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

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Endnotes – Volume One

Chapter 1. Introduction

[1] By 2004–05, the total expenditure in this area had risen to about $27.7 billion, approximately one third of discretionary federal spending in that year.

[2] For details refer to the Backgrounder entitled The Expenditure Review Committee: A Catalyst for Modernizing Management Practices, published March 24, 2004. The original terms of reference of the Review are attached as Appendix A.

[3] The Compensation Review team, consisting of the principal author and four analysts, worked substantially full time on the project through most of 2004. From December 2004, the principal author devoted five to ten hours per week to the project, supported by a full-time analyst until July 2005 and a part-time analyst thereafter. Full-time team analysts and other staff (for varying durations) included Lee Beatty, Louise Richer, Lucie Proulx, Monique Paquin, Don Booth, Noomen Ketata, and Joanne Di Raimo, all of the Treasury Board Secretariat for most of the relevant periods. Many dozens of specialist staff assisted with the Review, as listed in the acknowledgements.

[4] In March 2003, this was still the Canada Customs and Revenue Agency. Accordingly, we use this larger organization in our analysis in Volume Two. The present Canada Revenue Agency came into being in December 2003, with the transfer of the Customs portion of the organization to the new Canada Border Services agency.

[5] Where federal business enterprises and other Crown corporations are likely of special interest is in the variety of human resources and compensation policies they have adopted. This experience may be informative in designing policies for the core public service. In Volume Two we give some examples of such policies.

Chapter 2. History of Compensation Comparability and Collective Bargaining

[6] Report of the Royal Commission on Government Organization (Glassco Commission), Report 3: Personnel Management, Part 2, Chapter 8 – "Compensation: Policy and Administration" p. 403.

[7] Much of this section is a paraphrase of Appendix B to the 2003 draft paper entitled Towards a Compensation Framework for the Federal Public Service. This in turn is largely based on the document referenced in footnote 3.

[8] Extracted from Briefing Notes on Total Compensation Comparability, Treasury Board of Canada Secretariat, May 1978

[9] A.D.P. Heeney, Report of the Preparatory Committee for Collective Bargaining in the Public Service, 1965, p. 7

[10] E.W. Beatty, Report of the Royal Commission on Technical and Professional Services, 1930. The quotation is from p. 14.

[11] The quotations in this and the subsequent paragraph are taken from W.L. Gordon, Report of the Royal Commission on Administrative Classifications in the Public Service, 1946, pages 11, 14, 17 and 25 respectively.

[12] Appendix C is entitled "Salient Extracts on Public Service Compensation and Comparability from the Section on "Personnel Management" in the Report of the Royal Commission on Government Organization." Specifically we replicate, for ease of reference, Chapters 7 and 8 of the Report.

[13] Glassco, at pages 395 to 397.

[14] Glassco, at page 410.

[15] Glassco, at page 411.

[16] Glassco, at page 411.

[17] Glassco, at pages 412 to 418.

[18] Glassco, at page 421.

[19] Heeney, 1965.

[20] The information on the Pearson Government's views is cited in Jacob Finkelman and Shirley B. Goldenberg, Collective Bargaining in the Public Service: The Federal Experience in Canada, Montreal: Institute for Research in Public Policy, 1983, p. 426.

[21] Agenda for Cooperation: A Discussion Paper on Decontrol and Post-Control Issues, page 27

[22] Agenda, page 60

[23] These points are taken from Briefing Notes on Total Compensation Comparability, Treasury Board of Canada Secretariat, May 1978.

[24] As reported in Finkelman/Goldenberg (p. 43 and p. 443), Bill C-28 would also have extended the rules for management exclusions and set a limit of $33,500 on the salary that could be set in an arbitral award. The first report of the Advisory Committee on Labour-Management Relations in the Public Service (chaired by John Fryer), Identifying the Issues, 2000 (p. 20) reports that the amendments also restricted the right to strike, and introduced an employer lockout right.

[25] Treasury Board document cited in footnote 16, paragraph 113. The ten years referred to would be the decade following the introduction of collective bargaining in 1967.

[26] Evaluation of Current Salary Comparability Practices and Total Compensation Comparability Methodology, Wyatt Consultants, September 1992.

[27] Citations from a Treasury Board Secretariat document entitled Discussion Paper: Compensation Comparability, dated February 1987, pp. 172-173.

[28] Compensation Briefing Notes, Staff Relations Branch, Treasury Board Secretariat, March 1984, page 3.

[29] Compensation Determination for Represented Employees: Future Directions, Treasury Board Secretariat, 1992, page 132.

[30] The arbitration route was suspended for a further four years to 2001.

[31] Annex B is entitled "Draft Compensation Policy." This includes both the draft policy circulated for discussion by the Treasury Board Secretariat Towards a Compensation Policy Framework for the Federal Public Service: Discussion Paper, July 2003, and the policy statement adopted by the Canada Customs and Revenue Agency in March 2001.

Chapter 3. The Legal and Institutional Framework for Salary Determination

[32] The Public Service Labour Relations Act (PSLRA) came into effect April 1, 2005. The PSLRA's principal provisions on the rules for collective bargaining and dispute resolution are very similar to the Public Service Staff Relations Act, which it replaced.

[33] A separate Parliamentary Employment and Staff Relations Act (PESRA) enacted in 1986 provides for collective bargaining and binding arbitration of differences for employees of the House of Commons, the Senate, and the Library of Parliament.

[34] Salary increases were limited to 2.5% and an additional increment for 1997, and 2% in each of 1998 and 1999.

[35] The lump sums were equal to 1.5% of the group salary mass, divided by the population and rounded in most cases to the nearest $50.

[36] The requirement to obtain such a mandate flows from Section 112 of the Public Service Labour Relations Act and a Cabinet decision of November 30, 1967. The purpose of the Cabinet decision was to maintain some financial control over separate agencies in terms of the collective agreements they negotiated. While these agencies have their own authority over personnel management, they are still appropriation dependent. An 1967 Order-in-Council delegates to the Treasury Board Secretariat the function of reviewing mandate requests from separate agencies and making recommendations to the President of the Treasury Board on approving collective bargaining mandates.

[37] An occupational group structure maps the world of work in an organization. It distinguishes occupations for the purposes of recruitment, development, remuneration and human resource management generally. The group brings together a family of related jobs.

[38] A classification standard sets out the criteria and the means to evaluate a job against the criteria that permit the relative weight of a job within a particular group to be determined. The standard is supplemented by benchmark positions with the corresponding evaluation to assist raters.

[39] As defined and calculated by Hay Associates.

[40] Post 2003, CEO compensation determination has changed as a result of the 7th Advisory Committee Report. It is now to be based on median total compensation comparisons at Group 1 level, with the Hay Total Canadian Market data.

[41] In autumn 2004, the Government announced its intention to amend the legislation to decouple parliamentary compensation from that of federally appointed judges. To this end, Bill C-30, An Act to Amend the Parliament of Canada Act and the Salaries Act and to make consequential amendments to other Acts was introduced in the House of Commons December 3, 2004 and received Royal Assent on April 21, 2005.

Chapter 4. Components of Increases in Average Salaries

[42] Strictly speaking we have only included the three largest separate employers (i.e. the Canada Customs and Revenue Agency, the Canadian Food Inspection Agency, and the Parks Canada Agency), due to data limitations for small agencies. In March 2003, these three organizations constituted 88% of the separate employer domain.

[43] Note that we included the former Senior Manager (SM) group with EX 1 in 1991 because amalgamation was implemented shortly after.

[44] Data before that year are not considered reliable, so we omitted them.

[45] These figures have been validated jointly by the Appointments Information and Analysis Directorate of the Public Service Commission and the Organization and Classification Branch of the Public Service Human Resources Management Agency. There are no doubt some errors relating to reporting rigour, but we believe the figures are satisfactory for analyzing trends, which is our purpose here.

[46] As a technical point, the "external mobility" figure is a residual to balance various factors in the overall change in average salaries.

[47] Cohorts of ES Hires and their Progression, Appointments Information and Analysis Directorate, Public Service Commission, 2004.

[48] This was, however, a complex and controversial case where the parties were very far apart, and significant disruption of the air transport industry loomed.

[49] Until 1997-1998, the total population of the separate employer domain was lower than 9,000.

[50] This in fact occurred in a 2005 arbitral ruling.

Chapter 5. Comparing Federal Total Compensation with Economic Indicators, 1990 to 2003

[51] The current data series for Average Weekly Earnings based on the North American Industry Classification System (NAICS) is not available prior to 1991–92, when the average weekly earnings stood at $544.68. Data prior to that date are available from a terminated series based on the Standard Industrial Classification (SIC). We estimated the 1990–91 figure by applying the 1990–91 to 1991–92 growth rate of 4.57% from the SIC-based series to the 1991–92 figure of $544.68 in the current series.

[52] This includes general government plus health and social service institutions, universities, colleges, vocational and trade institutions, and provincial and territorial business enterprises.

[53] This includes general government plus local school boards and local government business enterprises.

[54] In this context, "greater" rate of increase is measured by the slope (i.e. the steepness) of the various lines in Figure 1025.

[55] Note that the total salary mass can also be shifted by compositional changes in the work-week distribution. For example, a shift to proportionately more part-time workers will drive salary mass down even if wages and employment are unchanged. We have not attempted to take account of this additional complexity.

[56] Private sector average weekly earnings cover the Statistics Canada "Industrial Aggregate", excluding Public Administration, Health Care and Social Assistance, Educational Services, and Utilities. The data does not rigorously distinguish the private and the public sectors. However, we believe any discrepancies are minor. This measure includes both full- and part-time workers. Accordingly, it can fluctuate with changes in the average work week.

[57] Average hourly wages relate to private sector employees who are full-time single job holders.

[58] The private sector average hourly wages series begins in 1996–97. For presentation purposes, the starting point of this series was aligned with the private sector average weekly earnings series.

[59] Estimating the growth in average hourly earnings by using the average weekly earnings rate of growth for the period before 1996–97, average hourly earnings are considered to have increased by about 33% between 1990–91 and 2002–03. However, since this calculation does not take account of changes in the average work week, it must be used only as a very broad indicator.

[60] These are unpublished data furnished by Human Resources and Social Development Canada. They attribute wage increases to the year to which they apply, rather than the year in which they are negotiated.

[61] As a reminder we note that the "broad measure" includes the core public service domain, the separate employers, the Canadian Forces, and the regular and civilian members of the Royal Canadian Mounted Police.

[62] This estimate is taken from a Treasury Board Secretariat internal staff paper entitled Compensation Determination for Represented Employees: Future Directions, dated December 1992, page 16.

[63] The Pay Research Bureau was abolished at about the time the Treasury Board report was being written.

[64] The occupations selected covered managers, secretaries and administration officers, clerks and professionals. Specifically, "managers" includes senior government managers (compared with senior managers in financial, communications carriers and other business services, trade, broadcasting and other services, goods production, utilities, transportation and construction. "Professionals" includes: financial auditors and accountants; human resources specialists; computer and information systems specialists; health and social policy researchers; and, professional occupations in public relations and communications. "Clerks" includes: general office and administrative support clerks; general office clerks; records and file clerks; data entry clerks; accounting and related clerks; administrative clerks; customer service, information and related clerks; and, survey interviewers and statistical clerks. "Secretaries and administrative officers" is not otherwise specified. In the 2000 Census these four groups covered 33% of federal government employees and 13% of private sector employees.

[65] Again we define the "federal public sector" as the core public service domain, the separate employers, the Canadian Forces and the regular and civilian members of the RCMP.

[66] This is based on the observation in relation to Figure 1027 that the difference in cumulative increase between federal public service average salaries and private sector agreements in force year-over-year wage increases was about 8.3% by 2002–03.

Chapter 6. Studies Comparing Federal Compensation to the Private and Broader Public Sectors

[67] Derek Picard, Wage Watch: A Comparison of Public-Sector and Private-Sector Wages, Canadian Federation of Independent Business, October 2003. The earlier studies were published in 1992 (based on the 1986 Census), 1993 (the 1991 Census), and 1999 (based on the 1996 Census).

[68] At page 5.

[69] At page 3.

[70] Compensation Briefing Notes, Staff Relations Branch, Treasury Board Secretariat, March 1984, pp. 28–29. The pronounced dislike of the author for such studies is evident in this further quotation: "These kinds of comparisons are misleading and none are pertinent to the policy objective of relating compensation between similar public service and other jobs. However, the sensitivity of public service compensation continually stimulates interest in and confers unwarranted status on such comparisons." (pp. 28–29)

[71] At page 4.

[72] Special analysis entitled Correcting Census Data for the Receipt of Employment Equity cheques in 2000, March 2004. This was conducted by the Business and Labour Market Analysis Division of Statistics Canada.

[73] Morley Gunderson, Douglas Hyatt and Craig Riddell, Pay Differences between the Government and Private Sectors: Labour Force Survey and Census Estimates, CPRN Discussion Paper No. W/10, Human Resources in Government series, February 2000. This report also looks at Census data as a complement to the main focus of analysis, the 1997 Labour Force Survey.

[74] Morley Gunderson (MKG Associates), Public-Private sector Wage Differences with Emphasis on the Federal Government, draft report dated October 2003, unpublished.

[75] The comments in this and the preceding paragraph summarize points in the CPRN Discussion Paper, particularly on pages 2 and 23.

[76] For example, observations for Prince Edward Island in April 2003 numbered 1,284, versus 16,110 for Ontario whose population is about 100 times larger. This oversampling is undertaken in order to be able to provide reliable estimates for various labour force characteristics within PEI. According to Statistics Canada, the process of assigning a sampling weight to each individual record involves the following steps: "Each record has an initial weight that corresponds to the inverse of the probability of selection. Adjustments are made to this weight to account for non-response that cannot be handled through imputation. In the final weighting step, all of the record weights are adjusted so that the aggregate totals will match with independently derived population estimates for various age-sex groups by province and major sub-provincial areas." Source: Labour Force Survey [Online]

[77] One drawback of using sampling weights, however, is that the estimated standard errors are not valid, which does not allow to run significance tests for the point estimate, for instance to test whether the estimate is different from zero.

[78] Rmunration des salaries : tat et volution compars, 2003, Institut de la statistique du Qubec.

[79] The definition of "l'administration fdrale" is not given, but presumably focuses mainly on the federal public service.

[80] In effect, the ISQ is an inheritor of the Pay Research Bureau tradition from before 1992 when the PRB was closed.

[81] Based on June 2003 LFS Data and excluding self-employed people. This population (i.e. firms of more than 100 employees) is the closest match available to the population surveyed by the ISQ, which covers employees working for firms of 200+ employees. The ISQ data reflects the compensation situation on July 1, 2003

[82] For full-time indeterminate and term employees exceeding three months.

[83] Even though the 16.2% wage premium identified by Gunderson is larger than the 15.1% figure identified by the CFIB, we consider the CFIB estimate "higher" in principle because it relates to the year 2000, whereas Gunderson is reporting on data for 2003. This view is based on the information reported in the earlier part of this Chapter to the effect that federal public sector average salaries were increasing faster than indicators of private sector earnings in the 2000–2003 period.

[84] It is interesting to note Morley Gunderson's comment on the nature of a small premium in favour of the federal public sector: "...[such a] premium must be judged in light of the more egalitarian pay practices that seem to prevail in the public sector, especially with respect to women and less skilled workers where the premiums are usually largest. That may reflect political pressures, as well as pressure to be a 'model employer,' at least regarding compensation." Page 36, Gunderson, Hyatt and Riddell, February 2000.

[85] Treasury Board of Canada Secretariat – Public Service Alliance of Canada National Compensation Survey on Operational Services Positions: Final Report, Morneau-Sobeco, July 2003.

[86] The Table 2 Compensation Study: The PSAC's Analysis of the Results, Public Service Alliance of Canada, October 2003.

[87] At page 40.

[88] Overview – Joint Wage Comparability Study of the Operational Services Groups for the 2003–2006 Round of Negotiations, Treasury Board Secretariat, undated.

[89] For example (p.3 of TBS commentary), 78% of the surveyed labourer jobs are in the Quebec, Ontario and Atlantic pay zone, whereas only 38% of the SV population works in that zone.

[90] At page 1.

[91] Details are given in Table 2 on page 9 of the TBS commentary.

[92] In fact, this phenomenon has been evident for some time. For example, the Treasury Board report of 1992 that calculated an overall 8.3% gap between the federal public service and the private sector cited a 20.3% lag for the Operational Category, which overlaps substantially with the current SV bargaining group.

[93] Comparative Terms and Conditions of Employment of Foreign Service Officers, Pricewaterhouse Coopers, May 2002

[94] These are the two countries referenced as having salaries 60% above those of the Canadian foreign service.

[95] Transport Canada – Review of Recruitment, Retention and Compensation of the Civil Aviation Inspector Community, Pricewaterhouse Coopers, January 1999.

[96] The Art and Science of Competitive Compensation, Watson Wyatt Worldwide, November 2002.

[97] More generally, this case raises the issue of whether "terminable" allowances can in fact be terminated. Even when the external "hot market" conditions that justified instituting such an allowance change or reverse, the logic of collective bargaining as now practiced makes such corrections extremely difficult, perhaps even impossible to effect.

[98] Studies on Total Compensation Comparability and Total Cash Compensation of Senior Level Employees in the Public and Private Sectors, Hay Group Ltd., October 2001.

[99] The actual method for evaluating non-cash benefits is set out on pages 5 through 9 of the 2001 Hay Group report.

[100] At page 30.

[101] At page 31.

[102] At page 32.

[103] At page 33.

[104] At pages 34 to 36.

[105] At page 37. As we report in Chapter 13 of this volume, the 2004 version of the Hay Group Report indicated a gap of 80% on salaries and 101% on total compensation at the DM2 level.

[106] The pilot survey was limited to Ontario to keep logistics and costs manageable.

Chapter 7. Comparing Pensions

[107] In 2002–03 federal employer pension contributions amounted to about 40% of total benefit costs.

[108] Most Crown corporations have their own pension plans as well, but their description is beyond the scope of this study.

[109] Our main source for this overview is the Statistics Canada publication entitled Pension Plans in Canada, January 2000, and the updated version covering the period up to January 2003. For data, we used the analytical papers published by Statistics Canada as part of the CD entitled Canada's Retirement Income Programs, reporting the analysis up to 2002.

[110] This figure takes account of the fact that self-employed workers with unincorporated businesses, unpaid family workers, and the unemployed are not eligible for such plans, since they are not involved in an employer-employee relationship.

[111] It should be noted that some of these plans may offer "contribution holidays" from time to time and some offer variable (i.e. full or partial) contribution rates.

[112] As noted previously, our main source for this overview are the Statistics Canada publications cited in endnote 3 above.

[113] Treasury Board Secretariat Workforce Adjustment Directive Statement of Pension Principles "Reasonableness" Test, Towers Perrin, July 1997.

[114] Report on PSSA/RCA Evaluation, Buck Consultants, February, 2001.

[115] Understanding the Value of the Pension Plan, Part II: A comparison with provincial pension plans, Buck Consultants, September 2002.

[116] Benefits Data Bank Benval - Government of Canada, Towers Perrin HR Services, June, 2004.

[117] As described later, in fact this rate only applies to that portion of income above the Canada/Quebec Pension Plans' "year's maximum pensionable earnings," which was $39,900 in 2003.

[118] Note that benefit rates earned below the CPP Year's Maximum Pensionable Earnings vary from plan to plan, as we report below. The methods of calculating average earnings also vary. Some plans have moved to using the career average earnings, which significantly lowers benefits compared with a "best" or "last" five years average.

[119] This information appears on pages 7 and 8. In some cases the policy is the best consecutive five years. Prince Edward Island was reported as using a three-year average. This information is confirmed by a 2004 report prepared by the Manitoba Civil Service Superannuation Board on Canadian public sector pension plans.

[120] This information is from Towers Perrin's proprietary database.

[121] We understand that employers update their input to the Towers Perrin database each year.

[122] Final average means that an employee's pension is based on the average of a set number of years of income before retiring.

[123] This was substantially the case in all the various age-at-entry and income scenarios examined in the report.

[124] This information was compiled and reported in July 2004 by the Manitoba Civil Service Superannuation Board. As a participant in an ongoing federal-provincial conference on pensions, it was Manitoba's turn that year.

[125] This point is noted in Volume Two.

[126] This is the most recent date for which this data was available.

[127] It must be reiterated, however, that only 58% of registered pension plans, covering about 73% of members were contributory. For the remainder, the plans were fully funded by the employer.

[128] The 1997 Towers Perrin study found the federal pension plan to provide the second highest level of both employer and total value, after the Province of Nova Scotia. We have not reported this in the main text because the analysis is relatively old.

[129] The difference between 13.1% in the 2004 Towers Perrin study and the Treasury Board Secretariat's 17.3% would be worth deeper analysis. But it is difficult to conduct such a comparison when a proprietary database is involved. What is most important is methodological integrity and consistency within any given study.

[130] The findings cited below relate to the overall findings of the study which is based on numerous cases, not simply the specific case outlined in the chart above.

Chapter 8. Comparability of Other Benefits

[131] Benchmarking Survey of Health Care Plans for the Public Service Health Care Plan Trust, Mercer Human Resources Consulting, September 2003.

[132] 2001/2002 Statistical Summary – Health Benefits Prevalence Tables, Watson Wyatt  comparison, October 2003.

[133] A formulary is a list of drugs approved for purchase or reimbursement under a drug plan.

[134] Since late 2003, the PSHCP did reimburse for newer drugs of this type such as Cialis.

[135] The survey data is from Mercer. The employers covered were: the Government of British Columbia, Canada Post Corporation, the Canadian Broadcasting Corporation, Canfor, CIBC, EDS Canada, Nortel, the Government of Quebec, TD Bank, and one anonymous company.

[136] At page 39.

[137] There are technically two plans, the Public Service Alliance of Canada Plan and the National Joint Council Plan. We treat them in this chapter as one plan because their terms are virtually identical.

[138] Benchmarking Study of Selected Employee Benefits and Paid Leave Policies, Mercer Human Resources Consulting, September 2004.

[139] This is a proprietary database that may be accessed by employers that subscribe for an annual fee.

Chapter 9. Conclusions on Comparability

[140] Except on pensions where we included employee contributions in assessing value

[141] The federal public sector data includes the core public service domain, the separate employers, the Canadian Forces, and the regular and civilian members of the Royal Canadian Mounted Police.

[142] We used indexes to compare the rate of change for different variables. But this leaves unanswered the question of whether such indicators started out at comparable points, or whether a faster rate of change in a given variable was closing an initial disparity, for example.

[143] See Chapter 6 of this volume for more for details.

[144] The term "proactive" means that employers have a positive duty to implement pay equity in their organizations, without requiring employees to register a complaint.

[145] Morley Gunderson, "The Evolution and Mechanics of Pay Equity in Ontario," Canadian Public Policy, vol. XXVIII, Supplement I, 2002, p. S117.

[146] Pay Equity: A New Approach to a Fundamental Right, Pay Equity Task Force, Department of Justice, 2004.

[147] Pay Equity Task Force, 2004, p. 125. This repeats an analysis carried out by SPR Associates in 1991.

[148] Ontario Management Board Secretariat, e-mail dated July 22, 2004.

[149] Information received from the Government of Quebec.

[150] This information is gleaned from an article entitled "Show Us the Money: A pay Equity Cross-country Check-up," which appeared in the February-March issue of the union periodical Our Times.

[151] Gunderson, Canadian Public Policy, 2002, p. S143.

[152] Most notable are those of the Canadian Federation of Independent Business, and of Morley Gunderson at the University of Toronto. These are described more fully in Chapter 6 of this volume.

[153] Glassco, Chapter 7, "Compensation in the Public Service – Comparisons with Outside Employment."

Chapter 11. Recommendations on Transparency and Accountability

[154] This figure is given in Table 3, page 1.18 of the Public Accounts of Canada for 2002–03.

[155] Since the field of compensation is inherently complex, rooted in an understanding of precedents, relationships and subtle distinctions, rebuilding the requisite expertise will require several years of sustained effort and continuity in leadership and key personnel.

[156] We argue that only the cost-to-the-employer approach can really work. Any attempt to calculate value to the employee, however well-founded conceptually, will lose credibility through endless debates over methodology and the sheer abstractness of the results.

[157] At the EX 1 level, the policy is to set salaries to match total compensation with what is paid for comparable jobs in the Canadian private and broader public sectors. A part of the amount needed to match the external labour market (7% of salary) is set aside to be re-earned in whole or in part, based on performance. For exceptional performance, up to 10% can be earned. In this case, the extra 3% beyond the "normal amount" can be considered a performance bonus.

[158] As we note in a later section, federal compensation policy and practice must juggle various considerations, including the external labour market and internal relativity (as with any employer), and various public policy considerations. Clarity about the considerations and how they are trending can facilitate a broader public conversation about the appropriate positioning of federal public sector remuneration.

[159] Fiscal framework is a term used in the federal Government to describe the set of approved and expected expenses. It includes contingencies for various purposes, including policies not yet announced, and sensitive areas such as the funding set aside to deal with the outcomes of collective bargaining and other salary and compensation decisions.

[160] Apparently Statistics Canada presents its data as it does in order to align with international statistical reporting practices. With adequate discussion and planning, it ought to be possible to report the data in different ways for different purposes.

[161] Interestingly, this example illustrates that a solid answer could only be determined by collaboration across expert groups that have not been accustomed to working together or even taking notice of each other's data.

[162] We would expect such costs to total as much as $10 million or more to get things on a sound foundation, and several millions of dollars annually to operate the system.

[163] Those parts of the Public Service Modernization Act related to establishing a compensation research function in the new Public Service Labour Relations Board were proclaimed April 1, 2005. Implementation of the new research unit will no doubt take several years.

[164] "The parties" refer to the various federal employers, principally the Treasury Board, and the relevant public service union.

[165] This point applies as well, of course, to the unions. However, they are much less likely to miss this opportunity than the employer, since getting suitable information on compensation that can support their cause is unquestionably central to the union mission. The employer historically has too often paid too little attention to such studies until they are completed.

[166] Of the 4,883 separations of indeterminate employees that took place in 2002–03, only 22 employees were released for incompetence or incapacity while 36 were rejected while on probation (this latter amount representing about 0.6% of indeterminate hires for the year).

[167] Statistics Canada's Labour Force Survey and the Canadian Occupational Projection System both include retirement and death in their figures for "attrition." As a result, it is difficult to obtain solid data on private sector "quit rates." One 2003 Statistics Canada study,  Innovative Work Practices and Labour Turnover in Canada, suggests that the private sector quit rates are likely between 10 and 15% depending on the specific industry sector. R. Morissette & J.M. Rosa, Innovative Work Practices and Labour Turnover in Canada, Evolving Workplace Series, Statistics Canada and Human Resources Development Canada, August 2003.

Chapter 12. Coherent Management of Federal Compensation

[168] This was, in part, intended to respond to a recommendation by the Auditor General in her May 2003 chapter, Reform of Classification and Job Evaluation in the Federal Public Service.

[169] Appendix A of the proposed framework assesses a set of indicators suitable for tracking trends in the employer-related factors.

[170] Under this system, for example, two employees working half a year each would equal one full-time-equivalent position.

[171] A related issue is whether other costs relating to expanding staff levels (e.g. office space and informatics overheads) need to be levied on such transfers. Since 1998 departments and agencies have been subject to a 13% charge on any increase to the personnel costs of their reference levels as an offset against accommodation.

[172] It must be noted that the principal author of this Report was the Associate Secretary referred to in this paragraph.

[173] The former Canada Customs and Revenue Agency (CCRA) was split into two parts in December 2003. The larger part became the Canada Revenue Agency, with a mandate to administer various tax programs. The Customs part of CCRA was combined with elements of the Department of Citizenship and Immigration Canada to form the Canada Border Services Agency.

[174] For example, the Canadian Food Inspection Agency consolidated four inherited inspection groups, and the Canada Revenue Agency created a Management Group spanning all those playing a supervisory role.

Chapter 13. Specific Substantive Compensation Issues Relating to Salaries

[175] The occupational group structure was further revised in 2005 to separate the former Applied Science and Engineering (AP) group into the Architecture, Engineering and Land Survey (NR) group, and the Applied Science and Patent Examination (SP) group, and to create a new Border Services (FB) group, for a new total of 31 groups.

[176] This authority was available for six years only. What was unusual was that the power to set up occupational groups included the designation of these groups as bargaining groups. In Canadian labour law, the latter responsibility normally rests with the applicable labour board. The Treasury Board acted to consolidate the existing groups only at the very end of this period.

[177] This is not literally true, in the sense that pay determination in the context of a universal classification system could have made some allowance for shortages of particular occupations that could justify a salary premium.

[178] Section 7 reaffirms that the Treasury Board and separate employers retain the authority "to determine the organization," "to assign duties to and to classify positions and persons employed" in those parts of the federal public administration for which they are the employer.

[179] In this case, the lead would fall to the Public Service Human Resources Management Agency because of their responsibility for classification. However, the Treasury Board Secretariat must be an active partner because of the importance of the occupational group structure to collective bargaining and compensation management generally.

[180] Further detail can be found in the May 8, 2002 Treasury Board Secretariat news release and backgrounder entitled Government Moves Ahead with Classification Reform, located on the Treasury Board Secretariat Web site (

[181] As with Recommendation 10.1, the Public Service Human Resources Management Agency would have the lead within the Treasury Board portfolio, in close cooperation with the relevant parts of the Treasury Board Secretariat.

[182] This quotation is taken from the Fact Sheet on DHS and OPM Final Human Resource Regulations, which is available on the Web site of the United States Department of Homeland Security (DHS). OPM refers to the Office of Personnel Management. The General Schedule is the principal American government classification and pay system, comprising 15 levels, each with 10 pay steps.

[183] The GAO is the American analogue of the Canadian Office of the Auditor General. The quotation is from the first page of the GAO report Observations on Final DHS Human Capital Regulations, dated March 2, 2005.

[184] Prior to that date the numbers were generally about twice as high. But in earlier years, employees could be rejected on probation each time they moved to a higher level, not just in their first job in the public service.

[185] This is the colloquial name (in fact, the name of the current Chair) for the Advisory Committee on Senior Level Compensation and Retention, which advises the Treasury Board on executive compensation.

[186] To some extent, the incumbent-based promotion regime for scientific researchers exhibits such an approach.

[187] Of course there are also assignments from the federal government to external organizations, on the same basis. That is, the public servant works for an outside employer, but is compensated according to his or her public service classification.

[188] There have, in fact, been a few cases in recent years where the Treasury Board has approved such compensation packages

[189] This possibility was suggested by Warren Edmondson, based on his recollection of how the federal public service salary bands were constructed at the introduction of collective bargaining in 1967.

[190] The suggested parallel processes for the other federal employers should similarly assess whether the proposed criteria for adopting a regional pay philosophy should apply to the new groups.

[191] The definition of "locality pay" is given on page 73 of the April 2002 United States Office of Personnel Management White Paper entitled A Fresh Start for Federal Pay: The Case for Modernization. Source for data: General Schedule 2003, United States Office of Personnel Management

[192] Salary levels for excluded employees of groups that are otherwise represented by unions, and the Personnel (PE) group, are essentially determined by reference to the relevant collective agreements.

[193] It is worth repeating that this comparison includes an amount of 7% of salary as the average amount to be earned through performance pay. Thus, in the absence of this provision, EX 1 salaries would need to be 7% higher to maintain equivalence with the external labour market

[194] In both cases (2003, when the reduction was 0.3%; and 2004, when the reduction was 0.25%) the reductions were approved in order not to disturb collective bargaining negotiations then in progress with the Public Service Alliance of Canada.

[195] The Report title is Government of Canada: Executive and Deputy Minister Level Total Remuneration Market Review.

[196] These are comparisons to the median level in the Hay Associates sample. For deputy ministers, comparisons are only carried out at the DM 2 level, the most numerous level of deputy heads supporting a minister directly.

[197] Long-term incentives such as stock options can play an important role in the private sector, but likely cannot be replicated in the public sector. It appears more realistic to leave this element out of any practical definition of comparability.

[198] To prevent such a policy from being abused, a right of appeal to the Public Service Commission, which is responsible for protecting the merit principle, should exist to prevent the removal of persons that the Government dislikes for partisan political reasons or for whistle-blowing.

[199] This quotation comes from a Mercer Human Resources Consulting Report for the United Kingdom Office of Manpower Economics, entitled Benchmarking international Armed Forces' pay and allowances, dated December 2004, at page 25

[200] For example, the above-noted Mercer report states that Canada uses a "Joint Treasury Board Secretariat/Canadian Forces advisory group on military human resource issues." At various times, the Canadian process has been described internally as reported by Mercer. However, this language implies far more rigour and structure to the process than the reality could justify.

[201] Information on the Australian approach has been taken from the Nineteenth Report (2003-2004) of the Defence Force Remuneration Tribunal, dated 29 October 2004.

[202] Although the Howard Government has reformed the awards system in the general labour market, in order to encourage enterprise-specific or individual labour contracts, it has maintained the ADF Remuneration Tribunal, apparently as a result of the critical role the Defence Force has played in Australian foreign policy in recent years.

[203] Remuneration of Canadian judges is effectively determined by an independent advisory body known as the Quadrennial Commission. Judges are in a unique position under the Constitution, requiring their independence from the Government to be unassailable. Still, changes are implemented through amendments to the Judges Act, so Parliament could theoretically refuse to implement the recommendations.

[204] Cited from the Thirty-Third Report 2004 of the United Kingdom Armed Forces Pay Review Body, dated February 2004, page 5.

[205] In one sense, the bad feelings are understandable. RCMP members have become proud of enjoying overall compensation equal to or better than all but one or two police forces in the country. The 2004 decision pushed the RCMP to fourth place, albeit by only a few dollars. On the other hand, it is important to keep perspective on RCMP pay over time and not overreact to temporary situations.

[206] For objectivity, this should not be the firm that has conducted the total compensation surveys over the past decade.

Chapter 14. Specific Compensation Issues Relating to Pensions and Other Benefits

[207] This does not mean two thirds of public servants earn below $41,100, but that whatever their salary level, the part below $41,100 totals about two thirds of all salary dollars paid.

[208] Except on the portion of salary below $3,500 on which there is no contribution.

[209] See the 2002 report A Strategic Framework for the Examination of the PSSA, by BRO Workforce and Retirement Strategies Inc.

[210] In considering these questions, it might turn out that requirements of the Pension Benefits Standards Act or the Income Tax Act would prevent certain kinds of Plan changes. It may be that these statutes as well would benefit from the kind of reflection and renewal we are suggesting.

[211] At the same time, it must be noted that according to the 2000 Statistics Canada Survey of Labour and Income Dynamics, 38% of the Canadian labour force had no coverage of this type through their employment. One half had all three of extended medical, dental and life/disability coverage. Source: Perspectives on Labour and Income, Summer 2003, volume 15, no. 2, p.9.

[212] Note that the 2002–03 figure includes about $0.2 billion for such programs for federal public sector pensioners.

[213] For example, life insurance plans can experience sudden surges of claims followed by periods with few claims. Such volatility can put small plans into such a deficit that full recovery is unlikely. Large plans, managing a greater pool of risks, have somewhat flatter variations in claims overall, and can weather more easily such claims surges that do occur. Accordingly, insurers usually charge a higher risk premium for small plans than they do for larger ones. In general, a plan with a large membership is stronger and cheaper than a plan with a small membership.

[214] It should be noted that this is not a funded plan, but only an account maintained in the Accounts of Canada.

[215] These comments apply equally, of course, to employer representatives on the Pension Advisory Board, discussed in the previous section of this chapter.

[216] Between 1991–92 and 2002–03, members of the Executive (EX) group cashed out on average between 4.12 and 5.81 days of holidays, or about 20 to 25% of their average annual leave entitlement in those years. By contrast, in the public service as a whole, vacation days cashed out ranged from 0.91 days to 1.79 days on average, or about 5 to 10% of their average total annual leave entitlement. This information was obtained through the Public Service Leave Reporting System (LRS).

[217] The apparent decline in usage displayed in Table 2047 in Chapter 6 of Volume Two results in part from the creation of the Canada Customs and Revenue Agency as a separate employer, thereby removing from the core public service domain a large organization with significant overtime usage.

[218] Even for the RCMP usage remained at about $66 million as recently as 1999–2000.

[219] By 2004–05, this actuarial liability had grown to $8.3 billion.

Chapter 15. Possible Areas for Legislative Change

[220] The 2000 Report was entitled Identifying the Issues: First Report of the Advisory Committee on Labour-Management Relations in the Federal Public Service. The 2001 Report was entitled Working Together in the Public Interest: Second Report of the Advisory Committee on Labour-Management Relations in the federal Public Service.

[221] Pay Equity: A New Approach to a Fundamental Right, report of the Pay Equity Task Force, chaired by Professor Beth Bilson, 2004.

[222] For an entirely different perspective, see L. Panitch and D. Swartz in From Consent to Coercion: The Assault on Trade Union Freedoms, Aurora, ON: Garamond Press, 2003, where they argue that the previous 20 years saw a gradual move towards "permanent exceptionalism" by governments across Canada, as they began to strip away the rights of unions through legislative imposition of contract terms, jailing of union leaders in the 1970s, and increased designation of essential workers.

[223] The constant dollar average salary fell from $48,100 in 1994–95 to $46,300 in 1997–98.

[224] For the combined core public service and separate employers alone, the cumulative increase exceeded that of private sector agreements in 2001–02.

[225] It would be correct to note that we are comparing federal public service average wages with negotiated salary increases in the private sector, two measures that track different things. However, if we track average hourly or weekly earnings in the private sector instead (see Figure 1026), the cumulative gap in favour of the federal public sector is even greater by 2002–03.

[226] In the United States, federal public service salaries are still recommended by the President and approved by Congress, based on recommendations from Advisory Boards.

[227] In a minority government situation, it can be particularly unattractive to resort to a legislative resolution of a public service labour dispute. If the Government were to "go the legislative route" but fail to get the Bill passed, its bargaining position would become untenable.

[228] Cited in B. Adell, M. Grant, and A. Ponak, Strikes in Essential Services, Kingston, Ont.: IRC Press, 2001, chapter 1, page 7.

[229] Cited in Sandra Christensen, Unions and the Public Interest: Collective Bargaining in the Government Sector, the Fraser Institute, 1980, p. ix.

[230] Presentation of Yvon Tarte, Chairperson of the Public Service Staff relations Board to the National Joint Council 1999 Seminar, 15-17 September 1999, Winnipeg, Manitoba.

[231] See Peter Warrian, Can't Get There From Here: Old/New Unions in a New/Old Economy, Sefton Lecture 2001, University of Toronto. Using the health sector in Ontario as the case in point, Warrian argues the "repeated application of the traditional Wagnerist trade union model ....condemns itself to a tread mill of periods of distributive bargaining alternating with restrictions of trade union rights and wage controls. A new social contract is necessary in the health sector. One that is locally based, expands employee voice, utilizes workers' skills and commitment in new ways."

[232] Interestingly, as part of the Government's restraint program in the mid1990s, it was proposed that cost savings or efficiency gains identified by departments or unions could be shared with employees through increases to frozen salaries, once the savings were implemented. The initiative went nowhere because of the difficulties described in this paragraph.

[233] John A. O'Grady , Arbitration and Its Ills, Discussion Paper Series, No. 94–05, Government and Competitiveness Project, School of Policy Studies, Queen's University, 1994.

[234] As we noted in Chapter 2, experience with arbitration in the twenty years before the wage freezes of the early 1990s suggests that in the aggregate arbitration outcomes lagged slightly versus collectively bargained settlements. It is still early to assess the impact of arbitration in the period since its reinstatement in 2001.

[235] Italics in the original text.

[236] See page 44 of John O'Grady's 1994 paper: "Influencing arbitrators through directive language in statutes was found to have been comparatively ineffective."

[237] Because collective bargaining is generally centralized, there may be a tendency for departmental line managers to feel that a labour dispute is not "their" affair but a matter for the relatively distant Treasury Board.

[238] The techniques would include: fact-finding, referral back to negotiations, mediation, issuance of a preliminary report commenting on the reasonableness of the parties' positions, issuance of a report outlining the terms of a settlement that could be adopted or imposed on the parties, and imposition of a collective agreement at the request of a union under specific circumstances.

[239] There is reason to fear, however, that the method set out in the Act for selecting a PIC Chairperson will make groundbreaking appointments unlikely. If either party requests a three-member PIC, then their nominees select the Chairperson. The parties seem likely to be conservative, selecting those with whom they have had experience. The need to agree on a name in itself militates against innovation in choosing a PIC Chairperson. On the other hand, where the union requests a tripartite Commission, the union will have to pay the costs of their representative. Overall, it may not be that common that the PSLRB Chairperson, who could be freer to experiment, will have the chance to select a PIC Chairperson.

[240] Cited by O'Grady from Gene Swimmer, "Critical Issues in Public Sector Industrial Relations," in Amarjit S. Sethi, Collective Bargaining in Canada, Scarborough, ON: Nelson, 1989, p. 410. O'Grady observes further in his footnote 34: While so clear-cut a statement of arbitral criteria is difficult to find, Arbitrator Martin Teplitsky came close when he observed: "Interest arbitrators interpret the collective bargaining scene. They do not sit in judgement of its results." This is cited from Re: Ottawa Board of Commissioners of Police and Ottawa Police Association (Martin Teplitsky), September 10, 1980, p. 4.

[241] Cited from W. Fogel and D. Lewin, "Wage Determination in the Public Sector," Industrial and Labor Relations Review, 27 (1974), p 413

[242] We have not called them "arbitrators" because that title has a vast history and cultural context, which we would be attempting not to import into a new regime.

[243] It must be recognized that the more the system is "rules-based," the more it would be vulnerable to judges intervening, notwithstanding their lack of expertise in most cases. This reality would need careful assessment in designing a new system.

[244] Industrial Aggregate is defined by Statistics Canada as being the average Canadian weekly wages and salaries for a specified year and tends to track inflation and general increases in labour income.

[245] This jurisdiction includes the federal government and private enterprises in such areas as banking, railways, airlines, shipping, ports, and interprovincial trucking.

[246] Pay Equity Task Force Final Report 2004, pp. 124-5.

[247] See above-noted Report, p. 138. It should be noted that provincial public sector labour negotiations in Quebec, concluded by legislation in December 2003, provided for substantial further pay equity adjustments.

[248] These data are extracted from Statistics Canada's 2001 Census report entitled Overview: University education, experience pay off in higher earnings, pp. 7 and 8.

[249] This study is part of the Evolving Workplace Series, based on the Workplace and Employee Survey conducted in 1999 by Statistics Canada with the support of Human Resources Development Canada. The author was Marie Drolet of the Business and Labour Market Analysis Division of Statistics Canada.

[250] See page 43 of the above study.

[251] This issue is not resolved by the explanation provided in the Equal Wages Guidelines promulgated by the Canadian Human Rights Commission in 1986. Section 3 states: "For the purposes of subsection 11(2) of the Act (i.e. the CHR), intellectual and physical qualifications acquired by experience, training, education or natural ability shall be considered in assessing the skill required in the performance of work."

[252] It is worth noting that critics of such universal rating systems have conducted experiments that suggested that different raters could come to very different evaluations of job descriptions in applying supposedly objective standards. Of particular note is a 1986 study entitled Game Playing with Comparable Worth, which sought to determine whether independent assessments of job worth by several job evaluation firms were consistent. The study found highly differentiated results and wide disagreement among the firms. Among other things, the study found that it was possible for one evaluator to suggest that two jobs be paid the same amount while another evaluator suggested that one of them be paid 50% more than the other. Ultimately, the authors concluded that it was not possible to identify consistent, reliable measures of job worth apart from market value. E.J. Arnault, et al. Game Playing with Comparable Worth, October 1986.

[253] The Ontario labour jurisdiction does accept bargaining power as a permissible exception to pay equity.

[254] A background study for the Pay Equity Task Force explored the complexities of dealing with non-cash benefits in the context of pay equity: The Treatment of Non-Wage Benefits in Pay Equity Comparisons, by Monica Townson, December 2002. The Task Force argues that non-cash benefits should be captured in the total compensation approach it favours. Townson notes, however (page vii) that "if anything, valuation problems, for both traditional and non-traditional forms of non-wage benefits, have become even more complex," since the equal pay provisions of the Canadian Human Rights Act came into effect in 1977.

[255] This is true, except insofar as a wage difference fit within one of the "reasonable factors" set out in section 16 of the Equal Wages Guidelines, 1986.

[256] The Pay Equity Task Force Report recommends adopting a single 60% threshold, which would be an improvement. However, new ambiguities are proposed such as factoring such imprecise concepts as "historical incumbency" and "traditional stereotypes." An even odder suggestion is that one should add the number of women and other designated groups (aboriginal, visible minority, and persons with disabilities) in determining whether the 60% level had been met. As the definitional complications expand, any meaningful idea of comparing "equal pay for work of equal value" can only recede from view.

[257] In fact, the Personnel Administration (PE) group shifted from male- to female-dominated during the 1980s. In 1981, 64% of the group was male; by 1991, it was 60% female. Subsequently, a pay equity complaint was advanced, and a settlement agreed in 1999.

[258] It is interesting to note a conceptual disconnect between "equal pay for work of equal value" and improving the relative position of women versus men in the labour force. Because pay equity compares the value of jobs between groups, men can benefit from pay equity settlements where they are a minority (up to 45%) of an affected group. Conversely, women in low-paid occupations dominated by men have little prospect of improving their situation through a pay equity complaint.

[259] See, for example, the study Assessing the Gender Neutrality of the FB Classification Standard, by Professor John Kervin of the University of Toronto, August, 2005.

[260] Cited from "Introduction to Edition 2001" of the National Occupational Classification (NOC), published by Human Resources and Skills Development Canada, 2001, p. i.

[261] This is a summary of the chart on page vii of the document cited in endnote 41.

[262] Appendix K is entitled "Distribution of employees by gender in the federal public service for selected years, 1981 to 2005."

Chapter 16. Implementation Framework

[263] Separate employers enjoy various degrees of autonomy from the Treasury Board on compensation matters. However, all federal institutions are subject to Treasury Board scrutiny of their operating budgets and financial plans.

[264] The Secretary may well decide to give a major leadership role in this area to the Associate Secretary. Nevertheless, the Secretary must remain visibly and knowledgeably committed to the success of this work.