ARCHIVED - Expenditure Review of Federal Public Sector - Overview

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Possible legislative changes–Collective bargaining

There will no doubt always be controversy about the relationship between collective bargaining and compensation outcomes. Actual experience in the federal public service since 1967 has on balance been positive, despite many bumps along the road, most notably the suspension of the process for a total of at least 11 years. Looking to the future, however, we may reasonably ask whether similar results could not be achieved with a system better adapted to serving the public without interruption, while assuring public servants of fair treatment.

It has been argued that the federal employer enjoys the upper hand in negotiations because as the Government, it can resort to legislation to impose an outcome it was unable to negotiate at the bargaining table. There is some truth to this, and one can easily point to examples. However, in normal times it is not so easy for the Government to gain parliamentary endorsement for such legislation.

On the other hand, public service employees deliver many services that are critical to the public, and often it is tempting simply to buy peace at the bargaining table. Neither situation is really in the public interest. Public sector employees should not find their compensation determined unilaterally. But neither should the public pay premiums to groups of employees whose bargaining strength arises from their position as public servants supplying services no one else is authorized to provide.

In principle, the idea at the root of classic collective bargaining involving the right to strike is one of an economic trial by combat. Such an approach may suit the private sector, where excessive compensation outcomes can threaten the size or even the survival of a private company. But in the public sector no such sanctions apply. Over time, however, if public service compensation is judged excessive, or if economic conditions lead governments to set an example of restraint in their own backyard, general and arbitrary restrictions on negotiations may be applied.

Nearly 40 years after collective bargaining involving the right to strike was introduced into the federal public service, it is legitimate to ask whether there is a better model. Since unilateral determination of compensation by the employer would never be accepted as fair, the obvious alternative is some form of determination of the issues in dispute by an independent third party.

However, experience shows that replacing the right to strike with compulsory arbitration fundamentally alters the process of wage determination in the public sector. In practice, it appears that arbitration results in a decline in the proportion of contracts settled through direct bargaining; that there is likely an upward bias in arbitration outcomes; that there is significant variance in the weight that arbitrators attach to different criteria; and that arbitrators are disinclined to accept direction, for example, to consider total compensation in their decisions.

We have no panacea to offer. Broadly, however, we suggest that it would make sense either to embrace the power struggle approach more fully, or to renew intensively the search for new models that would permit the responsible use of third parties to assist in resolving disputes. Our present approach has proven unstable over time.

Search for an alternative to strikes and traditional arbitration

With the intimate knowledge of government operations possessed by union members, it is not difficult for them to plan strike activities that inflict maximum disruption with minimum pain to the union and its members. On the side of becoming tougher as an adversary, therefore, federal employers at a minimum should dock employees' wages rigorously when they engage in strike activity such as rotating work stoppages. The pay system should be adjusted so that employees see immediately on their next pay cheque the reduction resulting from strike action. Consideration could also be given to permitting departments to lock out employees who go out on a rotating strike.

While the tougher approach to strikes is a logical option, it is unlikely to improve either labour-management relations in the federal public service, or the appropriateness of compensation outcomes. The better course almost certainly lies in seeking variations on the use of third parties to resolve labour disputes that resist settlement through direct bargaining.

One such approach is that of the "Public Interest Dispute Resolution Commission" (PIDRC) proposed in 2001 by the Advisory Committee on Labour Management Relations in the Federal Public Service. In essence, the suggestion was that by employing a wide variety of established dispute-resolution techniques, the Commission would keep the parties in a sufficient state of uncertainty to encourage a voluntary resolution of disputes between the parties. The new Public Service Labour Relations Act adopts the term "Public Interest Commission," but little of the specifics or spirit of the Advisory Committee's recommendation found their way into the new Act.

We propose that the President of the Treasury Board should sponsor an active public debate about possible designs for viable third-party dispute resolution approaches. We would be seeking a credible and sustainable model that would permit us to abandon the strike and traditional arbitration options, while reassuring public servants that they will be treated fairly on compensation matters.

To encourage such a debate, we sketch elements of a possible model as follows:

• Reliable information on comparable compensation elsewhere in the Canadian labour market would need to be available.
• The Public Service Labour Relations Act would need to specify the compensation policy to be applied.
• Adjudicators mandated to resolve disputes would need to serve for a single fixed term so they could maintain appropriate independence.
• Adjudicators would be required to give a detailed written rationale for their decision.
• Decisions would be subject to appeal to a panel of experienced Appeal Adjudicators on the grounds of failing to apply the statutory criteria.

The criteria would be designed essentially to promote comparability of public service compensation with appropriate comparators in the Canadian private sector, while respecting the principle of equal pay for work of equal value.

The right to strike is viewed in most union circles as sacred, so we can expect the public service unions to be suspicious of an active search for alternatives. On the other hand, raising money for strike pay forces substantial union dues, and aside from militants, it appears that federal public servants are uncomfortable with leaving their work serving the public. So if a credible alternative to strikes could be developed it might be attractive to all concerned. It would be timely to propose such an alternative, if it can be developed, at the time of the statutory review of the Public Service Labour Relations Act, scheduled for 2010.

Possible legislative changes–Applying pay equity in the federal public service

"Pay equity" is the shorthand term normally used to express the principle of equal pay for work of equal value. This principle, first embraced in international law in 1951 through the International Labour Organization's Convention 100, was incorporated into Canadian federal law in 1977 through the passage of the Canadian Human Rights Act. Section 11 of that Act states that it is discriminatory to establish or maintain different wages for men and women doing work of equal value in the same establishment. This applies to the federally regulated private sector as well as the federal public sector, in this case including federal business enterprises and other Crown corporations.

Statistics Canada data on income by gender show that on average women do earn less than men in the Canadian labour market. According to the 2001 Census, women earners aged 15 and over made 64 cents for every dollar earned by their male counterparts. As we compare women and men with increasingly similar characteristics, however, this gap shrinks. Within the 10 most common occupations chosen by men, for example, university-educated women aged 25 to 29 earned 89 cents compared with each dollar earned by male workers.

As stated earlier, by March 2003, affected employees in the federal public service had received a cumulative total of about $5.2 billion relating to pay equity settlements, with an ongoing annual cost in the core public service of over $200 million. This was equivalent to between 2% and 2.5% of the relevant public service salary mass, broadly similar to the impact on public sector employers elsewhere in Canada, and much greater than for private employers.

While the concept of equal pay for work of equal value may appear simple, applying it raises difficult and complex philosophical and practical challenges. Among the most important issues are listed below.

How do we measure "value" in comparing different types of work?

The approach pursued over most of the 1980s and 1990s was a universal classification system. In 2002, this approach was discontinued as too inflexible for a workforce as diverse as that in the federal public service.

To what extent are wage differences between male-dominated and female-dominated groups the result of discrimination?

A 2002 Statistics Canada study concluded that over 60% of observable differences in male and female wages in Canada can be explained by factors other than discrimination.

How does pay equity relate to collective bargaining?

If collective bargaining and pay equity complaints operate as separate systems, with one ratcheting the other in pushing up salaries, employers could be expected to lose faith in collective bargaining as a credible wage determination approach.

What is the appropriate scope of comparison for determining equal value?

Pay equity advocates generally seek the most expansive possible definition of "establishment" in seeking pay equity comparators. However, the more diverse an establishment is, and the more varied its business lines and areas of operation, the less likely it is that the value to the employer of a particular set of skills would in fact be uniform throughout.

What is an appropriate group for undertaking comparisons?

There can be strong disagreements over which groups of employees to compare with which.

The 2004 Final Report of the Pay Equity Task Force commissioned by the federal Ministers of Justice and Labour has recommended various legislative amendments to the Canadian Human Rights Act, particularly relating to institutional and process issues, such as moving to a proactive responsibility on employers to implement pay equity with the guidance of a specialized Pay Equity Commission. However, the Task Force Report does not deal substantively with the fundamental issues enumerated above. Accordingly, in our view, it does not provide a sound basis for legislative reform.

Any legislative revisions should respect the following key premises. Pay equity should:

• aim to redress that portion of the male/female wage gap that is attributable to discrimination by the employer, and not to other factors.
• operate at a systemic level to detect and remedy patterns of differential pay for men and women performing work of equal value within an establishment.
• function within a collective bargaining wage determination system with multiple bargaining groups based on community of interest, and should disrupt that system as little as possible.
• recognize that Canada is a market economy in which salaries generally reflect the forces of supply and demand. Federal jurisdiction employers should not be expected to stray far from market norms in implementing pay equity.
• For large employers with diverse workforces, pay equity should permit appropriate partitioning of jobs into groupings with broadly similar characteristics, especially required skill levels.

If revised legislation clearly embraced these principles, it would be reasonable to address as well the Task Force recommendations on process and institutional arrangements at the same time.

We expect that the development of a legislative proposal satisfying the criteria proposed will take some time. Meanwhile, however, we advocate an active approach within the federal public service along the following lines:

• Complete the process of ensuring that current classification standards minimize gender bias.
• Decide on a sensible framework for comparing groups for pay equity purposes. A promising tool is the National Occupational Classification structure developed and maintained by Human Resources and Social Development Canada.
• Conduct an analysis of significant differences in male and female salaries within federal employers' establishments. This analysis should start with the existing classification groups and levels. The broad skill levels set out in the National Occupational Classification offers a framework for comparisons across groups.
• Include in collective bargaining mandates solutions to issues that cannot be explained by factors other than discrimination.

We emphasize as well, that progress on employment equity since 1981 has greatly improved the relative position of women in numerous professional, well remunerated occupations such as economist, lawyer, and scientist. In such groups gender representation has achieved, or is approaching parity. While some (generally small), and not necessarily well-paid occupational groups remain male-dominated, a few groups (most notably the Clerical and Regulatory group) do remain overwhelmingly female. Thus the nature of the pay equity challenge has become more focused over the past three decades since the Canadian Human Rights Act was first enacted.

In essence, then, we recommend a pragmatic approach to equal pay for work of equal value. Federal employers should undertake the analysis to pinpoint discrimination affecting women in the federal public sector, and take action to reduce or eliminate gender differences that cannot be explained by factors other than discrimination. This is more likely to deal with pay equity effectively, without distorting either the collective bargaining process, or our ability to maintain comparability with the external labour market as far as possible.

Suggestions for following up on the recommendations

Even in the summary form presented in this Overview, our recommendations are clearly wide-ranging, and implementation will be challenging. Accordingly, it will be essential to plan and manage wisely the follow up to this Report.

The first step is to establish a governance and management framework capable of planning, directing, and controlling the process, and of delivering results for a reasonable investment of money and energy. The essential components of such a framework are:

• Sponsorship by the Treasury Board itself and the President of the Treasury Board.
• Direction by the Secretary of the Treasury Board, supported by a Deputy Minister level Compensation Council, composed of leaders with substantial responsibility and expertise in the compensation field.
• A dedicated project management team, with responsibility to design and manage the implementation process.

Before deciding on a plan, key stakeholders such as the public service unions should be given an opportunity to consider the Report and offer their comments, perhaps through a series of facilitated roundtables.

Looking at the substance of the recommendations, we can distinguish four "baskets" corresponding to the relative sensitivity or difficulty of implementation. The first such basket would comprise those recommendations that can have a significant benefit at relatively low cost, and which are primarily in the discretion of the Treasury Board or the Treasury Board Secretariat. Key examples in this area are:

• The Annual Report to Parliament on Federal Compensation. This is likely our most potent single proposal. Systematic transparency on key trends will instigate public debate and more rigorous management regarding how federal compensation is evolving in comparison with the broader Canadian labour market.
• Related recommendations on data and research would be indispensable to support the Annual Report proposal.
• The proposed Compensation Framework for the Federal Public Service is ready for adoption, and would help frame debates on compensation trends.
• Adoption of stronger management practices regarding total salary budgets needs early attention. As part of this, the "mark up" for converting approved non-salary funds to salaries should be increased as soon as possible, from 20% to 30% most likely.
• Establishment of a Canadian Forces Compensation Advisory Committee is urgently needed to put the determination of military compensation on a sounder foundation.

Implementation of the items in this basket could be initiated with a minimum of external discussion, ideally by early 2007.

The second basket involves critical, but more difficult subjects that would require setting up some kind of advisory process to develop more specific options and recommendations for later decisions. Among the topics grouped here are these:

• Development of a revised occupational and bargaining structure for each federal employer that appropriately combines employees with common interests and working conditions, and that facilitates comparisons with the external labour market.
• Determining the most appropriate approach and sequence for developing modernized classification standards, that will minimize gender bias.
• Adopting an approach to Executive compensation that combines greater comparability with the private sector, with a more restrictive definition of who is an executive, and easier provisions for executives to be dismissed for inadequate performance.
• Considering an appropriate form of joint union-employer governance of the Public Service Pension Plan, once the current lawsuit on the pension "surplus" is resolved.
• Reviewing the suitability of the existing Pension Plan design in meeting the needs of current and future employees, in view of changes in families, a growing interest in working beyond the period of eligibility for a pension, and a likely increase in the proportion of employees who may enter and leave the federal public service over the course of their career.
• Reviewing in a similar vein, the insurance, health and dental benefits available to federal public servants.
• Examining how to expand the scope of collective bargaining to provide more explicitly for trade-offs across the full range of compensation elements, including the idea of an annual benefits allowance that could be used to purchase from a menu of benefit plan choices. Such an approach would provide more flexibility to employees in meeting their needs, while bringing greater accountability to the growth of overall compensation.
• Reviewing the complex set of existing plans relating to sickness and disability.

All of these subjects are controversial and difficult, for various reasons. The temptation will be to "let the cup pass." However, each of these areas is in its own way urgently in need of attention, if we are to renew our compensation regime to support our employees wisely as the great generational shift from the baby boom generation to its successors unfolds over the next decade. A clear view of what is needed, and a determination to act, combined with a respectful and consultative style will overcome the undeniable obstacles.

The third basket includes the two key areas of statutory framework affecting compensation in the federal public service: collective bargaining and pay equity. We argue that the laws governing these areas are flawed and deserve deeper thinking. We do not suggest specific amendments to the Public Service Labour Relations Act or the Canadian Human Rights Act. We do propose, however, that it is time to take a clear-minded look at how to shape these laws for the next generation of public servants, and in the broader public interest. Decades of experience with both laws has exposed fundamental issues that cry out for intensive public debate and judicious reform.

Finally, a modest fourth basket of proposals touches matters that are clearly in the discretion of authorities outside the Treasury Board portfolio. We suggest that those responsible simply be invited to consider the points that are raised in our recommendations. These cover such topics as:

• the possibility of including an expected track of total personnel spending in federal Budget forecasts;
• the development of a credible compensation research function;
• the possibility of establishing additional separate employers in order to improve organizational performance by aligning more closely human resource management policies, including compensation, with each employer's business needs; and
• suggestions relating to how compensation is set for federally appointed judges and for parliamentarians.

Conclusion

In effect, we are calling for a fundamental rethinking and modernizing of the compensation regime in place in the federal public sector. In our view this is overdue. No such thorough-going review has been undertaken in more than 40 years, since before the implementation of collective bargaining in 1967. Yet the nature of the federal government and its workplaces has altered dramatically in the intervening years, and we can foresee continued transformation as information technology, citizen expectations, and globalization intensify their impacts. To remain successful in serving Canadians, the federal public service needs to ensure that its compensation policies and practices support the flexibility and increasing knowledge intensity demanded by changing circumstances.

Perhaps the best way to conclude is simply to emphasize seven perspectives that have hardened into convictions over the course of drafting this Report:

• The future of the federal public service depends importantly on how employees are compensated.
• All aspects of compensation are connected for the employees, and so the employer needs to manage the field coherently.
• The proper standard for fair compensation is comparability with appropriate comparators in the Canadian private sector.
• Collective bargaining in the federal public service is a healthy way to balance the interests of employees and taxpayers, but it cannot be used to justify excessive compensation.
• Collective bargaining in the federal public sector should be about productivity as much as compensation.
• The time has come to rethink the design and balance among non-salary benefits, from pensions to insurance to health and dental plans.
• Transparency is the best way to bring discipline to the compensation field.

Compensation is at once of vital interest to everyone, and an arcane field that few can fathom. How people are paid and protected from risk is easily taken for granted, particularly when times are good. But the cost to taxpayers of federal compensation is large in absolute terms; and our policies in this area are critical to how well we either attract good people or drive them to cynicism or even to leave the organization.

Compensation is too important to be left to the specialists in the hope they will look after us all at a fair expense to the public. We need to explain clearly and openly the issues and opportunities, and then act to make sure the system as a whole, and in its parts, is understood, reasonable and sustainable. This Report offers a portrait of what exists and how we got here, as well as a blueprint for shaping a sound compensation regime for the future.

 

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