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


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9. Conclusions on Comparability

This section of Volume 1 has assembled and reviewed a wide range of evidence and analysis relating to the broad question of how compensation in the federal public service relates to that provided for similar work in the private or the broader public sector in Canada. Now we need to pull the threads together and propose an overall assessment.

Limitations and considerations

Limits on the time and resources for this study prevented us from undertaking our own surveys or other research. Accordingly, we have restricted ourselves to examining existing studies or databases. Each of these sources has important limitations. Nevertheless, by examining them together, we may seek to formulate a balanced view on where the federal public service fits in comparison with other major employers in Canada.

A useful approach for undertaking this analysis would have been to build up a total compensation profile that would allow us to convert the various benefits and compensation arrangements provided by different employers to the common denominator of dollars and cents. Such a measure would facilitate comparison of quite different compensation packages.

We rejected this approach for two reasons, one practical and one conceptual. To begin with, in practice we simply do not have the data to create such a detailed comparison across employers. Nor would it be easy to collect such data in a readily convincing, reliably comparable manner.

Second and more importantly, such calculations require us to choose between comparing on the basis of employer cost or of estimated employee value. We have focused in this study on employer cost, mainly because it is both less ambiguous and easier to determine.[140] Moreover, the value of any particular compensation arrangements can vary greatly across employee groups, or among individuals within a group, or even for the same individual as their personal circumstances change. For example, parents take quite a different view of survivor benefits or orthodontic coverage than most employees who are single. Thus, whichever evaluation method we choose, the apparent precision of reducing disparate compensation elements to cash terms will necessarily result in a debatable interpretation.

So we are left with the need to weigh federal public service compensation in comparison with what is provided by other employers on the basis of an overall judgement informed by the variety of perspectives examined in this chapter.

Putting the federal public service in context

From the period immediately following the First World War, when Parliament first legislated to establish a federal public service recruited on the basis of merit, the essential story has changed little. Successive policy declarations about the intent underlying federal public service compensation have aimed at maintaining comparability with the private sector and the broader public sector. However, time after time comparability has given way in the actual determination of salaries and benefits in the public service to more pragmatic concerns such as respecting internal relativities between groups, concluding a collective agreement, showing an example as an enlightened employer, or pointing the way on controlling spending or inflation.

In the wider context of the Canadian economy and labour market as a whole since 1990, several points stand out:

  • Employment–Between 1990 and 2003, private sector employment has increased by nearly 23%, whereas total federal public sector employment[141] fell by about 10%. As a proportion of total Canadian employment the federal public sector declined from about 2.7% in 1990 to around 2.0% in 2003.
  • Total Wage Bill–Reflecting in part the increased employment, the private sector total wage bill (salary mass) grew since 1990 by nearly 70%. Compared with 1990, the federal public service wage bill in 2003 was a little over 30% larger.
  • Average Salaries–Average Weekly and Average Hourly Earnings are the main private sector wage indicators we identified, along with the year-over-year wage increases included in private sector collective agreements. The first two indicators changed little between 1990 and 2003. The year-over-year negotiated wage change was about 8% higher over the 13 years. Federal public sector average salaries grew by about 16% over the same period. All these increases are expressed in constant dollars; that is, with the effect of inflation removed.

What is most striking about the federal public sector in comparison with the Canadian private sector is not the experience over these 13 years, but the trend since the end of Program Review in 1997–98. The rate of increase in each of the areas noted, but especially in average salaries, has been notably faster over the past five to six years than for the economy as a whole, or the private sector specifically.

Comparing rates of increase begs the question of whether the starting point was comparable.[142] The only information we found on the comparability of the average level of federal public service salaries vis-à-vis those in the private sector at the beginning of the 1990s was a 1992 Treasury Board study that calculated, based on Pay Research Bureau data, that "on a national basis, average salaries in the federal public service were 8.3% behind those of the private sector."[143] Coincidentally, this is almost exactly the percentage by which the cumulative increase in average salaries in the federal public sector exceeded private sector increases, as measured by the private sector year-over-year negotiated wage increases, between 1990 and 2003.

Salary comparability

The studies we reviewed compared the value of federal public service salaries and benefits directly or indirectly with the Canadian private sector and the broader public sector. Two such studies, a report prepared by the Canadian Federation of Independent Business (CFIB) in 2003, and an analysis commissioned by the Treasury Board Secretariat (in 2003 as well) from Professor Morley Gunderson at the University of Toronto, report that there was a substantial wage premium in favour of the federal public service in comparison with the private sector. More importantly, these studies reported that this premium had increased in recent years.

Our conclusion is that due to methodological issues, the reported wage premiums are questionable, although the upward trend line in the relative position of federal public service remuneration coincides with our own analysis and other reports such as the 2003 compensation report of the Institut de la statistique du Québec. Our assessment suggests that a large part of the premium reported by the CFIB study may have resulted from methodological issues, most notably the inadvertent inclusion in public service income of one-time retroactive pay equity payments made in 2000, and the use of median instead of average income data.

In the case of the Gunderson study, we noted that the reported wage premium diminished as an increasing number of occupations were distinguished in the econometric model used for the analysis. Moving from 10 to 47 occupations lowered the federal public sector salary difference versus the private sector from 16.2% to 12.4%. Such a gap is still significant, of course. However, when we expanded our review to include the results of the annual remuneration survey conducted by the Institut de la statistique du Québec, we noted the finding that detailed job matching largely eliminated the difference between federal public sector salaries and private sector salaries in Quebec.

Our consideration of these macro studies led us to conclude that the evidence of a substantial general wage premium in favour of the federal public service is weak. These studies try to roll up too much disparate information, leading to a level of abstraction or artificiality that provides an unconvincing basis for measuring comparability. For example, the danger of comparing quite distinct groups of workers is high.

Nevertheless, such studies have the value of raising issues for investigation at a more detailed level. In particular, the unanimous report of a rate of increase in federal public sector remuneration that exceeds the general trend in the rest of the Canadian labour market warrants follow up. This study was in part motivated by the need to understand better, whether, to what extent, and if so why, comparatively rapid growth in federal public service salaries may have occurred.

This critique of macro studies implies that targeted analyses of remuneration for specific occupations would be more informative and reliable. While this is compelling in theory, our review of several such studies indicates shortcomings that compromise their utility. Most importantly, there are no established standards nor agreed methodology to discipline such work. The fact that most are undertaken in the period leading up to collective bargaining does not help their credibility. Even those that appear rigorous can sidestep important issues. For example, the 2003 joint Public Service Alliance of Canada/Treasury Board Secretariat study on remuneration for trades-related specialties largely ignored regional differences in such pay, even though the existence of local pay scales is a well established characteristic of the remuneration of such occupations.

If we are to have a robust and well-informed basis for deciding on federal public service compensation, we will need detailed information on the going rate in the external labour market. In late 2003 Parliament approved the Public Service Modernization Act, which provides for the establishment of a compensation research function within the new Public Service Labour Relations Board. Careful adherence to consistent and rigorous standards of objectivity, as well regularly scheduled cyclical reporting according to a predictable schedule, will be essential.

Weighing all of the available information, our summary assessment is this:

At most, there was in 2003 a small general premium for federal public service salaries over those paid for similar work in the Canadian private sector. However, if the faster growth in average salaries noted in recent years in the federal public sector persists, federal salaries on average will surpass those in the private sector very soon, by an increasing proportion.

Pay equity comparability

We have only incomplete and difficult-to-interpret information on how the federal public sector experience with pay equity compares with that of other major public and private employers in Canada. It would be a substantial research task, well beyond the resources of this review, to assemble and assess comprehensive data. This section therefore limits itself to giving some anecdotal evidence, which at least gives some flavour of the experience elsewhere.

Provincial legislation

The pay equity legislation adopted across Canada by different jurisdictions has been varied. Six provinces–Manitoba, New Brunswick, Prince Edward Island, Nova Scotia, Ontario and Quebec–adopted versions of a proactive[144] approach, with the latter two jurisdictions being the primary examples. The remaining four provinces have used human rights or labour standards legislation.

Ontario

Ontariowas the first jurisdiction to enact proactive legislation that applied to both the public and the private sectors. According to Morley Gunderson, who has written extensively in this area, "Pay equity in Ontario can be ranked as the most advanced in the world."[145] The Ontario model is driven by joint pay equity committees that develop and implement pay equity plans with each bargaining agent. The criteria for determining gender predominance are flexible, including reference to historical incumbency and traditional work stereotypes. Various wage adjustment methodologies are permitted, including a proxy method that allows female-predominant groups without an evident male comparator to compare themselves to appropriate groups in another establishment.

The Ontario legislation limits the dollar value of pay equity adjustments to no more than 1% of payroll per year. It recognizes exceptions in assessing wage disparities such as skills shortages and union bargaining strength. Pay equity is deemed to have been achieved when a female-predominant job class is paid the same as the lowest paid male-predominant job class performing work of equal value. Perceived shortcomings of the Ontario experience include a low compliance rate, particularly among small employers, and the absence of legislative provisions relating to the maintenance of pay equity once it has been implemented.

Quebec

Quebecincluded pay equity in its Charter of Human Rights in 1975 and modelled its 1996 pay equity legislation on Ontario's experience. Quebec's law includes a wider set of acceptable wage adjustment methodologies and the possibility of adopting a sectoral or industry-wide plan. Maintenance is to be addressed when a collective agreement is renewed. The Pay Equity Commission has the power to initiate investigations. A provision to accept pay relativity plans already in force before the legislation was passed was ruled unconstitutional.

Like Ontario, Quebec is believed to have a relatively low compliance rate, and because most employers are still at the stage of introducing pay equity, few need to apply the maintenance provisions.

Implementation of pay equity by other employers

We were unable to find any systematic assessment of how pay equity has been implemented by other major employers in Canada, nor what salary increases have resulted. Some information was reported in Chapter Four of the final report of the Pay Equity Review Task Force chaired by Professor Beth Bilson.[146] In exploring the impact of proactive approaches to implementing pay equity, the Bilson Task Force report gave some figures on wage increases resulting from applying the principle of equal pay for work of equal value. In Manitoba, for example, whose 1985 legislation was described as a model, the percentage of payroll devoted to implementing pay equity ranged from about 2% with the province's Crown corporations to 3.3% for the civil service.

Under the Ontario Pay Equity Act, salary adjustments for organizations with 500 or more employees were reported as being 0.6% of payroll in the private sector and 2.2% in the public sector.[147] In the Ontario public service itself, the initial adjustment introduced over the two-year period from 1990 to 1991 resulted in a payroll increase of about $120 million in a public service numbering about 80,000 at the time.[148] Subsequent complaints and adjustments added about $9 million to this total. Ongoing costs have been merged into the pay of female job classes and, more than a decade later cannot be accurately determined.

In Quebec, the total public sector investment in pay equity between 2000 and 2005 has been estimated at about $8 billion. This sum covers the entire public and para-public sector, which amounts to some 500,000 employees. The annual expenditure in 2000 was estimated at more than $530 million, an amount that increased to about $785 million by 2005 as a result of further settlements.[149]

Two other points of information on provincial government expenditures in this area relate to Saskatchewan and British Columbia. In 2003, $65 million was reported to be going to 25,000 health care workers in Saskatchewan. In British Columbia, over 40,000 health care workers received about $100 million in retroactive pay equity adjustments in the fall of 2000.[150]

This data, incomplete as it is, nevertheless suggests a few points of comparison in relating the federal public service to the wider Canadian experience of pay equity:

  • The federal public service investments in pay equity appear to be as large or larger than those implemented in other jurisdictions.
  • The percentage of payroll added to the wage bill in other jurisdictions seems to be similar to the federal government experience.

More broadly, it appears as yet undetermined what impact pay equity has had on the compensation of female workers in Canada. As Morley Gunderson observed in 2002:

Unfortunately, we know remarkably little about the overall effectiveness of initiatives like Ontario's pay equity programs. We know that Ontario is a leader in the world in the area of pay equity, and we know that this system has turned out to be complex, but we have remarkably little evidence on the bottom-line question–Has pay equity been successful in closing the wage gap or in achieving other social objectives?[151]

Pension and benefits comparability

After salaries, pensions are both the largest element of the compensation package for federal public service workers and the largest cost to the employer.

Federal public servants are among two fifths (40%) of paid workers in Canada covered by an employer- or union-sponsored registered pension plan. Other workers generally rely on sources such as private registered retirement savings plans, group RSPs, personal investments, RRSPs or on the CPP/QPP and the OAS. These vehicles are available to all Canadians, including federal public servants.

The federal public service pension plan is among the best in Canada

In a 2004 study by Towers Perrin, among defined benefit plans, the Government of Canada plan ranked at the 87th percentile for employer value and at the 96th percentile for total value when employee contributions were included. Particularly significant in differentiating the federal plan from others are the early retirement and bridging provisions and the full inflation indexation policy. Other federal pension plans such as those for the Canadian Forces, the Royal Canadian Mounted Police, parliamentarians, and federally appointed judges provide even greater value to their members.

Similar to other public sector plans, the federal public service pension plan in 2003 required a relatively substantial employee contribution: 4% of earnings for that part of salary below the amount covered by the CPP/QPP's YMPE, and 7.5% above that income level. However, these contributions were less than what provincial public service plans required. This was true for all provincial plans at the income levels below the maximum covered by CPP/QPP, and for many of those plans for higher income levels as well. Overall, federal public servants contributed no more than 28% of the current service cost of their pensions, a level that is significantly below the 40% to 50% shares for most other public sector plans in Canada.

The story on non-pension benefits is more mixed, as summarized below.

Public Service Health Care Plan is competitive but lags in some areas

In general, Mercer Human Resources Consulting found the PSHCP to be competitive with the coverage provided by other large public and private employers in Canada. However, some features were relatively less generous in relation to active employees, including the levels of deductibles and reimbursement, hospital room coverage, the absence of a drug card, limits on many paramedical specialists, vision care, private duty nurses and out-of-country coverage.

Based on a small sample of other employers' actual per capita costs, the PSHCP fell in the middle range at $823 per member annually. The full range was from $495 per capita to $1,243.

Few employers provide the same level of coverage to retirees as to active employees. The PSHCP is very competitive with respect to coverage provided to retirees.

The Public Service Dental Care Plan is also competitive, but with lags in some areas

Again, the federal plan is broadly speaking competitive, but lags the most generous employers in some areas such as the maximum level of reimbursement in a year and the deductible levels. On the other hand, the PSDCP is more generous on lifetime orthodontics reimbursement levels and coverage for retirees.

The life and disability insurance plans both lags and exceeds others

As was the case in the previous areas, the federal policies both lag and exceed what other employers offer. For the most part, other employers cover plan costs fully or to a greater extent than does the Treasury Board. On the other hand, indexation of long-term disability pensions, up to an annual limit of 3%, is better than for most employers.

Severance pay is a public sector phenomenon

Severance pay is mainly a public sector phenomenon. Within the public sector, the federal public service provides a benefit that grows with an employee's years of service, as do most other employers offering this benefit. We were unable to obtain specific details on how the amount of the federal public service benefit compared to that of other employers.

Leave entitlements are generous

For a given number of years of service, the federal public service offers more vacation leave than most major employers, according to Towers Perrin database information. The federal public service is particularly generous in the duration of up to a year of maternity leave and parental top-up of Employment Insurance benefits to 93% of regular income.

Overall conclusion–Federal compensation compares favourably with other sectors

Putting all the pieces together, we can only conclude that the general situation of federal public servants compares favourably with that of workers in the private sector and the broader public sector in Canada.

Some reports in 2003[152] asserted that there is a substantial general premium whereby federal public sector salaries exceed on average those paid for similar work in the private sector. In our view, the case is unproven. The more we compare salaries for specific jobs, the smaller any such premium becomes. In fact, the 2003 report of the Quebec Institut de la statistique, which used a job matching methodology, found that federal public service salaries were generally in line with those in the Quebec private sector, which is itself similar within 5.5% to the Canadian private sector average.

Nevertheless, all the general studies examined in this review, as well as our own analysis of federal public service compensation, point to a rate of increase in salaries in the federal public service since 1998 that exceeds what was experienced in the private sector on average. If there was at most a small premium overall as of 2002–2003, a continuation of the relatively faster rate of growth in federal public service salaries will certainly create one of significant size.

Of course any such general view masks important distinctions. On salaries, we know for example, that executives above the first level receive lower total compensation than counterparts in the private sector for the same level of responsibility. The evidence also indicates that trades-oriented employees were paid less than private sector equivalents. On the other hand, administrative support staff such as clerks and secretaries generally earned more than those performing similar duties in the private sector.

It is generally believed that the relatively higher salaries for administrative support occupations are a result of pay equity. Certainly the federal government has paid large amounts to settle complaints relating to the principle of equal pay for work of equal value. And the ongoing share of the wage bill relating to pay equity is in the range of 2% to 3% overall. However, the basic pattern of the public service paying more than other employers in the lower ranks, less at the highest levels, and in the middle it depends has persisted for decades. This was the story behind the Beatty Commission in 1930 and the Gordon Commission in 1946. Both focused on the need to improve the compensation and career prospects for scientific and administrative (executive in today's parlance) employees in the public service. The Glassco Commission report characterized this pattern thus:

Wage and salary rates for the lower grade positions in the civil service are in general equal to, or better than, those for comparable jobs in private industry. Some disparities appear in salary rates for jobs above these levels, most markedly in senior administrative and professional posts, where the government is at a marked disadvantage in competition with private industry.[153]

It is evident that the non-salary components of federal compensation compare very strongly with what is provided in the Canadian private sector. Despite the fact that we were unable to assemble the data necessary to compare total compensation by assigning a dollar value to all of the various elements for a range of comparable employers, the accumulation of specific comparisons leads unavoidably to that view.

Specifically, the federal public service pension plans were in the top 10% in Canada in terms of overall value. The early retirement and indexing provisions were especially advantageous. The health and dental plans were not the most generous in Canada, but they did provide solid protection. They also were available to retired public servants in a way that goes beyond what most private sector employers provide their retirees. Similar comments apply to the public service life and disability insurance, although federal public servants paid more of the cost in these areas than employees in most major private companies. Severance pay was mainly a public sector benefit, and the federal public service policy was generous. Leave entitlements in the federal public service compared well with what was offered on average in the private sector.

Overall then, employees in the lower ranks enjoy very advantageous compensation, combining salaries that are ahead of the private sector, and an excellent pension plan, with solid benefits. For middle level public servants, even if salaries are more likely to be in line with private sector counterparts, when the public service pension plan and benefits are taken into account, their overall compensation is very good. For top officials, whose salaries lag what private sector executives enjoy, the pension plan and the suite of benefits, which are provided both during the years of active employment and during retirement, combine into an attractive package. The more senior the official, however, the less this is true, and the greater the chance that these individuals will find satisfaction in other factors such as the value of public service, the breadth and intensity of the challenges offered, and the opportunity to influence the future of the country.