All for the public good

Salaries in the public sector may not always compete with those offered by private organisations, constrained as they are by the public purse strings. But public sector employment packages often contain much more than salaries, including attractive staff benefits and flexible working practices.

In the lower salary range in particular, these packages are highly competitive.

“Benefits in the public sector are considered to be better in terms of the amount of holiday and pension provision at all levels, except the very top,” according to David Conroy, principal at Mercer HR Consulting.

Pensions, for example, are much more generous in the public sector, says Peter Boreham, associate director of consulting company Hay Group.

“The public sector is still delivering a final salary pension promise rather than a defined contribution plan, and many are still able to retire at 60 rather than 65,” he says. “Holidays are also typically around five days a year longer in the public sector.”So why do public sector organisations offer such good reward packages?

Bygone days

First, historical reasons come into play. According to Boreham, the sector’s generous pension arrangements date back decades to when the top rate of income tax used to be more than 80%.

“Having part of it deferred in the form of a pension made a great deal of sense,” he points out. Conroy adds: “The driver for the public sector is to be seen as a paternalistic employer providing good holidays and good benefits – that’s the ethos that’s been there forever.”

Second, offering a competitive package helps the sector contend for the best talent, according to Alan Warner, corporate director (people and property) at Hertfordshire County Council.

“It’s about being an employer of choice. Competition for staff is high, so we need to make ourselves a genuine option for people to work for,” Warner says. “It’s no good having 21st century employees on 20th century conditions.

”This move to attract talent is part of a wider culture change. Stephen Moir, HR director at Cambridgeshire County Council, says: “There is an increasing awareness among public sector employers that reward and benefits also drive performance and quality improvements in the services delivered.”

Moir sees the public sector becoming more commercial in outlook. “Increasing competitiveness in public sector reward packages stems from public sector reform and modernisation,” he says.

Finally, many public sector organisations are heavily unionised, and benefits that have been achieved via collective bargaining can be difficult to change.

The type of benefits offered, as well as their monetary value, varies according to sector, says Mark Childs, director of reward specialists Total Reward Systems.

“Public sector employment packages tend to include fewer items, but those benefits that are provided are much richer in monetary terms,” he explains.

Public sector benefits tend to be both tangible with direct monetary value, such as pensions and life assurance, and intangible, such as flexible working and access to training, although of course these are also available in many large commercial organisations.

Healthcare benefits are not usually offered by public bodies, whereas they are commonly found in the private sector. As Conroy explains: “Many Labour-controlled local authorities are completely against private health insurance.”

Share options, performance-related bonuses and incentive programmes are also less common in the public sector, as are cars and car allowances. Instead, many bodies offer a range of voluntary benefits. Hertfordshire County Council, for example, has negotiated discounted deals for its employees in lifestyle benefits such as travel insurance and membership of leisure centres and motoring organisations.

Flexible benefits

Although there is a degree of flexibility in the public sector, generally, it has not yet fully embraced formal flexible benefits packages.

“Flexible benefits schemes are rare in the public sector,” says Richard Morgan, head of flexible benefits at Watson Wyatt. And according to Conroy, the culture of the public sector is less about ‘benefits’ than entitlement.

“It is an issue of principle. Local authorities won’t jump into bed with commercial organisations to promote themselves as good employers. Plus, there is the cost of setting up and administering a flexible benefits plan.

”However, attitudes may be changing. Moir believes that progressive public sector employers are adopting flexible benefits as part of a ‘total reward’ approach, which includes both tangible and ‘softer’ benefits, such as commitment to health and safety and protection of employment.

He says: “A true reward strategy will align with the culture of the organisation, public or private, enable the right behaviours, attitudes and performance to be encouraged and, ultimately, should create competitive advantage – whether that is better public services or higher share value.”

Comparing reward packages

Public sector

  • Final salary pension schemes with greater monetary value

  • More generous annual leave

  • Flexible arrangements such as working from home, job sharing and flexible working hours

Private sector

  • Less valuable money purchase pension schemes

  • Health/medical insurance

  • Share options

  • Performance-related bonuses

  • Incentive programmes

  • Company cars/car allowances

  • Flexible benefits

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