Cut costs but not bonuses, state told

The treasury has taken to heart Finance Minster Pravin Gordhan’s call to cut expenditure. (David Harrison, M&G)

The treasury has taken to heart Finance Minster Pravin Gordhan’s call to cut expenditure. (David Harrison, M&G)

Unhappiness over performance bonuses for staff at the national treasury has highlighted the tension between ballooning civil service pay and the need to create incentives for productivity and professionalism.

Unions have rattled their sabres at the department, often held up as a model of excellence and professionalism in the public service, over the decision to rein in bonus payments.

They were talking to members about going into “dispute mode” and seeking a decision from an arbitrator, said Manie de Clercq, deputy general manager of the Public Sector Association, the majority union at the treasury.

Finance Minister Pravin Gordhan has repeatedly called on the government to begin curbing expenditure, particularly on salaries.

According to the treasury’s spokesperson, Jabulani Sikhakhane, the need to strike a balance between recognising the hard work of staff and the limited funds available — as well as consider the tough economic circumstances South Africa currently faces — influenced the move.

De Clercq said the union appreciated this dilemma and recognised the need for the government to find ways to save. However, it “did not make sense” to cut incentives aimed at improving the productivity and performance of staff, he said.

“There are many other ways to save,” he said.

The pool size
De Clercq said the decision would predominantly affect workers below senior management level.

According to the treasury, the pool of money available for performance bonuses is set by the department of public service and administration at 1.5% of a department’s annual remuneration budget. A larger pool requires approval from the relevant minister.

The size of the treasury’s pool had reduced to 3% of the wage bill this year, but remains above the prescribed limit, requiring ministerial approval. At 3% of the treasury’s wage pool, this translates into R18.4-million.

The treasury concluded a departmental performance management policy last year, but there was no government policy requiring consultation with the unions on performance bonuses. The department’s policy required that the payment of bonuses be subject to the availability of funds, said Sikhakhane.

The decision to align bonus payments with the regulations will affect about 1 000 staff members.

But De Clercq said an independent, third-party intervention was needed. No similar bonus-related action has been taken by other departments, he said.

Performance rewards
The treasury’s last annual report showed that performance rewards for staff members below senior management level averaged R23 000 a person, whereas for senior management it was R58 000 a employee. About 83% of senior managers qualified for these rewards, and about 77% of personnel below senior management qualified.

The department of public service and administration confirmed that departmental bonus pools were limited to 1.5% of personnel costs, unless approved by the executive authority, and annual pay progressions for staff were limited to 2% of the staff remuneration.

The rates for performance bonuses were stipulated by departmental schemes, within these parameters.

The difficulty of balancing growing state wages with the need to offer performance incentives and professionalise the state is a long-standing dilemma for governments, said Pietman Roos, policy consultant for the South African Chamber of Commerce and Industry.

But he warned that the size of the state, as an employer in the economy, was worryingly high.

According to Roos, employment by the state had grown by 19% between 2008 and 2013, whereas total employment across the economy had dropped by 1% during the same period.

Growth of the state
The state “cannot be the employer of last resort”, he argued. It risked crowding out growth in the private sector as the state borrows more to meet its spending commitments, raising the cost of capital across the economy and making it more expensive for businesses to start out or grow.

Curbing the growth of the state could mean it was able to pay its staff very well, ensuring it was staffed with the best expertise, Roos said.

The National Education Health and Allied Workers Union did not respond to requests for comment, but the union has previously lambasted the argument that state workers are overpaid and spending on salaries needs reducing.

The union has pointed out that the growing size of the civil service, rather than rising wage levels, is a key force behind the magnitude of state pay, and it serves a growing population.

The impact of unions and bargaining councils on wage increases is a related issue, with particular relevance to government.

Research published in May on online economics forum Econ3x3 shed new light on the effect of unions and bargaining councils on wages.

Wage premiums
The research, by academics at the University of Cape Town’s development policy research unit, found that wage premiums associated with union membership in the private sector were between 6% and 7%, much lower than has been previously estimated.

However, the presence of a bargaining council in a sector had a substantive effect on wage premiums, averaging an estimated 9.4%.

According to the research, the cumulative wage premium, incorporating the effect of union and bargaining council presence, averaged an estimated 16.4% across the state and private sectors.

The difference in cumulative wage premiums between the state and private sector was stark.

The research estimated that the cumulative premium for the state was 22%, whereas it was 9% in the private sector. Haroon Bhorat, director at the research unit, said there were two distinct issues.

The first was the rise in the public sector wage bill, which has to be carefully managed within the context of the rising deficit and fiscal commitments in general.

The second was “the return on this wage by the state in the form of productivity and performance outcomes among public sector workers”, which remained a “crucial area for further debate and potentially innovative policy solutions”, Bhorat noted.



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