ARCHIVED - Expenditure Review of Federal Public Sector - Volume One - The Analytical Report and Recommendation

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12. Coherent Management of Federal Compensation

Coherence in managing federal public sector compensation requires a clear compensation policy framework, careful management of changes in the size and composition of the public service, a more unified approach to negotiating the various elements of total compensation, a central analytical and strategic leadership capacity to oversee the application of the policy framework, and a more workable policy on relations among separate federal government employers. In essence, the government needs to see compensation as one subject, with each of the pieces influencing the others, and therefore demanding systematic management of the whole. This chapter explores each of these topics in turn.

A policy framework for federal compensation

For several years, the Treasury Board Secretariat has sought to introduce a policy on federal public sector compensation. There have, however, been understandable reasons for delay. In the immediate aftermath of Program Review in the late 1990s, the priority was to restore the analytical and negotiation capacity essential to renew the collective bargaining process after six years of statutory salary freezes and imposed terms. A draft policy was close to approval in 2000, but management changes led to rethinking. In 2003, the document, "Towards a Compensation Policy Framework for the Federal Public Service," was circulated by the Treasury Board Secretariat to key stakeholders for comment.^[168] Consultation meetings followed over the course of 2003 and early 2004, and adjustments were made to the text. The appointment of a new ministry in January 2006, combined with a desire to take account of the results of this Review, led to a decision to postpone consideration of the proposed policy.

Now is the time to adopt and publish the policy framework as proposed. The text is provided in Appendix B. In effect, this framework sets out the major considerations that must be weighed in deciding on compensation within the federal public sector. Like any employer, the federal government needs to shape its compensation in ways that align with relevant external labour markets, that is fair internally between related groups of employees, that recognizes where appropriate individual and group performance, and that is affordable.

In addition, however, as a very large public institution with a national leadership role in both the economic and social spheres, the federal government must modify its normal interests as an employer in setting compensation levels by taking into account broader public policy objectives. Such objectives include: overall fiscal policy goals, including expectations about inflation; leadership in social policy such as promoting parental leave after childbirth or adoption by subsidizing the generally available Employment Insurance benefits; compliance with relevant laws (i.e., the Canadian Human Rights Act requirement for equal pay for work of equal value and for gender-neutral job evaluation); and responding to public expectations and pressures as it must in any other policy area.

It is sometimes stated that the federal government should simply pay what the private sector pays for the same work. The argument for this position is that private sector salaries and wages are subject to the discipline of the market. Pay too much, and your business may not last. Pay too little, and you will not be able to hire the right talent. Thus matching what the market pays in setting federal compensation is fair both to the taxpayer and to the employee.

This is powerful reasoning, but it presumes a simpler world than the one we live in. For one thing, the market does not often fix a precise salary level. Pay for substantially the same work can vary in the private sector according to the importance of that work in a particular employer's business, to the size of the employer's enterprise, to whether the business sector or the enterprise is unionized, to location, and many other factors. Secondly, many government jobs have few direct analogues in the private sector. Finally, policy and other considerations can drive the federal government away from the market norm.

The policy challenge, therefore, is to balance the government's interests as an employer and its responsibilities as a primary policy leader for the country as a whole. Doing this is clearly an art, not a science. No ready calculus or formula can prescribe how best to achieve the desired balance. The mantra of matching the external labour market will always be influential, but crafting a suitable balance among the various considerations will likely always be difficult.

This truth is reinforced by the reality that most salaries and other compensation terms are determined directly or indirectly through collective bargaining with the public service unions. And within this reality, the reference point for setting compensation levels in practice is whatever is agreed from time to time between the Treasury Board and its larger unions, particularly the Public Service Alliance of Canada (PSAC), and to a lesser degree the Professional Institute of the Public Service (PIPS). The likelihood exists in this context that bargaining power and short-term expediency will trump the other policy considerations in shaping outcomes.

In view of these facts, it may seem meaningless to adopt a policy framework for public service compensation. Multiple employer and public policy considerations jostle uncertainly for predominance, all of them vulnerable to the compromises necessary to conclude a collective agreement. On other occasions, an overriding policy objective like eliminating a large budgetary deficit may lead to imposing particular compensation levels, with little consideration of the impact of that decision on the other compensation principles.

However, over time we can see the various objectives waxing and waning in their influence. After salaries are frozen or increases imposed by legislation, for example, we observe a tendency for external comparability considerations to reassert themselves. If internal relativities become distorted, we can expect larger increases to go to the groups that have fallen behind.

Reporting regularly on key indicators that distil the various employer and public policy factors that must be weighed in managing compensation will assist in maintaining a sensible balance among the factors. There needs to be an ongoing conversation, both within the government and in the realm of public opinion, about which factors should prevail at a given time and why. The proposed compensation policy framework for the federal Public Service provides a sound context for orienting that conversation with relevant and reliable information.^[169]

The conversation must necessarily extend beyond the indicators themselves to the best way to interpret them. For example, if external labour market wages are higher for a given occupational group than in the federal public service, we must still assess the pertinence of this gap. If the federal government, notwithstanding lower salaries or benefits, is able to attract a sufficient pool of qualified candidates, then perhaps an increase is not warranted.

On the other hand, understanding of some considerations is notoriously dependent on one's perspective. A good example is affordability. Many see the federal Government's ability to pay as virtually unlimited. Arbitrators on occasion apparently adopt such a view. For fiscal managers, on the other hand, the term "affordability" is often code for the view that other expenditure areas are higher priorities. With this outlook, the burden of constraint needed to keep the whole budget within a particular level––currently, revenues at least equalling expenditures––should fall more on compensation (expenditures on the internal government machinery) than on other areas, typically those benefiting citizens more directly. In our view, public discussion of the most pertinent indicators and their appropriate interpretation in a given historical situation will lead, especially with several years of sustained discussion, to a balanced and reasonable application of the factors.

Accordingly, our recommendations in regard to compensation policy are as follows:

This chapter has explained the complexity of the factors that must be built into a policy on federal public sector compensation. Although a policy framework does not tell anyone what is the best balance of factors in a given circumstance, it nevertheless can be expected to raise the level of both public debate and understanding. It is clear that responsible and intelligent application of the framework over time demands a sustained and comprehensive approach to managing the field. Before addressing this point, however, we argue for greater control on changes in the size and composition of federal public sector employment, and for finding ways to negotiate non-salary benefits at least partly as trade-offs against salary increases.

Managing changes in the size and composition of the federal public sector workforce

In Volume Two, we show that about 40% (an estimated $1.8 billion out of $4.2 billion in total) of the increase in the salary mass of the combined core public service and the separate employers between 1997–98 and 2002–03 can be attributed to increases in the number of employees following the end of Program Review. We also report that about one third of the increase in real average salary (i.e. excluding the effect of inflation) during this period resulted from change in the composition of the workforce. In effect, more highly remunerated groups such as Computer Systems (CS), Economics, Statistics and Sociology (ES), and Law (LA) grew rapidly, while lower paid groups such as Secretarial, Stenographic and Typing (ST), Clerical and Regulatory (CR) and General Labour and Trades (GL) declined.

Both these phenomena reflect real changes in society and policy. Treasury Board approved employment growth for a myriad of reasons, from the need to increase security in the aftermath of the events of September 11, 2001 in New York, to implementing new social programs. The changing composition of the public service emerged from such pressures as growing reliance on information technology and systems, an increased emphasis on policy analysis, and expanded litigation in areas like aboriginal law and Charter cases.

However, during the years immediately following Program Review, there was little central management or tracking of federal public service employment growth, or of changes in the composition of the workforce. To the extent that such decisions were subject to Treasury Board approval, the prevailing view was that these matters should be managed case by case. Salary budget increases required Treasury Board approval, but there was no consolidation of the results of these decisions in a way that could facilitate an overall judgement of their cumulative significance.

To the extent that departmental management could also take their own decisions in these areas, matters were left to their discretion. Approved funds could be transferred from non-salary to salary budgets, provided a mark-up of 20% (in effect a transfer price) was paid to cover associated benefit costs. Existing positions could be reclassified, provided the work challenge had increased sufficiently. New positions could be classified at higher levels than existing positions on the same basis. While the government's accounting systems faithfully recorded the increased costs associated with these normally local decisions, and ensured they could be absorbed within approved budgets, there was little review of the combined effect on compensation costs at either the departmental or government-wide level.

Prior to the early 1990s, there were central controls on the number of staff, as well as systematic monitoring of reclassifications. Staff levels were limited to a specified number of full-time-equivalents.^[170] Reclassifications were controlled after the fact by cyclical audits by the Treasury Board Secretariat. It was frustration among deputy ministers with the rigidities of this system of controls that led to greater delegation to managers. They were permitted to manage within approved operating budgets that covered all salary and operating costs, and to transfer between non-salary and salary allocations, with the transfer price noted earlier.

The solution now is not to re-impose rigid controls. Immediately after the Martin Government took office in December 2003, controls were implemented on a transitional basis to allow the new ministers to assess the situation. These were removed over the following year as their inconsistency with the imperatives of implementing new policy initiatives became evident.

We propose a system of what could be called managed delegation. First, the Treasury Board would maintain an overview of changes in the size and composition of the federal public sector workforce. The key trends would be published as part of the annual report on federal compensation. At least annually, the Board ministers would review the overall trends. This review would provide a context for considering particular cases requesting approval for increased salary budgets, and also for deciding on reallocation strategies. In this way individual cases could still be assessed on their merits, but always with the bigger picture in mind.

Second, departments would continue to be able to transfer money from non-salary to salary budgets, but these transfers again would be tracked and reported at least annually to the Treasury Board. If the level of transfers were viewed as excessive, the Secretary of the Treasury Board would caution deputy ministers accordingly.

However, it appears that the transfer price of 20% on transfers from non-salary to salary budgets is much too low. Looking at the 2002–03 aggregate compensation figures set out in Volume Two, we note that on a salary mass for the core public service of $9 billion, a further $3.4 billion was spent on associated non-salary compensation costs, equivalent to 36.6% of the salary mass. Some of the amounts included in the $3.4 billion, such as overtime, are already paid out of departmental budgets. And some amounts cover a larger set of employees than just the core public service. Taking account of these points, we suggest that a transfer price of around 30% is likely reasonable.^[171]

The reason for raising this transfer price to correspond more realistically with the employer's non-salary costs of employing staff is straightforward. Setting an artificially low price encourages buying more than is warranted. A more accurate transfer price would put a natural brake on such transfers, and thus on the growth of the public service, without regulating them more formally.

Third, a systematic audit program relating to reclassification of existing positions, and the classification of new positions should be implemented by the Public Service Human Resources Management Agency, and the results reported annually to the Treasury Board and to Parliament. Since 2004, Treasury Board policy requires departments to post details of reclassification actions on the internet. This will no doubt encourage responsible use of the delegated power to classify positions. However, only a regular audit program can actually test whether the delegation is sensibly applied in a particular department. A start was made on such audits in 2003, as reported in Volume Two. More recently, the Public Service Human Resources Management Agency has developed a tool for assessing risk with small departments and agencies, and has begun applying it in selecting its audit priorities. We need now to move to a regular cycle of audits and reporting in this area covering all parts of the core public service. Separate employers need to undertake similar reviews to ensure the integrity of the classification system.

It deserves emphasis that the goal of such a process is not to prevent changes in the composition of the public service, which are inevitable given the evolution of the role of the federal government and the growing complexity of public policy and program delivery. The goal instead is to ensure that all reclassification decisions are well founded, and that the resulting increases in compensation costs are reasonable.

In summary, then, our recommendations in this area are these:

Expanding the effective scope of negotiation

At present in the federal public service, the scope of collective bargaining is at once narrow and fragmented, putting upward pressure on overall compensation costs. This reality contrasts with the typical situation in the private sector and most of the public sector, where all matters for joint determination are resolved in a single collective agreement.

In practice, in the regular collective bargaining process, the federal Government negotiates with its unions almost exclusively on salary ranges, allowances and premiums, and leave entitlements. Other benefits such as life and disability insurance, as well as health and dental programs, are negotiated separately. Sometimes benefits are worked out with individual unions, such as with the Public Service Alliance of Canada on the dental plan. More often, these benefits are worked out with all or most of the public service unions through the National Joint Council. The Public Service Pension Plan is not subject to negotiation, since its terms are prescribed in a statute, the Public Service Superannuation Act.

The rationale for this fragmented approach to determining the overall level of public service compensation appears to be a desire both to control costs, and to provide a substantially common framework for employment in the federal public sector. By maintaining a largely unified approach to benefits, we save the administrative burden of managing differentiated products for different employees, who may in fact work in the same department or agency. By purchasing benefits on the same basis for large groups of employees, we can expect favourable bids from the administering agents. Such an outcome results from the ability to spread fixed overheads over a larger volume of business, and from the simple fact that claims experience becomes less volatile as the group insured increases in size. Offering most employees standard benefits makes it easier to move between organizations and occupational groups, as well as fostering a sense of identification with the public service as a whole.

These intended advantages come at a price, however. The main cost is simply that determining benefits through separate fragmented processes makes it impossible to negotiate tradeoffs among various forms of compensation. Perversely, whatever we may save in administrative overhead by retaining largely unified benefit plans, we can more than lose through the pressure to improve benefits at various tables in the interest of good labour–management relations, without being able to trade off such increases against salary adjustments.

For example, each time the dental or health plans come up for renewal, the expectation among the union negotiators is that there will be benefit increases above and beyond meeting the mainly automatic cost increases driven by rising practitioner fee schedules or drug prices. Such requests never take explicit account of recent salary or other increases that may have been negotiated through regular collective bargaining. In effect, at every negotiation table, the union side invites the government to offer something that will improve benefits for their members––and, incidentally, make the union leaders look good. Just matching rising costs, even when they are increasing much faster than inflation, most notably with drug prices, is seen as inadequate.

A more difficult example relates to the Public Service Pension Plan. Through the 1990s, as we demonstrate in Volume Two, the share of current service costs borne by the employer grew from the range of 50% to more than 70%. While the Superannuation Act has permitted the Treasury Board since 2004 to raise employee contributions over several years to cover something like 40% of the costs, concerns about how this would play in the context of normal collective bargaining delayed until the summer of 2005 the decision to raise employee contributions. As we report, the Public Service Pension Plan is among the best in Canada. It would have been appropriate for employee pension plan contributions to begin rising sooner towards covering closer to 40% of costs, as part of a broader rebalancing of public service compensation.

There are good reasons to keep the Public Service Pension Plan free from trendy or frequent changes that might result from including it in collective bargaining. Employees need to be able to count on a stable plan over many years, both during their working life and after retirement. However, this principle does not require sticking unreservedly to the policy of separating the terms of the pension plan from collective bargaining. In the late 1990s, the Treasury Board came close to an agreement with the public service unions to co-manage the plan, which would have entailed sharing responsibility for its funding and benefits over the long term. In the aftermath of the failure to conclude this agreement, since 2000 there has been a re-energized union-management Pension Advisory Board that has provided a forum to discuss pension policy issues.

While the fragmentation of the processes for determining federal compensation has apparently had the effect of pushing up employer costs overall, for employees the result has been excessive rigidity in the regime. For example, while the Public Service Health Care Plan is a decent middle-of-the-road plan, it is far from the best. It either excludes or limits access to various professional services that are increasingly important, from massage therapy to psychological services. There is no protection against the 20% employee co-payment becoming burdensome in cases of extremely expensive drugs that may be essential to preserving health. As long as the employer bears 100% of the costs for the plan, and cannot negotiate trade-offs against salary increases or other benefits, the likelihood of more than marginal changes in the plan is modest.

Nor should we be too enamoured with the virtues of every employee enjoying the same benefits. The nature of families in Canadian society is changing, as well as the preferences of individuals. Greater differentiation of benefits would likely suit the diversity of employees better. The need to attract employees into the public service at various stages of their careers, while still offering a career option for what will likely remain a majority of the public service, implies a strategic reason to facilitate differentiation in benefits.

Considerable care would be required, beyond the capacity of this Review, to work through how best to formulate a more comprehensive approach to collective bargaining in the federal public service. Keeping administrative overheads low is a worthy goal. Retaining a common minimum level of federal public service protections is also likely useful in encouraging a shared identity as federal public servants. However, modern information technology opens new possibilities for cost-effective differentiation both among groups and for individuals. Bargaining, in effect, the full compensation package is more realistic, more likely to keep overall costs under control, and more responsible for both the federal government and employee unions. Determining the best approach would merit a substantial study in its own right.

A related issue in considering expansion of the scope of collective bargaining would be its impact on the role of the National Joint Council (NJC). As noted earlier, some benefits such as the health and dental plans are negotiated currently under the aegis of that labour-management forum. Although a broader scope for normal bargaining would reduce the role of the NJC, it would retain important functions as a place for broader dialogue between federal employers and unions on a multilateral basis, and as the sponsor of various specialized directives on such subjects as travel, relocation, foreign service allowances, and isolated posts.

In summary, then, our recommendations in this area are these:

Central analytical and strategic leadership

Essential to responsible management of federal public service compensation is a central strategic capacity to conduct comprehensive analysis and provide coordinated direction and advice. Although the Treasury Board has the authority to oversee all aspects of compensation, there is no central bureaucratic capacity in place to support integrated governance of these responsibilities. Pieces of the pie fall under the responsibility of various organizations. For example:

As this Report has amply demonstrated, federal public sector compensation is an immensely complex subject, the various components of which are interdependent. Only by managing this field as a unified subject can we hope to balance the interests of taxpayers and employees in a way that serves well the business needs of the federal government to attract, retain and motivate its employees.

The best way to achieve the desired unity of approach is of course debatable. During the period from mid 2002 to late 2003, the Treasury Board Secretariat attempted to promote a common approach through a Compensation Council that brought together all the Assistant Secretaries and other senior Treasury Board officials with a substantial role in the compensation area. This initiative increased shared awareness of the interconnectedness of compensation issues but it failed to institutionalize a unified direction in the field. In theory at least, the Associate Secretary then responsible for the Treasury Board Secretariat's human resources management area (known then as the Human Resources Management Office, HRMO) could direct and harmonize most of the various policy and operational elements relating to compensation.^[172] The Associate Secretary in charge of the HRMO had no role, however, in shaping recommendations relating to changes in departments' salary budgets. The Treasury Board Secretary was of course responsible for both human resources and budgetary issues, but no incumbent of that exceptionally demanding deputy minister job could realistically be expected to ensure a unified approach across such diverse subjects, without dedicated, expert support.

With the creation in December 2003 of the Public Service Human Resources Management Agency of Canada (PSHRMAC), and related changes in the structure of the Treasury Board Secretariat, the cause of integrated compensation management was set back. Initially, this was a natural consequence of the inevitable shift of energy required to put the new machinery in place. In the longer term, the new structure left no one person with the overall means and authority to plan and execute an integrated approach to managing federal compensation. In July 2004 when PSHRMAC became part of the Treasury Board President's portfolio, it became theoretically possible–but impossible in practice–for the President of the Treasury Board himself to execute such an approach.

At this stage it would likely be counterproductive to reorganize to draw the compensation responsibilities of the Treasury Board into one place. For now, the minimum requirement would be to create a Compensation Planning and Coordination Secretariat–with the clear mandate to advise the Treasury Board Secretary and President on their overall responsibility to manage compensation issues holistically. This group would pull together and integrate analytical and strategic planning products and perspectives across the central agencies, particularly the Treasury Board Secretariat and the Public Service Human Resources Management Agency. For the new Secretariat to be truly effective, both the Department of Finance and the Privy Council Office would need to support its work. This goal would perhaps gain support if these agencies seconded key staff to the Secretariat and participated in setting its work priorities and directions.

To a significant degree, the need for the proposed Secretariat is inherent in our earlier recommendations, particularly those relating to the Annual Report on Federal Compensation and to expanding the effective scope of collective bargaining in the federal public service. The very task of creating an overview report, and even more importantly, the ability to answer questions about such a report will require an authoritative staff agency to support ministers and senior officials. Even more critical, reporting in a holistic manner will create a demand for coherent planning and management of the subjects on which the government will be reporting.

By emphasizing analysis and reporting as central to the role of the proposed Compensation Planning and Coordination Secretariat, we risk leaving the erroneous impression that this work could simply be assumed by an existing unit within the Treasury Board Secretariat. This would be a mistake. The Secretariat needs to operate, under the authority of the Secretary of the Treasury Board, to provide fearless and integrated advice on coherence and coordinated strategy within the area of compensation. As such, this Secretariat should not take responsibility for any of the pieces of the puzzle, but specifically for advising on the overall scene.

In addition to securing the support of the proposed Compensation Planning and Coordination Secretariat, it would be wise for the Secretary of the Treasury Board to create a deputy minister-level Compensation Council, including those with substantial responsibility or experience in this field, with whom the Secretary can consider and debate the main issues affecting compensation. The combination of a central strategic analytical unit with an advisory council of deputy ministers, all in support of the broad mandate of the President of the Treasury Board, and ultimately the Treasury Board itself, offers the best prospect of sound, coherent governance of compensation in the federal public sector.

In this area, then, we recommend as follows:

Separate employers and compensation management

We need to be clear on the place of separate employers in an effective regime for managing federal public sector compensation. The term "separate employers" has been employed in this Report to refer to those organizations listed in Part II of Schedule I to the Financial Administration Act. Most such employers have relatively few employees, and have long managed their compensation on their own, subject to direction on their negotiation mandates and approval of their collective agreements by the Treasury Board. In the late 1990s, three important separate employers were established: the Canadian Food Inspection Agency (CFIA), the Parks Canada Agency (PCA), and the mammoth Canada Customs and Revenue Agency (CCRA). CCRA was exempted by law from the need to obtain Treasury Board approval for its negotiation mandates or contracts, although the Agency was required to consult with the Treasury Board Secretariat.

The emergence of these new agencies over the past decade raises two issues for this Review: First, what effect has their creation had on compensation outcomes in the federal public sector? Second, how should separate employers relate to the compensation management regime recommended in this chapter?

On the first question, our experience so far is limited, but there is evidence that separate collective bargaining for CCRA and for the core public service––for which the Treasury Board is the employer––has resulted in some ratcheting of salary levels. This result may be difficult to avoid in view of these circumstances: use of virtually the same occupational group structures in CCRA and the core public service; representation of unionized CCRA staff by the two major unions certified to bargain for 80% of the core public service; material differences in the importance of certain groups of employees in CCRA versus the core public service; and differences in the timing and duration of collective agreements between the two employers.

The logic behind creating separate employers can be compelling. Where a substantial group of employees works for an agency with a focused mandate, it makes good sense to design human resources management policies and practices that support achieving the agency's business goals. Central to any such strategy is compensation. Paying more for staff critical to the agency's mission, designing occupational group structures to combine people whose work is similar, and classifying work according to its value to the agency, while respecting the principle of equal pay for work of equal value, can have a profoundly positive impact on an agency's performance. Conducting collective bargaining within the framework of an organization with a relatively clear mandate, with an occupational group structure tailored to the nature of the organization's workforce, is the best way to connect compensation to work rules and productivity, as we find in the best labour-management relationships in the private sector.

At present, however, the federal public sector may be positioned disadvantageously between two reasonable approaches. One approach is to differentiate human resources and compensation regimes to optimize agency performance. The other is to maintain a unified set of human resource policies and compensation arrangements in order to control costs and ensure a rough–at least apparent–equality of condition across diverse workplaces and missions.

In the late 1990s, the federal government started in earnest down the first trail, but found it difficult to make the changes in occupational group structure that would allow these agencies to capitalize fully on distinct human resources management regimes. These difficulties were partly external, for example, in the opposition of the public service unions and the apparent reluctance of the Public Service Staff Relations Board to support structural change. Internally, the inertia of established structures and practices proved hard to overcome. Also, the preoccupation at that time with preparing the ground for the expected introduction of universal classification standards covering all core public service employees may have made it seem unimportant to get the occupational group structure right.

The persistence of occupational group structures inherited from the core public service made ratcheting pressures unavoidable, to the extent that either large employer (CCRA or the Treasury Board) placed a significantly greater value on any set of employees than the other did. So when CCRA needed to improve auditors' pay to maintain their ability to attract and retain a critical skill set, they raised pay also for the Purchasing (PG) group, for example, whose members were rare in CCRA but happened for historical reasons to form part of the same occupational group as the auditors. For the core public service, auditors were few but purchasing officers relatively numerous, putting gratuitous upward salary pressure on the core public service. That pressure was resisted in direct bargaining, but few arbitrators could be expected to maintain such a difference within a bargaining group. In fact, in the 2005 arbitration relating to the AV bargaining group, which includes auditors and purchasing officers, an extra increment was awarded in addition to the going-rate economic increases.

Two courses are open in regard to the second question of how separate employers should relate to the compensation management regime advocated in this report: to move decisively forward with the separate employer model where there are agencies with sufficient size and business focus, or to move toward a coordinated bargaining approach among the existing separate employers. Either method can be expected to reduce the pressure for unwarranted salary ratcheting across agencies.

The first course would see the addition of several new separate employers, and concerted attention, including legislative action if necessary, to designing occupational group structures and bargaining units that make sense in business terms for each agency. Logical candidates for separate employer status could include most appropriately:

• the Canada Border Services Agency (CBSA);
• the Services Canada agency (SCA);
• Correctional Service Canada (CSC); and
• Statistics Canada (SC).

Other possibilities might include Foreign Affairs Canada (FAC), and the refocused Public Works and Government Services Canada (PWGSC).

Each of these organizations employs thousands of employees, and each has a well-focused mandate whose achievement could benefit from the design of human resources and compensation practices that are tailored to promote good performance in their distinctive fields.

Relative size is a crucial consideration in creating a competitive collective bargaining playing field. At present we have the core public service with over 180,000 employees, the Canada Revenue Agency^[173] with about 40,000 workers, three agencies with staff in the area of 5,000, and over a dozen small separate employers. Creation of the four agencies proposed above would yield entities with about 12,000 employees (CBSA), 22,000 staff (SCA), 14,000 (CSC) and 5,000 (Statistics Canada). These changes would reduce the core public service to only about 130,000 employees in size.

A larger number of separate employers of substantial size would create a more competitive environment for collective bargaining in the federal public sector. Combined with a tailoring of occupational groups and bargaining agents to the needs of each agency, we could expect ratcheting to emerge only in the case of genuine skill shortages that affected several agencies. We could expect the federal public sector agencies to resemble more employers in the broader labour market, where general shortages push labour costs up (or gluts constrain costs) for everyone, but generally different employers pay more or less for various skills depending on how important those capacities are to the business mission.

Expanding the number of separate employers would require the Treasury Board to strengthen its capacity to assess the proper level of operating resources to allocate to such organizations. A danger to mitigate would be the emergence of upward wage pressure merely as a result of one or more organizations enjoying a disproportionate capacity to spend on salaries.

In recent years, there has been an evident disinclination within the federal government to institute new separate employers. The view, apparently, is that it is preferable to maintain a large core public service in which mobility is easy. Or there may be a fear that the advocated budgetary discipline would prove difficult to maintain.

With this perspective in mind, the second or alternative course that would be preferable to the status quo involves moving more towards coordinated bargaining on the employer side in relation to occupational groups that are important to both CCRA and the core public service. The Public Service Alliance of Canada (PSAC) appears to favour such an approach for its part. For example, for the round of bargaining concluded in late 2004, all the various PSAC bargaining units arrived at the stage of acquiring a right to strike within a period of several weeks. Presumably this was intended to maximize pressure on the federal government. In response, in 2004, the government employers coordinated their bargaining more closely than in any round since the emergence of CCRA, CFIA and the Parks Canada Agency as separate employers.

An employer council approach could take a number of forms. It could be limited to informal coordination, much as occurred in 2004. Or it could take the form of common bargaining teams on both the union and employer sides for bargaining units that cover the same occupational groups. In either case, the goal would be to reduce the likelihood that accidents of collective bargaining timing and process would induce the federal government to bid up salaries to levels that are not sensible either in comparison with the external labour market, or as an expression of differences in a group's importance to distinct employers.

A coordinated approach need not be monolithic in its impact on wages and working conditions. Use of two-tier bargaining would permit separate federal employers to do together those tasks best shared, such as negotiating overall salary levels, while reserving to individual employers the negotiation of contract elements that are specific to their circumstances.

In considering this second course, we must acknowledge that the need for a coordinated bargaining approach would be reduced to the extent that the occupational group structures of the various employers could be tailored to their particular business needs. With different occupational group structures in place, there would be less room for direct comparisons between employers––across groups that may be equivalent more in theory than in their actual work, and therefore more opportunity to negotiate salaries and conditions of work that are well adapted to each employer's circumstances. Later in this section we emphasize the need for the core public service (for which the Treasury Board is the employer) to modernize its occupational group structure. Separate employers have an even greater need to address this issue. Although some structural changes have been introduced,^[174] their structures remain more or less what they inherited from the core public service, rather than anything designed specifically to meet their business needs.

In summary, then, we propose to handle the issue of how separate employers should manage compensation in light of our proposals in this Report as follows:

Recommendations 5 to 9 set out proposals on how to strengthen the discipline applied to managing federal public sector compensation. With greater transparency and accountability in place, and stronger management coherence on the employer side, the most critical steps will have been taken towards ensuring that the whole area of compensation spending serves well the interests of both taxpayers and employees. However, there are several specific substantive issues that also deserve attention in improving how we manage federal public sector compensation. We summarize appropriate recommendations on these topics in the following two chapters.

 

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