 2004 and 2005. Since 2002 the Mercer surveys present a snapshot of data as at 31 December each year. In previous reports this survey was referred to as the APS remuneration survey. For additional information see: <http://www.workplace.gov.au/workplace/Organisation/Government/Federal/Reports/2005APSRemunerationSurvey.htm>
- The 2005 APS remuneration survey uses three salary classifications in its analysis. Base Salary represents full time equivalent annualised PAYG salary. It includes post-tax employee superannuation contributions and any additional post-tax sacrifice amount. It excludes all other cash components including bonuses and allowances. Total Remuneration Package (TRP) represents the total of: Base salary; superannuation (including employer productivity superannuation contribution amounts); annual remuneration value of motor vehicles (including parking and FBT); and other fixed benefit items. Total Reward (TR) represents TRP plus bonus payments.
- The Average Annual Wage Increase (AAWI) in Collective agreements from comparable industry sectors remains slightly higher (at 4.4%) than the non-SES TRP median reported by Mercer in the 2005 APS remuneration survey.
- Methodological changes made to the 2004 APS remuneration survey inflated the percentage increases.
- For comparability purposes the ABS definition of tertiary education is adopted, that is formal education beyond secondary education, including higher education, vocational education and training, or other specialist post-secondary education or training. The qualification categories contained in the employee survey question included under this definition of tertiary education are: vocational qualification; associate diploma; undergraduate diploma; bachelor degree; postgraduate diploma; masters; and doctorate.
