ECONOMICS:Preoccupation with pay has led people to ignore just how overstaffed at managerial level the HSE and local authorities are, writes PAT McARDLE

I HAVE yet to meet someone who approves of the decision to adjust the public sector pay reductions announced in the budget to mitigate their impact on some higher public service grades.

While Minister Brian Lenihan appears to have convinced the Fianna Fáil party of the merits of the decision, taken just before Christmas, many others remain sceptical and the negative PR and the political fallout has been considerable.

On first glance, it was hardly worth the trouble – the number of staff affected is only 0.2 per cent and the amount involved is 1/20th of 1 per cent of the pay bill. Moreover, those affected could hardly be described as militant.

However, a closer examination reveals that the situation is less clear-cut than commonly supposed. Public sector performance pay, to give it its correct title, had a difficult birth and a traumatic death for it is surely gone now, not to reappear in our lifetime.

It owed its existence to the Review Body on Higher Remuneration in the Public Sector, a standing body set up in 1969 whose primary function is to “advise the Government on the general levels of remuneration appropriate to higher public servants, including semi-State CEOs, the judiciary and the Oireachtas”.

It currently comprises four people, all non-civil servants, and is chaired by Tony O’Brien, chairman of listed drinks group CC.

Its recommendations are usually accepted by Government, though there have been some notable exceptions, mainly relating to performance pay.

Report number 38, dated September 25th, 2000, otherwise known as the Buckley report after its then chairman, the former AIB chief executive Michael Buckley, was trenchant in its criticism of the failure of Government to adopt earlier proposals regarding performance pay.

It railed against the then embryonic system whereby “in most cases payments of equal amounts (a flat 4 per cent) have been made to each assistant secretary”; again recommended that the amount of the payout should be increased to 10 per cent of the pay bill; proposed a new Committee for Performance Awards (CPA) to monitor the system and stressed that the CPA could suspend the scheme if awards were not merited.

More than a year later, in November 2001, the government adopted the recommendations regarding the assistant and deputy secretary grades and subsequently extended them to related grades in the other bodies listed in the table. It declined to apply them to secretaries general “because of the nature of their working relationship with ministers”.

Though the performance pay scheme had a different title, it was clearly modelled on bonus schemes in the private sector and was designed to encourage excellence. The reality was to prove different. The CPA did not deliver, the targets set were not very demanding and the vast bulk of awards were bunched around the middle. The 2006 CPA report reveals that no one got the maximum 20 per cent but is silent as regards zero awards, leading to a presumption that everyone got something.

A properly run scheme might have seen 10 per cent get the max and 10 per cent get zero. The 2007 report notes that almost half of those eligible received awards between 9 and 11 per cent.

The secretaries general clearly were an instrumental part of this treatment of their direct reports, a poor reflection on their ability to embrace and foster change.

A curious feature of the annual CPA reports was that they provided statistics on the Civil Service, Army and Garda only, thereby giving the impression that the total number of recipients was about 220, whereas the correct figure was 655 when the Health Service Executive (HSE) and local authorities were included. The CPA appears to have dealt with only one-third of the total and we have no information on how the remainder of the awards were distributed.

By February 2009, when the Government abolished the scheme, the average assistant secretary was earning €150,000 (though some of the related grades had salaries up to €200,000 or more) and the average payout was €15,000.

The Association of Assistant Secretaries and Higher Grades then argued the scheme was part of their basic remuneration package, albeit that payout was deferred to the subsequent year and they had legal advice to this effect. They sought to have the average 10 per cent reduction in performance-related pay taken into account in the further review of pay announced in April 2009.

In the event, these representations were ignored by the Review Body which recommended an 8 per cent cut in assistant secretary pensionable pay, in addition to the earlier loss of non-pensionable performance pay and this was accepted by the Minister in the budget.

However, the legislation gave the Minister discretion to take account of exceptional circumstances and he used this to limit the reduction in the case of assistant secretaries to 3 per cent. In other words, they got credit for only half of the average 10 per cent performance pay, on the basis that it was non-pensionable.

The Minister appears to have been influenced by a novel aspect of the review process. For the first time, comparison was made not just with the private sector but also with six other European countries. (Of these, only Britain had any kind of bonus scheme.)

Uniquely, the assistant secretaries were found not to be paid more than in the other countries. This was taken into account by the Minister but not by the Review Body.

Much of the subsequent criticism is, thus, misplaced. More importantly, the preoccupation with pay has led people to ignore a much more important issue with the numbers who benefited.

The Civil Service advises on policy so a reasonably high ratio of assistant secretary posts is justified.

The number of such posts in the Garda and Army also looks reasonable. However, the totals in both the local authorities and the HSE look completely out of line.

Running these bodies is unlikely to be any more complicated than the Army or Garda. If so, then between them one could justify, say, 25 posts at the number-two level. How on earth did we get ourselves into a situation where we have upwards of 400 excess directors of service and senior managers in these bodies? And why was there no mention of them in the annual performance awards reviews? The Minister has already accepted the numbers in these grades are excessive; the challenge now is to reduce them.