Traditional public sector pay structures are not suitable for delivering efficient public services or for motivating the workforce, according to PricewaterhouseCoopers.
A report, Connecting Public Sector Pay to Service Delivery, by the professional services firm argued that society may not be getting the best value from the estimated £137bn of public money that is spent on pay.
In many parts of the public sector, pay is not properly aligned to service delivery models, the report said, adding that the way this expenditure is managed could be significantly improved.
New pay systems such as Single Status in local government and Agenda for Change in the NHS have helped to address inequalities in levels of pay between men and women. However, other potentially unfair aspects of public sector pay remain: for example, high performing and motivated individuals are generally paid the same as (or very little more than) weaker performers.
Continued use of incremental pay progression, under which people get additional pay each year (in addition to cost of living increases) for doing the same job, is a fundamental weakness, the report argued. In many parts of the public sector this simply results in starting salaries being too low and/or salaries at the top of the scale being too high.
As a result, the public services are often unable to recruit the best quality people to begin with; and when they are recruited, there is no financial incentive for people to develop.
Most decision making on public sector pay remains highly centralised, driven by collective bargaining and the need to control costs. This tendency towards centralisation is the greatest barrier to the effective management of public sector pay: it means decisions on pay become detached from service delivery models and from local market rates of pay, the report said.
Daniel Hibbert, director of government and public sector practice at PricewaterhouseCoopers, said: “The design of pay progression and performance pay should be based on the jobs people are doing and those jobs should be based on the service delivery models that they work within.
“Centralised decision making prevents this from happening. It also means that inadequate account is taken of market rates of pay, including the different levels of pay which should be applied in different parts of the UK.”
The paper cites some obvious ‘quick wins': in local government pay is already determined locally, and what is needed is a change in direction to stop any move towards centralisation.
It would also be relatively simple to give non-departmental public bodies the freedom within their operating budgets to determine their own pay arrangements and hospitals with Foundation Trust status could also do the same.
Public sector pay hit the headlines recently with the revelation that a Birmingham City Council traffic lighting engineer had been paid £91,000 in 2005 (including bonuses and overtime payments) despite being signed off by his GP for the whole year.