A Christmas Present for Senior Civil Servants

On budget day, the Minister for Finance announced that civil servants earning between €165,000 and €200,000 would take pay cuts of 12% while those earning over €200,000 would take pay cuts of 15%. Yesterday, with the public focusing on their pre-Christmas preparations, the government announced that this would not be happening after all.

These pay cuts have been rolled back for two reasons. First, the government announced that it was going to take into account the elimination of “performance-related awards” which had averaged ten percent of their salary. As a result it reduced the new pay cuts for some civil service grades to reflect the loss of this ten percent.

Second, it was decided that the differential rates of adjustment, with higher cuts for those over €200,000 would introduce anomalies in which there would be overlaps such that those on higher points in lower scales would have better salaries than those on lower points of a higher scale.

The statement points out the implications of the decisions taken:

The resulting adjustments including the effect of the termination of the scheme of performance-related awards produce reductions in remuneration of 14% in the case of the grade of Deputy Secretary and 11.8% in the case of the grade of Assistant Secretary.

Or, in other words, given that the bonuses were gone already, these measure will imply a cut of only 3% for Assistant Secretaries and only 5.4% for Deputy Secretaries (based on 0.882*1.1= 0.97 and 0.86*1.1= 0.946).

The Irish Times reports that a government statement said that it would have “been unfair” to these grades not to make these adjustments.

A couple of comments about this.

First, these performance-related awards were, as their name suggests, not guaranteed but (at least in theory) related to performance.  This move appears to be an effective admission from the government that these payments were not in fact performance-related bonuses but part of the core pay of these civil servants. For a government that claims to be keen to introduce reform into the civil service (something that should include bonuses as incentives for good performance) this is a very unfortunate precedent.

Second, these bonuses were not pensionable. Because civil servants’ pension obligations are still based on the full pre-pension-levy salaries, this means that the pensionable salary of an Assistant Secretary has only fallen 1.8% this year. Senior civil servants close to retirement have been almost completely protected from the consequences of the fiscal crisis.

Third, the Review Body on Higher Remuneration, whose recommendations the Minister had claimed to be implementing, explicitly made its recommended cuts in terms of regular salary. This is not because they were unaware of bonuses. They stated:

the continuation of performance-related awards cannot be justified in the current climate. Having said that, it remains our view that such awards will have an important role to play in the future when economic stability has been restored.

In other words, their recommended cuts were in addition to the suspension of bonuses, which they recommended re-introducing at some point.

Fourth, it appears that senior civil servants are the only group in Irish society that get to count earlier cuts as part of their current cuts. For instance, the cuts to social welfare payments announced in the budget are in addition to the 2% cut related to the elimination of the Christmas bonus. Would the government consider changing its cuts in social welfare rates to take account of this?

Finally, perhaps it is cynical to suggest that this information was released just prior to Christmas in the hope that the public would not notice. If this was indeed the intention, somehow I don’t think it’s going to work.

Economic and Social Review: Winter 2009

The latest edition of the Economic and Social Review is now available online here. The papers in the edition are as follows.

Modelling Credit in the Irish Mortgage Market
Diarmaid Addison-Smyth, Kieran McQuinn and Gerard O’Reilly

Politics and Fiscal Policy Under Lemass: A Theoretical Appraisal
Frank Barry

The Impact of Fiscal Shocks on the Irish Economy
Agustin Benetrix and Philip R. Lane

Language and Occupational Status: Linguistic Elitism in the Irish Labour Market
Vani K. Borooah, Donal A. Dineen and Nicola Lynch

A Code of Practice for Grocery Goods Undertakings and an Ombudsman: How to Do a Lot of Harm by Trying to Do a Little Good
Paul K. Gorecki

Income Inequality and Public Policy
Brian Nolan