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ARCHIVED - Expenditure Review of Federal Public Sector - Volume One - The Analytical Report and Recommendation

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1. Introduction

This Report documents the first-ever comprehensive description and analysis of compensation in the Canadian federal public sector. It offers as well a full set of recommendations on how to strengthen management of federal public sector compensation in support of a first-class public service equal to Canadians' expectations.

Compensation is an important subject that requires more systematic management. It is a substantial area of discretionary federal expenditure. As of fiscal year 2002–03, compensation cost federal taxpayers about $25 billion, including salaries and all other forms of remuneration. This amounted to over one third of federal discretionary spending; i.e. that part of the federal budget not mandated by ongoing legislation.[1]

Intelligent compensation design is a fundamental aspect of sound public service management. As the baby boom generation reaches retirement over the coming decade and as the importance of employees' knowledge, innovation and flexibility increases in the Canadian workplace, how people are rewarded for their services will be a critical factor in the ability of any organization to attract and retain the talent it needs to deliver on its business goals.

Origins and nature of this Report

Relatively rapid increases in the size of the federal public service and in total personnel spending in the late 1990s and early 2000s raised questions about what factors were driving the changes. The Public Accounts of Canada provide information in total on the "personnel" expenditure object reported at the departmental level and on the expense recorded by the government, once adjusted for full accrual accounting. Comparability of expenditures from year to year is affected by the timing of large payments such as pay equity settlements and comparability of expenses may also be affected by changes in accounting policies. Nevertheless, the total expenditures in this area reported in the Public Accounts, on a comparable basis year-over-year, show significant growth beginning in 1999. Starting in 1995, the first year the figures are accessible electronically, the expenditures are reported as shown in the table below.

Recent external studies about the comparability of federal compensation to that paid for similar work in the Canadian private sector and at other levels of government suggested that there was a significant and growing premium in favour of the federal public sector. Several such studies are assessed in Section 3 of this Volume. We conclude that these studies likely overstate the size of any premium, but that it appears to be true that in recent years the rate of increase in federal public service average salaries was greater than in the broader Canadian labour market.


Personnel Expenditures
($ Millions)





















To formulate a well-informed perspective on these issues, the Treasury Board decided in early 2004 to include compensation as one of a series of expenditure reviews launched at that time.[2]

While this particular expenditure review was conceived originally as a rapid reconnoitre of this vast and complex field, the review expanded as the work proceeded into something much more ambitious and enlightening. Undertaken in early 2004 with the other reviews, this Report was substantially completed in late 2005. Editing and translation pushed its finalization to 2006.[3]

In effect, the Compensation and Comparability Review was mandated to take an objective and factual view of its subject. The intent was to give ministers and senior officials an accessible, integrated and coherent presentation of the field in all its complexity. The review Report could then serve as a foundation for responsible and informed debate and choices for improving the management of federal public sector compensation over the coming years.

An independent point of view

Neither the Treasury Board President nor Treasury Board Secretariat leaders or other officials have sought to shape the findings or recommendations of the Review. As such, the Report is in no way a statement of Treasury Board or Treasury Board Secretariat views on federal public sector compensation. The analysis and recommendations laid out in this Report are the responsibility of its principal author, James Lahey, who held the position of Associate Secretary of the Treasury Board Secretariat until December 2004, and of Associate Deputy Minister, Indian and Northern Affairs Canada, thereafter.

Having completed the Review from a largely independent perspective, based on his experience in the former Human Resources Management Office at TBS and earlier as Assistant Deputy Minister of Labour and later of Strategic Policy at Human Resources Development Canada, Mr. Lahey has submitted his final Report to the Secretary of the Treasury Board.

It now falls to the Treasury Board as the Cabinet Committee responsible for sound management in the federal public service, on the advice of the Secretary, to decide what action to take on the Report. The recommendations deal with a vast area, with 77 proposals, many touching on difficult or controversial topics. As a practical matter, therefore, in deciding on follow-up action the Treasury Board must carefully balance considerations of leadership, cost, feasibility, relationships, timing and manageability. 

Some perspectives on the Report

No doubt most of those encountering this Report will find daunting its length of more than 600 pages in two volumes, plus appendices, and its relatively intensive use of numbers, graphs and tables. Candidly, most readers will limit themselves to digesting the Overview–itself about 60 pages, and perhaps scanning the text or dipping into subjects of special interest.

Why such a voluminous document? Essentially, our concern was to assemble a complete portrait of federal public sector compensation, with enough detail and analytical depth to serve as a reliable foundation for both understanding and action in strengthening management coherence and effectiveness in this area. Our hope is that with the preparation of this exceptionally thorough, and we believe, relatively clear overview of an important but arcane area, we can change how those involved in the federal public sector think about the compensation subject. No longer should it be acceptable to discuss or consider one component of federal compensation in isolation from the others. All aspects of compensation–and indeed, of human resources management more generally–are interconnected and inevitably influence each other.

We also intended to provide for practitioners in the federal public service compensation field an accessible compendium of the policy and factual context of their work. With this as a starting point, new participants in the field can progress rapidly to a well-informed capability to position their issues within a broader whole. 

We considered ourselves as well to be blazing a trail of sorts in the whole area of expenditure review. It is a critical responsibility of the Treasury Board Secretariat to monitor and evaluate trends in public spending as a basis for recommending both areas of potential savings and fields where success demands additional investments. Accordingly, it is important to develop fully the Secretariat's capacity to undertake probing studies and to summarize wide-ranging and complex information in a thoughtful and usable form. This Report offers one model of such in-depth expenditure and policy analysis.

It is also instructive to make explicit some further principles that we have attempted to apply in conducting the review and in writing this Report. These are enumerated below.

Focus on facts

As far as possible, we have focused on presenting the available facts on both policy decisions and employer expenditures. We have endeavoured not to editorialize or offer interpretations of the facts, except where we judged some commentary to be essential in understanding a point.

The Review focuses on five federal employment domains:

  1. The core public service
  2. Separate employers
  3. Canadian Forces
  4. Royal Canadian Mounted Police
  5. Other Groups, including federally appointed judges, parliamentarians, employees of Parliament, ministerial staff and students.

Another domain treated briefly is that of federal business enterprises and Crown corporations that finance compensation largely through commercial revenues. Appendix D provides a list of the organizations included in each domain.

We have relied mainly on the competent authorities in each domain for most of our data. For the core public service this was principally the Treasury Board Secretariat, and to some extent the Public Service Human Resources Management Agency and the Public Service Commission.

For the separate employers, we were able to use in many cases data from Treasury Board Secretariat databases. For some employers such as the National Research Council, and in relation to all separate employers for subjects such as staff movements or overtime, we obtained data directly from the appropriate separate employer.

For the Canadian Forces and the Royal Canadian Mounted Police domains we used the human resources and/or the financial sections of those organizations as our source, as well as their public Web sites. In the case of the RCMP, we also benefited from the assistance of the RCMP Pay Council staff.

For the other domains, we used a combination of published information, Treasury Board and Public Accounts data, and input supplied by the relevant financial managers.


In pursuing the right figures on a particular point, we have been tenacious but after reasonable efforts we have accepted what information was available. In some cases the search for perfection would have become a spiral of increasing confusion, without necessarily yielding a better number.

Employer perspective

We had invited the public service unions, through the National Joint Council, to contribute their views on federal public sector compensation. Perhaps uncertain about what they might be getting into, the unions declined to participate. Although we have consulted from time to time with people well informed about union viewpoints, and have sought to take account of their comments, this Report necessarily reflects an employer outlook. During the recommended consultation period following the completion of this Report, unions and other stakeholders should have their chance to offer comments on the analysis and recommendations presented here.


Our bias in this Report has been towards candour in discussing delicate subjects. While not seeking controversy, neither have we shied away from expressing the truth as we understand it.

The limitations of available data

As we constructed this Report topic by topic, the availability, reliability and interpretation of quantitative information were a constant challenge. In each case, we have used what appeared to be the best information. We have endeavoured to report consistently on any given indicator or topic throughout the Report. We have relied on the expertise of specialists in each area and when, as in the case of reclassifications, we found two legitimate sources reporting materially different information, we have brought the experts together to talk through the differences in their data and agree on a common approach. Finally, as far as resources permitted, we have submitted draft text for review and revisions by the best-informed data managers.

In the end, however, we must accept that the available data is less than perfect. Many numbers are estimates rather than exact figures. This is unavoidable because most of the numbers that are important to track fluctuate continuously. Staff levels or total salaries, for example, change daily, even hourly. So an annual figure must be an approximation. Normally it is some kind of snapshot at a precise time, or better, an average of several snapshots during the period in question, to reduce the effect of seasonal variations. Moreover, the complexity and unprecedented nature of much of this Report required us to improvise or look for proxies that could give us a reasonable sense of how a given number has evolved. All these factors, in addition to simple human frailty in grappling over many months with a vast enterprise such as this Report, must inevitably result in some errors.

The real issue, however, is whether any such errors are material. Is it likely that a given set of numbers is so wrong that readers will be left with a fundamentally erroneous impression of the level, nature and trends in spending on federal public sector compensation and its principal components? Having spent many months working intimately with the data, and doing as many crosschecks as possible on the same issue with different sources, we are confident that the trends and relativities documented in this Report are essentially correct. And if it should turn out that a critic can show that a particular number or set of numbers is flawed, then the ensuing corrections will be a welcome contribution to fostering transparency, thoughtful debate and methodological rigour which can only help in managing federal compensation responsibly.

Organization of the Report

The present Report covers a great deal of territory, most of which has not previously been summarized in an accessible form, nor have the pieces ever been brought together into a sustained narrative.

The Report is organized into three volumes plus an overview document.

Volume One covers the essential issues and comparative findings, and provides detailed discussions of each recommendation.

Section One of this Volume provides basic and historical information necessary to understanding the full breadth of the compensation story.

Chapter 2 presents the history of compensation comparability from the establishment of a merit-based pay system in 1918 through the recommendations of various commissions, including Beatty and Glassco, to the establishment of a framework for collective bargaining, through several periods of collective-bargaining suspensions and wage freezes, to the present day. 

Chapter 3 explains the legal and institutional framework for salary determination, describing the collective bargaining process in effect with the passage of the Public Service Labour Relations Act, 2003 and providing an overview of the job classification structure. It also describes the process in effect for separate employers, that relevant to executives and employees excluded from collective bargaining, and the National Joint Council programs applicable to employees in all groups.

Section Two, constituting Chapter 4, identifies and discusses the components that have contributed to rising average-salary costs. This discussion provides context for the detailed examination of compensation contained in Volume Two and gives enough information that readers of this volume alone will have a sense of some of the main issues that may need to be addressed. 

Section Three contains all of the comparative analysis undertaken for this review.

Chapter 5 compares federal compensation trends to economic trends in Canadian society as a whole.

Chapter 6 discusses the findings of external reports comparing federal compensation to the private sector.

Chapter 7 looks at the Public Service Pension Plan and compares it to pension benefits available in other sectors.

Chapter 8 compares other benefits available in the federal public service to those available in other jurisdictions and in the private sector.

Chapter 9 presents our conclusions on comparability, based on the analyses in Section Three.

Section Four presents our overall conclusions and recommendations.

Chapter 10 explains how transparency and accountability can help in managing the drivers behind changes in compensation costs.

Chapter 11 provides details on how federal compensation can be managed coherently.

Chapter 12 addresses specific substantive compensation issues such as the occupational group structure, classification reform, salary management, and pay for special groups including executives, heads of crown corporations, and those working in federal domains other than the core public service.

Chapter 13 contains our recommendations with respect to public service pensions and other benefits.

Chapter 14 addresses possible areas for legislative change, including collective bargaining dispute resolution and pay equity.

Chapter 15 provides a suggested step-by-step approach to implementation.

Chapter 16 contains our concluding thoughts.

Volume Two contains the detailed analyses of federal compensation in each of five domains in 2002–03.

The chapters in Volume Two also provide historical perspectives on how we arrived at current levels and types of compensation, and descriptions of all benefits, including the various pension plans. We describe both what salaries and benefits employees received, and how much they cost the taxpayer. The volume takes the story as far as fiscal year 2002–03, which was the most recent year for which we had complete information in 2004 when it was first drafted. The historical analysis focuses on the period from 1990–91 to 2002–03, with special emphasis on the period from 1997–98 to 2002–03, which followed the full implementation of staff reductions and salary controls related to Program Review.

Our purpose in tracing at some length the evolution of policy and spending in each of the components of compensation is to provide depth to our understanding of the compensation picture that had emerged in the federal public sector in the early 2000s. Just looking at how expenditures broke down into their component parts in 2002–03 would give no sense of which parts where growing and why. Any sustainable plan must take account of this experience.

Volume Two is divided into three sections.

The first is the introduction, providing contextual information for the detailed examinations that follow.

The second addresses total compensation in the core public service and separate employer domains.

Chapter 2 describes the total compensation package for the core public service domain, including separate employers. It was necessary for us to include separate employers with the core public service because of the many important changes in recent years that have made large portions of the public service alternately part of the core public service and separate employer domains.

The core public service includes those departments and agencies listed in Schedule I, Part I of the Public Service Labour Relations Act, for which the Treasury Board is the legal employer.

The separate employers domain includes those organizations named in Schedule I, Part II of the Public Service Labour Relations Act. These include the Canada Revenue Agency[4], the Canadian Food Inspection Agency, the National Research Council, the Canadian Security Intelligence Service, the Communications Security Establishment and Parks Canada, as well as over 15 smaller entities with no more than a few hundred employees each. We focus mainly on the larger separate employers in our analysis.

Chapter 3 looks at the factors that have driven increases and decreases in employment levels and salaries over time, including such things as new program initiatives, the impact of Program Review, and changes in the composition of the workforce.

Chapter 4 explains how structural change is implemented in the core public service, including mechanisms for job reclassifications and for staffing. It also addresses the components of change in the total salary mass.

Chapter 5 describes other elements of compensation such as performance pay for certain groups of employees, overtime and other allowances and premiums.

Chapter 6 examines in detail the Public Service Pension Plan, including an historical review of contribution rates by employees and the employer.

Chapter 7 describes various insurance programs and other benefits available to public service employees and pensioners.

The third section covers the remaining four domains that employ individuals at the federal level.

Chapter 8 provides a snapshot of compensation and benefits in 2002–03 for the Canadian Forces domain, including the regular members of the Canadian Forces and active members of the Canadian Forces Reserves, and an historical perspective on total compensation in this domain.

Chapter 9 provides a current snapshot and historical perspective for the Royal Canadian Mounted Police domain, including regular RCMP officers and civilian members employed under the RCMP Act. Regular civil servants working for the RCMP are included in the core public service domain.

Chapter 10 is the snapshot and historical perspective for the Other Groups domain, including federally appointed judges, parliamentarians including both Members of Parliament and Senators, employees of the House of Commons, the Senate and the Library of Parliament, ministerial staff, and students engaged under special student employment programs. We limit ourselves in relation to these groups to available data.

Chapter 11 is the snapshot and historical perspective for the domain of federal business corporations. Because these corporations rely on commercial revenue in whole or in large part to finance their operations, they access federal appropriations to a very limited degree to pay for their compensation expenditures. Moreover, such enterprises are fully independent in establishing their personnel and compensation policies and these vary widely as befits the diverse businesses in which they are active.[5] Our analysis is, therefore, necessarily brief.

It will be tempting for readers to use the information presented in Volume Two to make comparisons across the distinct domains of federal public sector employment. For example, we provide figures illustrating the distribution for most domains of the employee population into $5,000 salary increments. Juxtaposing these distributions is interesting in that it shows quite distinct patterns in different domains. Some might tend to offer interpretations, however, suggesting that one domain is overpaid, or indeed underpaid, compared with another. We must emphasize that such commentaries are meaningless. Each domain has its own business lines and consequent labour force requirements, which are reflected in characteristic salary distributions. There is no reason to expect a particular relationship across domains.

The various appendices published in a separate volume provide supplementary information and data to enrich the analysis included in the two main volumes. In at least one case, Appendix C relating to the 1962 Report of the Royal Commission on Government Organization (the Glassco Report), we have reproduced verbatim particularly salient text from this older report.

The Overview, published separately, provides an executive summary of the entire Report.