Boost executive pay, state report urges

By David Donaldson

Monday October 17, 2016

Public sector executives are responsible for managing significant budgets, dealing with risk and helping deliver vital services. Ensuring governments are able to recruit and retain the best people is hugely important.

But currently Victoria is not presenting a sufficiently competitive offer to lure executives in other jurisdictions, nor to encourage its own staff to move into executive ranks, says the Victorian Public Sector Commission.

Victorian executive officers are paid less than their New South Wales counterparts and are subject to fixed-term contracts with less favourable termination provisions, the VPSC has found in the first review of its executive officer employment and remuneration framework in over two decades.

The report outlines how a lack of strategic oversight and governance, and a series of ad hoc decisions in legislation, policy and convention over the past 20 years, have created perverse incentives and undermined the goals of the executive remuneration system. “The review found that current Victorian Public Service employment and remuneration arrangements are not best placed to support a high performing EO workforce,” said Victorian Public Sector Commissioner Belinda Clark.

“Fundamentally, current arrangements do not provide transparency, fairness and rigour in classification and remuneration of EOs. In addition, Victoria’s EO employment offer does not incentivise movement from the non-executive public service workforce into the EO classification, and is uncompetitive with other jurisdictions.”

Executive remuneration span across Australian jurisdictions.
Executive remuneration span across Australian jurisdictions.

Among the VPSC’s recommendations to help attract and retain high-performing EOs and establish Victoria as an employer of choice for public sector executives is a proposal and increase EO base remuneration from $152,560 to $175,000. This would place it around the same rate as NSW, $174,500. People interviewed for the review said there had been instances where they were “unable to attract executives from other jurisdictions due to Victoria’s lower remuneration for similarly valued roles”.

In a similar vein, the VPSC wants to extend the notice given to executives of the termination of their contract from four months to nine months, in line with NSW’s 9.5 months. The current four month termination provision “deters private sector executives from taking up employment in the public sector”, says the VPSC.

Victoria is behind NSW on a range of provisions for executives, says the VPSC.

The commission is proposing a new work value assessment system “which adequately reflects the expectations and requirements of diverse public service EO roles, and which supports in-house assessments”. It also wants a recruitment and retention payment framework to support remuneration outside the band when required, with payments approved by a proposed public sector EO remuneration panel.

It recommends eliminating overlap in pay rates between different bands. EOs at the lower end of the remuneration band are paid less and have weaker job security than those in the upper reaches of the non-executive service, reducing incentives for VPS-6 officers to take up EO-3 roles. Currently around 30% of VPS-6 staff are paid more than the base rate for an executive.

The pay and conditions of high-level non-executives can exceed those of low-level executives.
The pay and conditions of high-level non-executives can exceed those of low-level executives.

There is also overlap between executive grades themselves, which was not originally a feature of the system when it was implemented in 1995, but has emerged due to the practice of giving higher pay increases to the top end of each grade but not the lower end.

Victorian agencies and departments are given significant discretion in classification and remuneration arrangements, which has contributed to the development of a flexible but “confusing” system of varied structures and nomenclature across the EO workforce. The absence of systematic work value assessments and benchmarking makes it difficult in some cases to know how much individuals should be paid.

This discretion may worsen the gender pay gap, given that research shows women are less likely to attempt to renegotiate their pay. Review analysis showed fewer women in senior EO classifications and lower remuneration for women in the EO-1 and EO-2 bands.

Overlap in executive pay grades undermines incentives to take on new roles as well as the principle of paying based on work value, says the VPSC.
Overlap in executive pay grades undermines incentives to take on new roles as well as the principle of paying based on work value, says the VPSC.

Victoria’s unusual arbitrary cap on the executive headcount — which does not include a budgetary restriction or cap on the number of highly paid staff — has also resulted in a large number of specialists and contractors doing executive-like jobs without being managed as executives.

Current governance and oversight arrangements “are fragmented and do not support a systems view on EO remuneration or EO workforce trends across the public sector”, says the report, with responsibilities for different parts of the sector being split across government. Remuneration approvals for the VPS are handled by DPC (on behalf of the Premier), while those for public sector entities are looked after by the Government Sector Executive Remuneration Panel. There is no formal link between these two bodies, which is particularly problematic in areas that straddle both, such as Transport.

There are also ad-hoc and inconsistent approaches to EO performance management across the VPS. There is no common capability framework to articulate the expectations of EOs, or assess and develop EOs in accordance with the capabilities required for success. Victoria does not have formal links between EO performance plans or whole of government objectives.

Key changes proposed are:

  • The development of a new framework for classifying and remunerating public service executives on the basis of work value.
  • Changes to employment terms and conditions so that Victoria’s executive offer is more competitive.
  • Stricter requirements and improved guidance on performance management processes.
  • More systematic oversight and governance of the workforce, including a single point of oversight for significant remuneration decisions and analysis of public sector EO employment trends.
  • Public entity industry segment reviews to examine the applicability of the proposed VPS employment arrangements to the broader public sector.

The report, released Monday, is the result of a direction by the Premier to review executive officer employment and remuneration framework in July 2015.

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