Maintaining Fiscal Discipline under Pressure: Sustainable Wage Bill

Management Practices

Mark Silins,

PFM Advisor

November 2009

Focus

International experience with public sector management

Issues

Overall reform initiatives

Solutions for workforce redesign

Making payroll more efficient

Conclusions

Counting the Cost – Using Cost Reduction to Drive Sustainable Government

“Few axioms exist amid this uncertainty but one exception, driven by some startling arithmetic, is that current expenditure on public services cannot continue without either unprecedented efficiency gains, tax rises or service cuts.”

Article by Deloitte Government & Public Sector Group -13 July 2009

Irish Economy 2009 – Balancing the Budget by Improving the Public Sector

“For years, the public sector has been run like a giant social welfare scheme whose beneficiaries enjoy excellent pay, pensions and working conditions. The current wasteful public sector must be dismantled and replaced with a public sector that is focused solely on providing value to its customers and the taxpayer.”

http://www.mondaq.com/article.asp?articleid=82848 - Joseph McGrathJan 7, 2009

Trends in OECD Countries

Decentralizing authority of government Re-examining what activities governments should do Downsizing public sector (rightsizing) Finding more cost effective service delivery Emphasizing a customer orientation Reducing regulation costs Measuring performance

Trends in Public Sector Management

Change in skills requirements – shifting to higher level policy-oriented skills away from lower level processing jobs

Public and political expectations of public servants continue to grow

Less interested in the concept of a job for life

Pension scheme changes to reduce costs and encourage greater mobility

Performance management

RMIP

•Budgetary+Regulatory

•Commercial

•HR Planning

•Incentives

•MAB/MIAC

•Administrative Law

•PMB

•Staffing Arrangements

•Structural Efficiency

•Reporting Mechanisms

Australia – Removing Legislative Impediments

Workplace Relations Act 1996 – public sector conditions more aligned to private sector

Financial Management and Accountability Act 1997 – increased accountability of CEOs

Public Service Bill 1999 – enhanced accountability for performance (under)

Other Issues

Aging population – what is the age and skill profile of the public sector? Start HR planning now!

How well do the demographics of the public sector reflect the population?

What proportion of our staff are focused on external activities?

Is there political pressure to employ those who lose their jobs?

Options for Service Delivery

Outsourcing activities, particularly administrative functions

Contracting out service delivery to the private sector and to NGOs

Consolidation – have we devolved too far internally? Shared services Automation – OSI enhanced job skills E-Governance Business process reviews

How well do we understand our business and performance?

Does government need to undertake the activity or deliver the service – what is our core business?

User Charging (non-core activities)

Yellow pages test

Does every step in our business process add value?

Managing Payroll Costs

Budget controls must be hard controls – no different to other expenditure controls

Average Salary Levels (ASL) may also need to be controlled

Cost overruns and ASL overruns must result in remedial action and sanctions

Payroll should be automated where possible, and system-based controls put in place

Early warning mechanism instituted before payday through some form of payroll review

Be aware of shifts from permanent to temporary and to goods and services – consultants

Simplify Pay Processes – Reduce the Costs of Managing the Payroll

Reduce the different pay categories – lower costs and create a more flexible workforce

Roll allowances into base salary

Focus on overtime – are we getting a full day’s work?

Link future pay increases to efficiency gains – pay for performance

Impose efficiency dividends

Concluding Remarks

Start looking ahead now to re-engineer the public sector workforce

Approach this as part of a broader reform agenda, focusing on continual improvement

Develop a performance culture and client orientation

Actively manage workforce in terms of fiscal discipline, measuring performance and dealing transparently with underperformance