How to fix executive compensation in Ontario’s public sector
TheStar.com – OpinionCommentary – Ontario needs to bring back a sense of proportionality and value to control growth in top public sector wages.
Feb 23 2014. By: Peter MacLeod
Eighteen years after the introduction of Ontario’s sunshine list, which names any public servant earning more than $100,000, pressure is once again building to rein in public sector compensation.
Though the sunshine list still intrigues and appalls, its effectiveness as a tool to control growth among top public sector wages has never been established. Anecdotally, it may even fuel something of a wage race among top earners.
As Bob Hepburn’s recent columns made clear, nowhere is this truer than among the wages paid to senior management within the province’s publicly funded health system. Inadvertently, the province has become trapped in a wage spiral that is pushing management compensation ever higher.
What do management staff in health-care agencies and hospitals do to deserve these large salaries and severance packages? To most people it’s a mystery, but we shouldn’t pretend that these are easy jobs. What we need to do is bring back a sense of proportionality and value to public sector compensation.
First, some hard truths: executive compensation is broadly broken. It’s not the market deciding. It’s a system that has been gamed and inflated. Time and again, compensation committees claim to refer to industry benchmarks. Though it sounds impartial and scientific, a benchmark is set with no more than a quick survey of similar jobs. The sunshine list makes this easy. Then a little extra is added as sweetener.
Imagine calling three of your friends with similar jobs, asking what they make and topping it up by 3 per cent. Run this cycle enough times and you get the upward wage spiral that has taken root across public sector organizations.
We need to apply a brake that helps to control these salaries and push back against the broken culture of benchmarking.
Last summer, a pay standard called Wagemark was launched. Wagemark is a certification system that provides a standard method for calculating the ratio between the top and bottom earners within an organization. Linking top and bottom pay has many salutary effects — including improving morale and restoring a basic sense of fairness.
When applied to the public sector, its effect could be dramatic.
Take the example of home care that inspired Hepburn’s columns. He cited the substantial wages of CCAC executives who are responsible for overseeing the provision of community care service in 14 regions across the province. The average salary of a CCAC executive is $234,000 and has been growing at an annual rate of 12 per cent over the past three years. This is clearly unsustainable.
By contrast, the personal support workers who make up the bulk of employees contracted by a CCAC typically earn just $13 an hour or $23,700 annually. They spend their days travelling from home to home providing important services, including toileting and bathing, to elderly and frail people. They deserve more respect and, yes, better pay for their hard work.
If a CCAC was to adopt the Wagemark standard and extend it to the contracts they manage, their top executive would earn no more than eight times the average wage of the bottom 10 per cent of the CCAC’s contract workforce, or approximately $189,300. To most people, this is still a very generous salary and should be more than adequate to reward talent and incent performance. But with a wage ratio in place, the CEO’s salary could no longer continue to fly upward unless those personal support workers’ earnings rose as well.
Of course, it’s unfair to single out CCACs alone. Hospitals, as well as other publicly funded agencies outside of the health system, would do well to listen and respond to the public’s concern about high salaries paid with tax dollars.
Implementing public sector wage ratios is a sensible and intuitive mechanism that most people can understand. It’s a potent symbol that reinforces the important relationship between executives, employees and taxpayers.
At a minimum, Ontario should disclose the wage ratios of public sector organizations and publish these numbers as an addendum to the annual sunshine list. Better, Ontario should follow the proposal of British Prime Minister David Cameron and adopt a maximum ratio across the public service that better reflects the value being created in both the boardrooms and at the front lines.
Executive compensation remains one of the dark arts of the professional world and it turns out that in the public sector we need more than sunshine. Wage ratios are an important mechanism to show accountability to taxpayers and sustain confidence in our public services.
Peter MacLeod is co-chair of the Wagemark Foundation, and principal of MASS LBP.
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