ARCHIVED - Expenditure Review of Federal Public Sector - Overview

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Overview–Expenditure Review of Federal Public Sector Compensation Policy and Comparability

Context–The business of the federal public sector

As of fiscal year 2002–03, the federal public sector was a $185 billion dollar enterprise. Excluding federal business enterprises and Crown corporations, it employed about 351,000 people in that year, at an annual cost of $25 billion.

These employees accounted for about 2.3% of total employment in Canada, or 12.2% of Canadian public sector employees. As the largest employer in the country, the federal public sector is also uniquely diverse in its operations and in the breadth of talent it deploys. Its activities range, for example:

• from operating icebreakers in the high Arctic to inspecting aircraft,
• from protecting our borders to peacekeeping abroad,
• from delivering employment insurance and pension cheques to issuing passports,
• from geological research in the field to approving drugs for human use,
• from collecting taxes to preserving historic sites.

Federal public sector employees are active at hundreds of locations in all parts of Canada, and at well over 100 sites elsewhere around the globe.

To deliver on its missions for Canadians, the federal public service workforce is as diverse as its activities. From hospital orderlies to research biologists, from economists to ships' crews, from ambassadors to corrections officers, from police officers in remote communities to aircraft pilots, the knowledge and skills demanded of Canadian public servants are as varied as Canada itself.

Origins and nature of this Review

Following the experience of personnel reductions and salary freezes through the early and mid 1990s, the size of the federal public sector and its total spending on Personnel grew relatively rapidly in the late 1990s and early 2000s. Recent external studies about the comparability of federal compensation to that paid for similar work in the Canadian private sector and at other levels of government claimed that there was a significant and growing premium in favour of the federal public sector.

To understand what had been occurring, the Treasury Board decided in early 2004 to include compensation policy and comparability as one of a series of internal expenditure reviews launched at that time. The result is this Report, which documents the first-ever comprehensive description and analysis of compensation in the federal public sector. It offers as well a full set of recommendations on how to strengthen management of federal public sector compensation in support of a first class public service capable of meeting the expectations of Canadians.

This Report aims to provide an objective and factual view of its subject, albeit from an employer perspective. The intent is to give ministers and senior officials, as well as other stakeholders, an accessible, integrated and coherent presentation of the federal public sector compensation field in all its complexity. This in turn can serve as a foundation for responsible and informed debate and choices for improving compensation management over the coming years.

No minister or senior official has sought to shape the findings or recommendations developed through the Review. As such:

This Report is in no way a statement of Treasury Board or 
Government views on federal public sector compensation.

The analysis and recommendations laid out in this Report are the responsibility of its principal author, James Lahey, who was an Associate Secretary at the Treasury Board Secretariat until December 2004, and Associate Deputy Minister at Indian and Northern Affairs Canada thereafter. Now that the Report has been submitted to the Secretary of the Treasury Board, it will be the duty of the Treasury Board to decide how best to follow up on its recommendations.

The nature of public sector compensation

Every organization must build and manage the workforce and culture it requires to achieve its business purposes. Employers use their compensation program, comprising salaries and benefits, to attract, retain and guide the efforts of their workforce. In shaping their compensation programs, employers seek to satisfy their employees' needs, while meeting their own business goals. As the business alters over time in response to changes in the wider world, so must the compensation regime also evolve.

In many ways the federal government is like any other employer, seeking to fashion the various components of compensation into a regime that is attractive, effective and sustainable. Necessarily, such a regime will always be a compromise among the principal compensation policy drivers: external comparability, internal fairness and affordability.

But the federal government, like other public sector employers, is responsible as well to Canadians both as citizens and as taxpayers. In this context, the federal employer must ensure that its compensation regime is fair to the public, providing reasonable value at a responsible cost, today and into the future. Policy considerations also influence a government employer, from such economic concerns as avoiding fuelling inflation, to the periodic desire to set a social policy example in areas such as parental leave.

Accountability for federal public sector compensation

The Treasury Board, a standing committee of Cabinet, has broad responsibility for determining the terms and conditions of employment for persons working in the federal public sector, including compensation. The exact nature of the Treasury Board role varies, depending on the organization in question. For most departments and agencies, the Treasury Board is the legal employer. As such, Treasury Board Secretariat officials negotiate collective agreements with the various public sector unions in respect of unionized employees of such departments and agencies.^[1] For excluded or unrepresented employees in these organizations, and for the Canadian Forces and the Royal Canadian Mounted Police, the Treasury Board determines pay levels and benefits directly.

For most other parts of the federal public sector, such as separate employers and Crown corporations, the role of the Treasury Board is limited to approving overall annual budgets or corporate plans. Compensation terms are then negotiated or determined by these individual organizations. Compensation for federally appointed judges is set through the Judges Act, as amended from time to time by Parliament, based on recommendations from an independent commission constituted every four years. Parliamentarians, of course, determine their own compensation by legislation.

Scope of this Review

This Review focuses on the compensation policies and expenditures for five domains of federal employment. These are:

• the core public service; i.e. those departments and agencies for which the Treasury Board is the legal employer;
• the separate employers, i.e. departments and agencies that have the legal authority to manage their own human resources regime, including compensation;
• the Canadian Forces; i.e. the regular members, and the active members of the Canadian Forces Reserves;
• the regular members of the Royal Canadian Mounted Police, and civilian members employed under the RCMP Act; and
• a miscellaneous set of other groups, including federally appointed judges, parliamentarians, employees of Parliament, ministerial staff, and students employed in special programs.

We mention a sixth domain, that of federal business enterprises and other Crown corporations (mainly cultural agencies and port authorities), in passing only. These organizations largely fund their personnel costs from commercial revenues, with little central government involvement. They are therefore of limited relevance to this Review.

For each of the five domains described in this Report, as far as the available data permitted, we have examined total compensation. The compensation components included are:

• salaries and wages,
• performance pay,
• recruitment and retention–known as terminable–allowances
• other allowances and premiums,
• overtime,
• retroactive payments,
• pensions,
• employer life and disability insurance premiums,
• employer payments for health and dental plans,
• employer contributions relating to statutory programs (most notably the Canada and Quebec Pension Plans, and Employment Insurance),
• severance pay, as well as
• leave usage and cash-outs of unused leave entitlements.

We also looked at current expenditures attributable to pay equity settlements, reclassifications, flows of employees into and out of the federal public service, and the current cost to the employer of insurance, health and dental benefits for public service pensioners.

Limitations on data

We should comment on data issues before proceeding to summarize the Report's findings. First, there is no single, acknowledged source of data on federal public sector compensation. So we have assembled figures from various sources, from Statistics Canada to Treasury Board and Public Works and Government Services administrative data, to information supplied by specific agencies. Second, most numbers are estimates, by necessity. For example, since employment fluctuates daily, if not hourly, setting a total for a given time period requires picking a point in time (or better, an average of several points in time) to represent the period. Third, given the complex sources and processing for most data, we cannot be certain about their accuracy. However, we have verified the information presented as far as possible, and after working with it over many months, we are confident that the reported relativities and trends over time are essentially correct.

Snapshot of federal compensation in 2002–03

In 2002–03, the five domains covered in this Report employed approximately 351,000 people. About half (168,864) worked in the core public service, with the Treasury Board as employer. Separate employers at that time (mainly the Canada Customs and Revenue Agency) employed 68,156 workers, or about one fifth of the total. Canadian Forces regular members and reservists totalled 84,369, around one quarter. The RCMP regular and civilian members (18,026) and the other organizations (groups numbering 11,691) made up the remainder of the world we examined in this Report.

Salaries and wages for this world totalled about $17.9 billion in 2002–03. This constituted 3.4% of total salaries and wages in Canada. Adding in the other elements of total compensation brought total federal compensation in 2002–03 to nearly $25 billion. Non-salary costs thus amounted to 38.5% of salary costs. The following Table provides a summary by domain:

Table 1 Salaries and Total Compensation by Domain, 2002–03
Domain	Salaries and Wages ($ Billion)	Total Compensation ($ Billion)
Core public service	9.0	12.4
Separate employers	3.5	4.6
Canadian Forces	3.7	5.3
Royal Canadian Mounted Police	1.1	1.6
Others (i.e. federally appointed judges, parliamentarians, employees of Parliament, ministerial staff, students)	0.6	0.7
Sub-total	17.9	24.6
Non-pension pensioner benefits		0.2
Total	17.9	24.8

Figure 1 shows the main elements of total compensation and their relative size for the core public service in 2002–03. The pattern is much the same for the other domains.

Figure 1
Main components of total compensation in the core public service in 2002–03

Display full size graphic

Salaries and wages

In 2002–03, the average salary for employees in the core public service was $53,300. The cost of total compensation averaged about $73,400 per employee.^[2] Average salaries by department and agency varied widely, with specialized regulatory agency average salaries naturally tending to be significantly higher than for more operational institutions. Salary levels were largely concentrated between $35,000 and $75,000, with over four fifths of employees. Fewer than 3% earned under $35,000; roughly the same proportion earned over $100,000. For the combined core public service and the separate employer domains, the average salary in 2002–03 was $52,800.

Average salaries for the Canadian Forces regular members were similar to that in the combined core public service and separate employer domains at $52,700. Average total compensation is hard to calculate reliably because of the uncertain impact of reserve members on benefit costs. However, a reasonable estimate for regular members would be about $77,500. For the regular and civilian members of the RCMP, the 2002–03 average salary was about $59,900. Total RCMP compensation was worth about $88,800 on average.

The salary distribution in the Canadian Forces found 12% earning below $35,000 and just over 1% with a salary above $100,000. Half earned between $45,000 and $60,000.

It is critical to emphasize that there is no reason to expect any particular relationship between the average salaries and benefits in the various domains. Each domain has its own business needs, and consequent employee requirements. The comparisons are interesting from the perspective of understanding the compensation patterns in the federal public sector. But differences between domains have no evident policy implications.

Pension contributions

Pension contributions regarding current service in 2002–03 were by far the largest non-wage employer compensation cost. For the core public service, employer contributions amounted to $1.29 billion; for the separate employer domain, the amount was $470 million. Across these two domains, the employer paid 74% of current service costs, and employees 26%.

For the Canadian Forces, government contributions were $570 million (78% of total current service costs); for the RCMP the employer share was $195 million (76% of the total). The somewhat higher employer proportion of current service pension costs for these two domains mainly reflects that military and RCMP members can earn a full pension with fewer years' service than in the core public service, and at a younger age. The government contributed about 84% of costs related to the pension plans for parliamentarians and for federally appointed judges.

Insurance, health and dental plans

Life and disability insurance plans cost taxpayers about $200 million for the core public service and the separate employers. For the Canadian Forces and the RCMP, costs amounted to a further $55 million approximately. Nearly half (44.3%) of new disability claims in 2002 for the principal disability insurance plan were caused by depression or anxiety.

Health and dental plans cover certain costs not covered by provincial medicare, with annual deductibles in both types of plan. Reimbursement is generally limited to 80% for the Public Service Health Care Plan (PSHCP), and 90% for the Public Service Dental Care Plan (PSDCP). The government bears the full cost of both plans for current employees and their dependants, except for the optional cost of semi-private or private hospital coverage. For the combined core public service and separate employer domains, 2002–03 costs totalled about $280 million.

Public service pensioners and their dependants participated in the Public Service Health Care Plan and in a separate Pensioners' Dental Services Plan. The government paid about $185 million on behalf of pensioners for health and dental coverage; pensioners paid approximately $115 million.

Overall, the average value of claims under the Public Service Health Care Plan was about $840 per member in 2002. Nearly two thirds (62.9%) of claims contributed to the cost of prescribed drugs. For the Public Service Dental Care Plan, the average cost of claims per member was approximately $470, principally for routine preventative care.

Both the Canadian Forces and the RCMP provide comprehensive medical and dental care for their members (including the care normally provided through provincial medicare plans). In 2002–03 the cost of the Canadian Forces Health Service was around $363 million.^[3] Similar services for regular and civilian RCMP members totalled about $39 million. The government also spent about $50 million for military and RCMP dependants to be covered by the PSHCP and the PSDCP.

In addition, the Treasury Board paid 50% of provincial health insurance premiums where they remain in force, and employer health payroll taxes in the four provinces that levy them. In 2002–03, these costs totalled about $360 million across the five employment domains treated in this Report.

Leave and severance

Employees in the core public service used a total of 7.74 million days of leave of various kinds in 2002–03, including statutory holidays. This represented an average of about 41.2 days per employee. This paid time not worked was about 18.4% of the total potential working days during the year (i.e. 250 per employee), with an equivalent value of around $1.6 billion, as part of salaries paid:

• vacation leave averaged 17.3 days per employee (42% of the total);
• sick leave was 8.3 days per employee (20%);
• family-related leave was 1.6 days per employee (4%).

Payments for severance^[4] in 2002–03 in the core public service amounted to about $88 million. Recipients numbered about 4,420, for an average amount of about $20,000. For separate employers, severance was reported as $33 million. For the Canadian Forces the total was $94 million, including termination benefits. The RCMP total for severance was $20 million.

Other cash compensation
Performance pay

Most employers in the federal public sector offer some form of performance pay, particularly to executives. In the core public service, lump-sum payments to Executives (EX) and Deputy Ministers (DM) in 2002–03 related to the Performance Management Program totalled about $32 million. While over 90% of EXs and DMs received some performance pay that year, only about one third received what could be considered a performance bonus.^[5] The average lump-sum payment was about $7,400. Salary increases for executives not yet at the maximum of their salary band amounted to around $9 million in 2002–03.

Overtime

For 2002–03, total paid overtime in the core public service was about $208 million (equal to around 2.3% of regular pay). Operational groups tended to use proportionately more overtime. For example, the Correctional Services (CX) group earned overtime at a rate about three-and-one-half times their share of overall pay. For the Canadian Forces, 6% is included in base salary in lieu of overtime for non-commissioned members, and 4% for general service officers. Overtime pay for the RCMP amounted to about $99 million, or approximately 9% of regular pay.

Recruitment and retention allowances

In 2002–03, a variety of recruitment and retention (terminable) allowances adding up to about $77.4 million were paid to a total of about 15,500 employees in the core public service. About $20 million was paid for this purpose by the main separate employers.

Other allowances and premiums

In each domain, there are a series of additional allowances and premiums designed to compensate for such things as dangerous conditions of work, service outside Canada or in remote locations, or bilingualism. In the core public service the 2002–03 total for such allowances and premiums was about $382 million (equivalent to around 4.2% of regular pay overall). In the Canadian Forces, such allowances amounted to $180.5 million in 2002–03 (4.8% of regular pay). Of interest is the Post Living Differential ($64.8 million), which attempts to maintain a predictable cost of living for members and their families, no matter where in Canada a member is posted. For the RCMP, allowances (mainly for plainclothes and kit upkeep, shift differentials, and the Senior Constable Allowance) totalled $76.7 million (6.5% of regular pay).

Pay equity

The estimated ongoing salary costs of previous pay equity settlements in the core public service for 2002–03 were in the order of $225 million (about 2.5% of overall payroll). For the affected occupational groups, this averaged out at about 15% of the current payroll.

Other compensation costs

The Treasury Board contributes to various compulsory statutory programs or payroll taxes, like any other employer. Across the five domains analyzed in this Report, the total expenditure in this area was more than $913 million. This was essentially for employer contributions for the Canada and Quebec Pension Plans and for Employment Insurance.

Reclassifications

In 2002–03 about 6,700 employees in the core public service were reclassified to a higher level position. This constituted about 5% of the full-time, indeterminate population of 130,000. The highest rates of reclassification were in:

• the Secretarial, Stenographic and Typing (ST) classification group at 26%,
• the Personnel Administration (PE) group at 11%, and
• the Program Administration (PM) group at 10%.

 

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