Category: Uncategorized

Bonuses as Deferred Pay

This story is the best explanation we’ve got so far as to how the higher civil servant pay U-turn occurred and the justification used.

THE GOVERNMENT’S controversial U-turn on pay cuts for top public servants followed strong lobbying by their staff association that any cuts should take account of money lost as a result of the abolition of a bonus scheme which averaged 10 per cent of salary.

Official Department of Finance files show the Association of Assistant Secretaries and Higher Grades said it had legal opinion that the performance-related bonus scheme, which the Government initially suspended for 2008 and later scrapped permanently, formed an integral part of members’ remuneration packages.

The key argument put forward:

The association had earlier argued in correspondence with the Department of Finance that “while receipt of the performance-related element of pay is obviously not guaranteed to any individual, the scheme is part of our members’ basic remuneration package and amounts to an arrangement whereby part of that remuneration is simply deferred pending an independent assessment of performance”.

I’m not sure what this is supposed to mean. The fact that the bonuses did not count as pensionable pay and were not eligible for PRSI suggests that they were not part of basic pay. If the legal opinion was an implicit threat that the civil servants could have sued to reverse their pay cuts, I find it pretty hard to imagine such a case being successful.

In any case, it’s still not clear why the U-turn occurred. Minister Lenihan announced the ending of bonuses in February, so he was well aware of what he was doing when he announced the pay cuts in the budget concluding with “These are permanent reductions which will be reflected in future pension entitlements.”

It would be interesting to have heard the speech that Brian Lenihan gave on this issue at the Fianna Fail parliamentary party on Tuesday night for which he reportedly received a round of applause from the faithful.

In relation to this, I appeared on the radio on Tuesday night just after this meeting (link here) and heard Fianna Fail TD Michael Mulcahy suggest that the U-turn came from following the recommendations of the Review Body report and that the U-turn occurred because the report wasn’t released until after the budget. In truth, the U-turn runs counter to the report’s recommendations and the Minister had access to the report before the budget (he mentioned it in his speech.) These didn’t seem to be very satisfactory talking points on this issue from someone who had just received a full explanation from the Minister.

If the government thinks that misleading spin is the way to make this issue go away, I suspect they’re wrong. The fact that the usually-supportive Stephen Collins has taken up the issue also suggests that the government isn’t winning people over on this one.

Escaping the lion

The news that Italian bank Unicredit is insisting that Ireland rather than Italy is the ‘I’ in PIGS should hardly come as a surprise. All the PIIGS are at it these days: thus Emilio Botin of Santander is quoted in the FT as saying that “Comparing Spain to Greece is like comparing Real Madrid to Alcoyano”. (Alcoyano is apparently a club in the Spanish second division.) And we have been busily distancing ourselves from everyone else as well.

All this is understandable. As Ken Rogoff puts it,

There is an old joke about two men who are trapped by a lion in the jungle after a plane crash. When the first of them starts putting on his sneakers, the other asks why. The first answers: “I am getting ready to make a run for it.” But you cannot outrun a lion, says the other man, to which the first replies: “I don’t have to outrun the lion. I just have to outrun you.”

However, one of the big lessons of history is that lions rarely make do with just one snack: when defaults come, they come in waves. The 1930s is a good case in point.

Europe needs solidarity, not finger pointing.

Terry Baker

A few weeks ago I informed readers of the passing away of Terry baker, formerly of the ESRI.  Joe Durkan has asked me to post this personal tribute to Terry.

It was a great shock for me when I heard of Terry Baker’s death.  He was someone I had known for over 40 years, had worked with as his research assistant on the Quarterly Economic Commentary, and had also enjoyed a good friendship.  I met him first when I was interviewed for the job of Research Assistant in the ESRI in January 1969.  We had more points of contact than is probably usual in these circumstances, as we had a shared, but not overlapping  history, in Tanzania – Terry as a civil servant and me as a teacher.  For both of us the experience convinced us that we wanted to stay in economics, and that economics could make a difference.  We differed in approach, as Terry believed in calm persuasion offered over time, while I was ready to do battle.  In the end we were both disappointed to see the mess the country is in now.

 

Terry and the then ESRI Director (Michael Fogarty) encouraged me to go to Nigeria. His judgement about the merits of the move was, as with so much of what he did, inspired.  It was a tough physical environment, but the work was fantastic. When I returned he threw me into the Quarterly straight away.  When I took over the Quarterly finally, Terry could always be relied upon to talk about the forecasts, to offer a different perspective and simply to bounce ideas with.  Writing came easy to him and he would simply rewrite cumbersome sentences without comment.  When I, very reluctantly, decided to leave the Institute in 1983, I persuaded him to go back doing the Quarterly and I think this was a good move for him. 

 

Within the Institute Terry did an extraordinary amount of internal referring.  His comments were incisive, but always took a positive bent.  He also ran a team in the management game, which the ESRI won on many occasions.  Terry well knew the value of the game, as it forced people to put numbers on the usual waffle about company strategy.  This benefited generations of research assistants.  He was also very generous.  When I ran a team separately he kept a place for me on his when I finally bit the dust as he had well anticipated.  I suspect he enjoyed the experience, but he made me feel welcome.

 

We met about twice a year after I left the Institute, most recently last autumn, when we agreed to get together after Christmas.  His later years were sad, following the death of his wife, Pirjo, in 2007.  Sadly, when I returned from a short break after Christmas, I learned of his death.  His death, the more recent death of Mrs. Dempsey (the first ESRI Secretary), and now the death a colleague, Todor Gradev, just knocks the heart out of one.  Terry was a very nice person, and will be missed by those who knew him.  (Joe Durkan).

Chilean lessons

Jeff Frankel has a piece on what Chile can teach the rest of the world here. The Irish fiscal debate could usefully move in this direction. The piece is also relevant to the thread below on economic expertise, and to broader debates about whether technical expertise in general is useful to policy making, and is sufficiently appreciated and availed of in Ireland.

Electricity and Gas Prices

A report on Irish electricity and gas prices in the first half of 2009 was prepared by Martin Howley, Dr Brian Ó Gallachóir & Emer Dennehy for Sustainable Energy Ireland. For those readers interested in the topic they will find the report here.