Maintaining Fiscal Discipline under Pressure: Sustainable Wage Bill Management Practices

1. Maintaining Fiscal Discipline under Pressure: Sustainable Wage Bill Management Practices Mark Silins, PFM Advisor November 2009

2. Focus • International experience with public sector management • Issues • Overall reform initiatives • Solutions for workforce redesign • Making payroll more efficient • Conclusions

3. 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

4. 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

5. 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

6. 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

7. RMIP • Budgetary+Regulatory • Commercial • HR Planning • Incentives • MAB/MIAC • Administrative Law • PMB • Staffing Arrangements • Structural Efficiency • Reporting Mechanisms

8. 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)

9. 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?

10. 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

11. 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?

12. 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

13. 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

14. 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