Criticism of Higher Civil Servant U-Turn Misplaced?

Writing in the Irish Times, Pat McArdle reckons that criticism of the roll back of the cuts to higher civil servant pay is misplaced. Pat’s key argument is as follows:

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.

Here’s the relevant section of the Review Body report:

4.11 The salary for Assistant Secretary places the Irish post behind the equivalent position in the UK, the latter being 10% ahead of its Irish comparator. The salary for the role in the remaining countries is somewhat lower than that of the Irish post. The rate for the equivalent post in Finland, with which the Irish post is banded, is 74% of the Irish rate.

4.12 When the comparison is made on an adjusted income basis, it is found that the Irish post is behind that of four other countries, viz. the UK, which is 102% ahead, Germany, which is 29% ahead, Belgium, which is 6% ahead and the Netherlands, which is 1% ahead. The adjusted income value of the role in Finland is 97% of that for the Irish position.

It is open to question whether the Irish government should be factoring in high local prices levels when setting civil servant pay, particularly since we are aiming to reduce these levels to restore competitiveness.

The report doesn’t explicitly state how much weight it placed on the adjusted versus unadjusted salaries when arriving at its conclusions. It does, however, note that other considerations were taken into account including the economic environment and the current value in Ireland of the security of tenure:

in Report No. 42, we observed that “the value of security of tenure in present economic circumstances must be regarded as less than that which would apply in circumstances of high unemployment.” We also observed that we would be disposed to discount for security of tenure in different economic circumstances. Since we reported in 2007, the economic environment has, as already mentioned, deteriorated significantly and unemployment is at a very high level and still climbing. Security of tenure is, therefore, more valuable now than in 2007.

So the Review Body was balancing a number of different factors when making its decision and not just looking at the adjusted salary.

McArdle may consider recent criticism to be misplaced but he does not explain why on budget day, the Minister announced that his policy in this area would be based on the Review Body’s recommendations based on its balancing of these various factors and then later announced that it would not. Or whether it is wise to abandon the strategy of following the Review Body’s recommendations. Or whether, as a tactical matter, a government that needs to stick to its budgetary strategy is well advised to start taking steps to overturn decisions on budget day. Or whether, if budget day decisions are going to be reversed, it is advisable to focus only on reversing cuts to the salaries of well-paid senior civil servants.

20 thoughts on “Criticism of Higher Civil Servant U-Turn Misplaced?”

  1. @Karl
    Are there any figures as to the numbers of higher civil servants there are in Ireland versus Germany or the UK. If we have more pro rata as we seem to do in everything else then the cost overall of the higher civil service in Ireland is higher and that is the figure we have to fund.

    During the discussions on the Lord Mayor of Dublin someone said we have 103 councillors for 1 million people while New York has 80 for 8 million. Now if our councillors get the same relative remuneration as the New Yorkers the cost in actual terms will be some 25% higher but per person will be 200% higher.

    As far as I can see the bonus wasn’t a bonus anyway as they all got it 100% so to be fair they did get a pay cut now it’s gone. I’ll bet there’s too many of them though.

  2. Er, what justification is there for saying that people like this, in a country like Ireland, deserve to be paid equivalent to the very top levels in Europe. That sounds a bit like saying the directors of Said’s Burger Bar Ltd. in Temple Bar should be paid the same as the directors of McDonalds (a little extreme a comparison but you get my drift)?

  3. …and I thought the point of performance related bonuses/pay was that the employers could simply fool a lot of people into working hard as 90% of the people seem to think they are in the top 10% of the performers!

    Why on earth would you give out performance bonuses to everyone?

  4. The adjustments made for cost of living were even harder to justify as they also compensate for higher taxation here (tax on high earning PAYE workers is relatively high here now).

    By extension the review body’s report could be seen to be saying that higher public servants (including those who decide tax rates) need their pay adjusted whenever tax goes up or down.

    The review body had to find reasons to adjust the figures or else they’d have been admitting their previous reviews were wrong. It’s noticable they prevented some basic analysis of their work by not including tables showing actual salaries of comparable grades in the other countries. I believe they’re also immune from FOI requests.

  5. @ al,

    As you don’t have a TV you can catch the VB show here.

    http://www.tv3.ie/shows.php?request=tonightwithvincentbrowne

    Apart from the tax issue (which I haven’t really followed) Eamon Ryan talks utter mince about the bank bailout.

    The Ferengi are laughing their little Ferengi socks off.

    Cost per share 1.358
    Current Price per Share 1.000
    Gain/(Loss) Per Share (0.358)

    % Gain/(Loss) (26)

    Gross Cost of 184,394,378 Shares €250,407,565

    Unrealised Gain/(Loss) (€66,013,187)

    AIB @ €0.94

  6. It shouldn’t matter what anyone is else is paid in Europe. It’s about what we can afford. What is the Assistant Secretary going to do? Move to Germany to get a better deal? Jeeez.

  7. “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.”

    So, because senior civil servants are overpaid in other countries they should be overpaid here.

  8. In fairness to Pat, he wasn’t an ignorant cheerleader of the boom like some of his bank counterparts. Nevertheless, he shows symptoms of having played too much football without a helmet.

    I used the word “fairness” and the fact that he uses his column to plead for these well heeled people, speaks for itself.

    Where is Jim O’Leary who likely knows a lot more about sham benchmarking than McArdle?

    Here we have a case being made for bonuses being treated as salary entitlements, while salaries of the grade and others were already fraudulently inflated by what was called “benchmarking” and “transformational” change remains an elusive aspiration to be bartered.

    Pat, when are you going to do a pleading article for the private sector victims of policymakers who remain in guaranteed income positions for life by just going with the flow? Yes for life.

    Try to connect with people beyond your comfortable cocoon.

  9. @Michael Hennigan
    To be fair to McArdle he is living in a country where the finance minister, Brian Cowen, drove a reckless Japanese scale lending bubble. Several years into the collapse of the economy and the banking system that Cowen is therefore chiefly responsible for he is still the country’s leader. I’ll repeat that. Cowen is still the country’s leader even though he is chiefly responsible for the collapse of its economy and its banking system, a collapse that has been going on for several years. In any other mature, established West European democracy Cowen would have gone long ago.

    It is high time people told Brian Cowen and all the FF/Ind/PD TDs to their faces that they have destroyed the country and have no moral authority to govern. They should keep on telling them this until they leave office.
    To do otherwise is to support their remaining.

  10. @Michael Hennigan
    Of course the chief reason public service pay went so high was the property bubble. Strangely enough fellow Irish Times columnist Noel Whelan publicly warned about a property bubble developing in …1997.
    (courtesy of poster tenderloins1 on another forum).

    ‘Many young people are also deeply concerned about escalating house costs and the current over heating of the Dublin property market….’

    http://irishelectionliterature.wordpress.com/2010/02/26/noel-whelan-eoin-ryan-fianna-fail-1997-ge-dublin-south-east/

    If only he had had a high-profile public platform to loudly and repeatedly warn against this before it reached Japanese scale. Oh wait…

  11. Benchmarking with other countries can illustrate where we are on a comparative basis. It cannot tell you where you need to be.

    The mechanisms that private sector companies often use in setting salaries are to look at the difficulty of hiring new talent at any level and the rate of loss at any level.

    I’d suggest that the Irish civil service would have no difficulty in hiring far more talented people than are currently sitting in these high level roles, even at lower salaries than are currently offered – and that the attrition rate from these positions is negligible.

    These two metrics would, I suspect, indicate that the people in these positions are grossly overpaid, even before their pension benefits are included.

  12. @Karl

    “whether if budget day decisions are going to be reversed, it is
    advisable to focus only on reversing cuts to the salaries of well-
    paid public servants”

    Shouldn’t economists, of all people, know a great deal about the
    effects of economic incentives such as bonuses?

    The bonus system has turned top civil servants into lackeys of
    whatever government is in power.

    That’s why the present Government is so keen to keep a vestigial
    bonus system in place for them.

    Formerly, top civil servants – clever, able, hard-working men,
    protected by seniority, authority and job tenure, were able to
    exercise their independence of mind (very, very occasionally) to
    delay, even ignore  government decisions which they saw as clearly
    against the interests of their country or their Department.

    But that doesn’t happen now.

    Take the recent crazy decentralisation policy.  That policy has
    benefited nobody but Fianna Fail, and was completely contrary to the
    Government’s own stated spatial strategy, and has demoralised
    many of the rank-and-file civil servants.    But as soon as the
    starting gun was fired, top civil servants (in almost every Department)
    raced off in all in all directions to implement decentralisation,
    anxious to get their bonuses at all costs.

    The Secretary General doesn’t get a bonus, but he is motivated by an
    even more powerful incentive.   Legislative changes have reduced his
    term of office to seven years, which means that the top man is
    strongly motivated to please the government of the day, if he wants
    to be  rewarded with a sinecure when his seven years are over ( when
    he is still typically in his fifties)

  13. @ Hugh

    just as many public servants of which I am acquainted thought that I was talking through my …..when I stated to them that they were staring down the barrell of a paycut

    I would now say that that it is NOT beyond the realms of possibility that future governments will not/will not ne able to fund their gilt edged pensions- and just as their pay was cut their expected future pensions may also be cut.

    I would think that it is hard to expect future generations to fund a “pay as you go” DB pension scheme for their elders whilst all that is on offer for them is a DC scheme.

  14. There is no justification whatsoever for the “rollback” call it what you like, it was a caving in to the special insiders deemed too important. It included the very people in the DoF who who drafted the documents prescribing the medicine to be taken.

    That is another problem with this country, reams of figures, facts and angels on heads of pins are rolled out to be ‘debated’ endlessly, when the matter should have been dealt with by one small word from Mr. Lenihan. No!

    It was and is, morally, financially retrograde crass politics not to mention the word stupid.

    There should be a brass plaque with their names put up outside the DoF. if it were allowed I offer to pay for it, won’t cost the government a cent, and everyone passing can acquaint themselves with the names of the ‘special ones’.

  15. @ Tony Demello

    Brian Cowen was put in charge of a runaway train created by Charlie McCreevy and Bertie Aherne, so he is not the one ‘chiefly responsible’, although of course he should have done more to try to get control of the ‘train’ when he was Minister of Finance, even if all sorts of people (IMF etc) were still saying positive things about the Irish economy.
    There was a good letter in the Irish Times last August from a John Finn,
    http://www.irishtimes.com/newspaper/letters/2009/0820/1224252940645.html

    “Oireachtas banks inquiry proposal

    Madam, – Colm McCarthy has suggested a possible Government inquiry into why the banks “failed” (Home News, August 18th). In order to save time and cost to the taxpayer, I suggest he look at the 2007 Central Bank Stability Report which highlights that lending for construction and real estate grew from €5.5 billion in 1999 to €96.2 billion in 2007 – an increase of 1,730 per cent or €90.7 billion over eight years.

    In the same period total lending grew by €120 billion, implying that lending to all other sectors of the economy grew by less than €30 billion. Assuming that the banks report quarterly to the Central Bank/Financial Regulator, the explosion in property-related lending (the lion’s share of which related to the “real estate” rather than “construction” category) equates to 54 per cent per quarter. The disproportionate growth in such lending was both at odds with stated economic policy and sound risk management.

    It is inconceivable to think that such growth went unnoticed. I would respectfully suggest that this statistic alone clearly demonstrates the abject failure of the Financial Regulatory regime and the probable complicity of others. Such concentration of risk is a basic risk management error. That it was allowed to grow to a magnitude that threatens the economic health of the country for a generation is unforgiveable.

    Based on the above, the question is not how did it happen, but who allowed it to happen? – Yours, etc,

    JOHN FINN, Managing Director, Treasury Solutions Ltd, Monkstown, Cork. ”

    In terms of elected politicians (with the power to protect us) the answer to this last question is: Charlie McCreevy and Bertie Aherne.

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