Proceedings of the Standing Senate Committee on
National Finance
Issue 8 - Evidence
OTTAWA, Wednesday, April 29, 1998
[English]
The Standing Senate Committee on National Finance met this day at 5:30 p.m. to examine the Main Estimates laid before Parliament for the fiscal year ending March 31, 1998 (organizational retention and compensation in the public service).
Senator Terry Stratton (Chairman) in the Chair.
The Chairman: Thank you, ladies and gentlemen, for attending the second meeting of the Standing Senate Committee on National Finance, studying retention and compensation in the federal public service.
Today we have with us Mr. Lawrence Strong, who is the Chairman of the Advisory Committee on Senior Level Retention and Compensation. The Advisory Committee submitted its first report in January, 1998. Mr. Strong, we very much appreciate your attendance here this afternoon to discuss with us the findings of your committee.
The matter of retention and compensation came to our attention last October, when it was aired on the CBC Saturday morning program The House. Then it followed from there with other media articles, bringing to our attention more and more the concerns of the civil service. Since then, we held a meeting on February 18, 1998, with the Honourable Marcel Masse, President of the Treasury Board.
Mr. Strong, if you have someone with you whom you would like to introduce, please do so. Then proceed with your opening statement.
Mr. Lawrence F. Strong, Chairman, Advisory Committee on Senior Level Retention and Compensation: I have with me Ms Shirley Siegel from the Treasury Board Secretariat. Shirley worked as support for our committee, Mr. Chairman.
I am delighted to be here to talk about a subject that I personally, along with our committee, think is very important. In terms of appearing this afternoon, I was told to make a very brief introduction and that essentially you would be asking questions and that we would be entering into a dialogue. I am assuming that everyone has indeed read the report.
I am delighted that you are discussing this topic, for I believe it is very important and needs to be addressed. Frankly, the more discussion around the issue, the better.
When we started on the committee last May, I assumed that our main challenge in the federal public service -- and remember this is just the leadership group that we are talking about -- was going to be around compensation. That was certainly the issue that had perhaps received the most press. However, as we began investigating the situation as it existed last year, our view quickly changed.
We perceived that the key issue is a long-term threat to the quality of the federal public service. We started to become very concerned that, if the trends that we saw in place continued, there would be a serious erosion. This is partly a result of the poor morale, a contributing factor to which is frozen compensation. However, when you look at the demographics of the federal public service today, clearly startling proportions are eligible to retire early as we enter into the new millennium. Our focus therefore switched from compensation to a concern for the long-term quality.
Having said that, compensation clearly was critical in the short term. We have spent much of the time in our report addressing that issue. We have tried to do it in a way that separated principles from structure from implementation, in the hope that the dialogue on the issues of compensation would perhaps be less political in nature. The other thing we tried to do in the report was to make it very transparent. I hope in reading it that you found it clear and, as I say, transparent because we felt, as a committee, that this was healthy in terms of generating a good dialogue.
We are delighted that the federal government has moved quickly to implement the recommendations of the report. With that, Mr. Chairman, I would be very pleased to answer any questions about the report.
The Chairman: Senator Kinsella.
Senator Kinsella: Thank you, Mr. Strong, for accepting the mandate that the government gave you to chair this committee on a very important matter. I have a few general questions and then some specific questions on the report.
Your committee took the decision, as you say in the report, to focus primarily on the matters of compensation and the future quality of the public service. You have identified other issues. Why, in brief, did you choose to first talk about and make recommendations around compensation before fleshing out your recommendations on the nature of the Public Service of Canada for the 21st century?
Mr. Strong: As you know, we made three sets of recommendations. Perhaps the major one was around compensation. The reason for that was very simple. We felt that without addressing compensation quickly and decisively, there was a very serious risk that we would see an accelerated departure of senior civil servants out of the public service. We felt that that signal and message needed to be sent.
When you look at the statistics, you will see that they are being paid -- or were being paid -- significantly below any comparative group that we identified. We felt that that needed to be addressed.
The recommendations around compensation are not necessarily the final recommendations. When we have completed what we call the visioning, we may want to do something further. But we felt that this had to be a critical first step.
Senator Kinsella: In the nine months that you have been chairing your committee, how many senior managers who are in the DM category have left the public service?
Mr. Strong: I would have to defer to Shirley. Since we have been chairing the committee, I cannot tell you the answer.
I can tell you that there have been departures. In some cases I have met personally with them. There has been an erosion at that level; however, I cannot tell you the numbers.
Senator Kinsella: In general terms, in your judgment has there been a haemorrhaging?
Mr. Strong: I am not sure that I would call it a haemorrhaging, but there have been departures from people who have clearly been unhappy, which has left gaps. Again, the issue is that we are just at the cusp. Had we not done something now and had this message not been sent, you would have seen that accelerate. That is more to the point.
Senator Kinsella: Did you grapple with the idea that in order to be able to determine the nature and the quality and quantity of compensation, it is necessary to know what one is compensating employees for? Did you consider that if there was going to be, as a result of your recommendations, a cultural shift or a major change to the public service in terms of the work ethos, et cetera, that that might colour rather significantly the compensation? Did you consider that?
Mr. Strong: Yes, we did. Certainly, the nature of the resource that you want could change over time. In my view, it will not result in lower compensation. It will serve only to drive compensation higher. If you read carefully, you will see that we anticipate that possibly we will need to revisit the compensation structure. That was written in the anticipation that we will need different skills and competencies, for which we will have to pay even more.
Senator Kinsella: Mr. Strong, on pages 20 and 21 of your report you speak of the principles for compensation. At the bottom of page 20, your third principle, you say:
Thirdly, we would like to see processes put in place which, to the greatest extent possible, remove the year-to-year administration of Public Service compensation from the political arena.
When I read that, the question that went through my mind was: What does your committee think of the principle of parliamentary accountability? Perhaps you might wish to explicate what you are driving at with that and give me the comfort that I am seeking.
Mr. Strong: Senator, if you read on, we attempted to make it clear that we were not trying to erode that Parliamentary accountability. When you run an organization, even a small organization like mine, your most critical resource is your people. If, at every opportunity, for political reasons people want to bash that group or argue about whether they should get zero or .1 or .2 per cent increase, that is not exactly motivational.
The intention here was to find a way that would try to get that discussion out of what I call the political arena, where people frankly are not discussing the issue; they are trying to create some political mileage. That was the purpose of that recommendation.
In the private sector sometimes you have independent boards of directors that look at these. There have to be processes that can protect the issue of parliamentary accountability, at the same time trying to eliminate some of what I would call the negative impact of the sorts of discussions that have been taking place in the last little while and do not do very much for the morale of the public service.
Senator Kinsella: On page 7 of your report, the paragraph dealing with compensation for deputy ministers and the EX community, the second sentence says:
Such compensation policy needs to be internally equitable...
That is an important principle that we share. The question went through my mind only because of the matter that has been in the news these days, which I do not believe you had studied, namely, compensation in the armed forces, particularly with the enlisted categories.
As an observer, do you think that that kind of principle of internal equity is a terribly important principle? You are looking at it as it applies to the Public Service of Canada, but can you see any reason why it would not apply to the Canadian Armed Forces?
Mr. Strong: That is out of my sphere of knowledge. However, as a general principle within an organization, internal equity is very important for people who are part of that organization. It does not matter what sort of organization it is. It is true in the private sector, in the leadership group of the public sector, and in the public service unionized workforce. Internal equity is usually a critical driver for making people feeling good about what they do and the compensation they receive.
Senator Kinsella: Given that within the body corporate of the Government of Canada we have a public service, an armed forces, and the RCMP as a distinct organization, et cetera, did your committee look at the compensation levels of senior military officers or senior RCMP officers in your analysis of the senior cadre of the public service?
Mr. Strong: Our main focus was around the approximately 3200 to 3300 people that are called the EX community and then on the 500 or so people that are Governor In Council appointments. From memory, I do not think there were any active military or police people in that. They are mostly agencies, tribunals, COs or crown corporations. That is the other community that we looked at. That group was complex enough, without adding to it. So the answer is no, we did not look at them.
Senator Kinsella: In order to have an application of this general principle of internal equity across all who are dependent on the public purse of Canada, do you think there should be an analysis that compares our senior managers and their compensation in the public service with the senior officers in the Canadian Armed Forces and in organizations such as the RCMP? Indeed, we might learn something.
I raise that because I did some looking myself. I found, for example, the relationship between the compensation of a full lieutenant in the Canadian Armed Forces and a lieutenant-general, which is a comparison between the first level of management, like our EX1, and a DM2. In the comparison between an EX1 and a DM2, a DM2 makes about twice as much, whereas a lieutenant-general makes more than three times as much as a full lieutenant.
I was trying to understand in my own mind, if you are able to see in your analysis in comparing it with the private sector, that there is a graduation. Based upon your recommendations, you seem to maintain a balanced graduation. It struck me that it was quite unbalanced in the armed forces.
Mr. Strong: You may look at those numbers and subjectively feel that there is a problem. We have tried to build the relativity within the public service based on objective means. There are ways of doing this through human resource specialists that look at the scope of the job, the responsibilities, the competencies and skills that are required. They then rank all of those jobs within the public service. That is our relativity.
When it comes to then setting compensation, you have the challenge of saying, "We now have to make some external comparisons." In order to attract people of the required experience and with the right skills to do this job, we have to ask where else we could get them from, or what other jobs could these people do? There are a lot of jobs that are different. We were able to pick some similar jobs and then compare them with the broader public and the private sectors.
Off the top, I am not sure how I would start doing that with the military, as an example. I am sure it can be done. I have just never thought about it. It would be more challenging. Subjectively, you might expect a relationship between the military and the police. But I am not sure how you would compare them to others. Having said that, there must be a way of doing it, if it important.
The Chairman: Senator Forest.
Senator Forest: Thank you for coming, Mr. Strong. I am very pleased that this study is being done. I feel that it is overdue. I appreciate the format of the report. I found it easy to read.
I have been concerned for some time. I have been a CEO in private business and a director of a number of Crown corporations, two of which became privatized when I was on the board. When these Crown corporations were privatized and we had to compete with the private sector for our top executives, there was a tremendous increase in pay. That is when I realized how underpaid some of our top public service people are.
It also concerns me that the remuneration for the top people in the public service and educational institutions have not kept pace with the private sector.
This is your first report. When do you expect to have your study completed?
Mr. Strong: It will probably be ready 12 months after this. As you know, our mandate is for three years. We will probably publish one report a year.
We are meeting very shortly, which will be the first time that we have met since the report became public, and we will map out the activities that we will look at during the second year.
Senator Forest: How do you see the timetable for implementation? Do you feel that you will be on target for that?
Mr. Strong: For our report, I hope so. I do not see why we would not be. In the second term there are more complex issues, but having said that, we have a better understanding of them from our first year of work. When we started quite a few of us had to go on a pretty steep learning curve to understand how things happened in the public service. I think we are over that. A couple of the issues that we have said that we are going to address are quite complex.
Senator Forest: You have mentioned the urgency of the situation. With the time frame you have for your committee, assuming that your report comes in on time, would you think your recommendations would be able to be implemented in time to prevent a real deterioration of our services?
Mr. Strong: As a committee, we have said we would like to keep track of how our recommendations from the first report are going. If we saw a problem, I am quite sure that we would be prepared to make a mini-report or an update.
That is not what I was thinking of in terms of the timing, however, because we have identified a couple of quite substantive issues to be addressed. If we thought that things were not happening in the way that we had anticipated, we would certainly bring that to the attention of the President of the Treasury Board.
Senator Forest: I found the report very readable, but I had difficulty understanding the graph on page 10.
Mr. Strong: As you know, every job has a rate and a salary which relates to that job rate. Let's say the job rate is $50,000. If you are at the job rate, then you are 100 per cent at the job rate. If you are at $40,000, you would be at 80 per cent of the job rate.
We use the job rate because normally somebody who is performing satisfactorily and has been in the job maybe three years would be expected to be earning the job rate.
This graph shows that almost 10 per cent of the EX1s are at less than 80 per cent of the job rate, and almost 60 per cent are between 80 and 90 per cent of the job rate. In short, amongst the EX1 community, people are being significantly underpaid in relationship to the way their jobs were evaluated. That was true even back in 1991, and they have been frozen ever since then. That is why we said that one of the main problems with that group was that the salary latitude, that was actually available in the existing structure, was not used. But that is because everything got frozen.
Senator Forest: It is 80 per cent of what?
Mr. Strong: That is of the job rate. Back in those days, that salary level was maybe 70-something thousand dollars. But it is whatever that job rate was. Again, that is a usual way we, in the private sector, evaluate how somebody is performing relative to that job rate.
The Chairman: Senator Bolduc.
Senator Bolduc: On page 5 of your report, you say that the civil service does not keep the people they need. That is a translation of the French version. At the same time, the government has created many incentives to get rid of people. So, instead of having 5,000 people, you have 3,500 people in the whole category.
How can you, on the one hand, say that the government does not keep these people, while, at the same time, it is creating incentives to get out? Is it a fabricated malaise or is it a real malaise?
Mr. Strong: Downsizing took place during the nineties, and those reductions took place. There are two threats to people leaving: one is the pure demographics of the work force. In other words, they will all hit the magic 55 and, at that point, based on their pensions, they are working essentially for 30 per cent of their salary, if salaries are frozen. At that point, why would you not retire and then go into something else? There is no ability to keep them.
The other point is around the issue of morale. The low morale is due to far more than just compensation. People are questioning why they should continue to work. They get beaten up regularly in the house; they are asked to work long hours, all sorts of things. Downsizing contributes to this sense of lack of worth.
Do not misunderstand me. This happens in any organization that downsizes. When you go through this degree of human change, people have these feelings. We have observed that there was not really a process to help those people through that sort of change. It is very difficult for people to go through something like that; they get down.
Senator Bolduc: When you looked at the compensation package, did you look at the pension plan? It is notoriously very generous for higher civil servants. For example, I see that you are proposing rates of salary for a deputy minister that would go up to $200,000, which means a pension of $150,000. We do not see that very often in the private sector, except for CEOs who take risks.
Mr. Strong: We looked at pensions, but only in the broad context. We did all of our analysis based on total compensation, and this included pensions.When we compared with the private sector or with the broader public sector, the comparisons of total compensation included the cost of pensions.
We signal in the report that we are going to look in more detail at pensions in our second term.
Senator Bolduc: In my opinion, the system is such that there is no incentive, pension-wise, to stay after 55. We are at our best at 50. I am 70 now, so I can talk about that. At 50 you have the maturity and experience, and you are beginning to be a little wiser. I do not see why people should leave at 55.
Mr. Strong: There is not a significant financial incentive to stay, you are right. This feeling of wanting to feel respected, that they are contributing is also an important part of it. They are pretty down on themselves. When you look at what has happened over the last six or seven years, you can understand why.
Let me come back to your question. Let me set aside the deputy minister pension. There is a tremendous view also in the private sector about the pension being generous. It is a very good pension, but what people sometimes forget is that the individual employees pay 7.5 per cent of their salary into that pension. When you look at the cost to the government, it is not totally out of line, but it is still a very good pension in terms of end benefit. It certainly affects your retention strategy; in other words, it is not a tool for retention.
The deputy minister pensions, on the other hand, are on the rich side, as you point out and as we mention in the report.
Senator Bolduc: I see that there are five levels, plus three groups of deputy ministers, which means eight levels. I studied the British civil service for years in the fifties and sixties, and I was impressed that they managed the empire with five levels of higher civil servants. How is it that here we need eight levels, when they needed only five to manage the empire, including the fall of the empire, of course?
Mr. Strong: That is a valid point. We considered that in terms of normal organization theory, but concluded at the end of the day that this was somewhere where we would defer to the visioning section, when we knew the structure and the roles. Frankly, I do not know when the report would have come out, had we tried to look at that point.
Senator Bolduc: Fairly recently -- perhaps it was a few years ago -- the DM and EX1 categories were mixed. Suddenly it was possible to do that, although it was somewhat artificial.
Moreover, I do not think it is inappropriate to have some professional people outside of that at a higher salary. I believe you will agree, Mr. Strong.
Mr. Strong: Yes, it is quite reasonable. But, again, we have not focused on that at this point.
When we talk about the levels, they are not necessarily present in a hierarchic sense in every organization. In other words, one of the things that we have learned is there is tremendous diversity in terms of the numbers of jobs that are swept up in this, both here in Ottawa and in other parts of the country. You need to cover a lot of territory and types of jobs.
Senator Bolduc: For many years, Finance and External Affairs offered the greatest chance to become a higher civil servant. I have noticed that when the governments are in a shaky situation in a department, they usually pick someone from External Affairs or Finance and install them as deputy minister in that department.
The reverse is now true. I suspect that it is because of the background of the people at Foreign Affairs and Finance. In Finance, the tradition is economics or something related to economics or business; at External Affairs it is usually more cultural, people with a background in philosophy, literature, history and things like that. In my opinion, there is a good case to be made to come back to that as a way of building a better civil service at the top level.
I know a lot of people would criticize that, but when you look at the real definition of a deputy minister, they are a secretary for the minister. The minister's career depends on the fact that he or she is successful. If the minister is to be successful, he or she has to be successful in the House. If you look at our foreign service career people here, they are real pros. I can tell you that. I know a lot of them, and the minister is always in a good situation with those guys around, from the public's point of view.
In a parliamentary system like ours, this is very, very important. If the minister does not look good, that is the end of his career. Are you going to look at that when you talk about the necessity of having good leaders in the future higher civil service? By the way, I do not say that the only background needed is humanities and social sciences. I am not going as far as that, but I notice that for many reasons we do not see many engineers, for example, as deputy ministers. Maybe they are too serious for that job or maybe there is something lacking in their background. Perhaps they are too technical and not politically sensitive enough. It is difficult to be politically sensitive.
Mr. Strong: Let me not directly answer your question, but let me make a couple of comments around the subject.
We have identified that there is a need for more proactive management of giving people different experiences. Because of the uncertainty that is taking place, the downsizing, people have wanted to stay very close to home. So they have stayed within their silos because this is where they are known and are comfortable. They know they have the experience, so they have not wanted to take risks.
The net result of that is a loss of tremendous diversity of experience. We called for the need to get that development experience. It requires a slightly different attitude and it needs some help. We need to be proactive about that.
The sorts of competencies, not skills, that you need in order to be a good leader do not necessarily relate to your background. Over the next decade, you will find that we will become better at identifying what those competencies are, and we will begin to hire the people that can deliver them.
I am not sure that the old streaming of how people got their education will necessarily be relevant in the future. What you will be looking for are skills of teamwork, communication, problem solving, different types of skills. I am not sure that an engineer or somebody out of the social sciences would necessarily be any different.
Senator Bolduc: It must be difficult to detect leadership in a public service examination.
Mr. Strong: It is. The best you can hope for is to begin to understand what those competencies are. Skills are relatively easy to measure. The issues around competence that touch on management and leadership are much more difficult.
It is important that we attract the good people, and this is where, at the moment, we have a serious problem.
Senator Bolduc: There is also another factor that is difficult to measure. Higher civil servants, at least in the two or three first levels, are policy advisors to the minister. they must be fairly competent in policy analysis. We all know that policy analysis implies some bias. If you are an economist from the University of Chicago, you are going to be on the right side of the game; you are probably going to be a conservative. But if you are from Harvard, you will be on the left side; you will be probably a socialist or a liberal, a liberal in the modern sense.
That puzzles me a lot, when you try to have an objective senior civil service and, at the same time, you know that the policy formulation process implies inevitably some bias by those who make propositions to ministers. What do you think about that?
Mr. Strong: That is a tough question. In terms of bias, let me ask you a question. Are you talking about a partisan public service as opposed to a non-partisan public service?
Senator Bolduc: Yes. I am assuming that everybody is non-partisan at that level.
Mr. Strong: That is right, but you are implying that they might shade it a little. In all the discussions we have had, there is a great comfort in being non-partisan, in being prepared to put policy options on the table. After all, it is the political representatives at the end of the day who are held accountable for that choice.
I would not want to see a scenario where those options were not put forward, where we channel that. That is a personal view.
The Chairman: Senator Fitzpatrick.
Senator Fitzpatrick: Mr. Chairman, as you know, I am new to the committee. I have only had an opportunity to skim the report, which I agree is readable, so please forgive me if I do not have an in-depth knowledge of it.
I am observing what is happening in our business community and in the government community. Although you have addressed here the salary levels and some management performance levels, it seems to me that we are always going to have a problem in the civil service in terms of the catch-up in major bonuses and stock options and major compensation amounts that people in the private service receive.
When senior civil servants read The Globe and Mail a couple weeks ago and saw the list of the top salary levels of the CEOs, I wonder what their reaction was to that and how, if ever, we could address that problem. It seems to me that the disparity is getting greater and greater. Even though there has been a cap on salaries for the civil servants and there is an attempt to address that, I do not know how we are going to catch up to these major rewards that people in industry are going to get. What is your reaction to that and what playback have you received in your process?
Mr. Strong: All of the publicity is around a few very senior, very highly paid people. When we make our comparisons, they are against what we call the median. In other words, we will look at 200, 300 or 400 companies and we will take the person that is right in the middle. So they are not going to be up in the stratosphere.
Today the people in the public service do not expect to be paid at those levels. They recognize that there will probably be a difference. That is acceptable because the group feels that they are doing something for the public good. What is important to them, though, is that other people recognize that and also feel that they are doing something for the public good. This is the soft part about this job, and this is one of the things that has been lost. This is one reason why I want to depoliticize. It is not helpful, when you are responsible for an organization, to constantly beat up the people. If you have problems, you do it in private. You do not do it in Parliament; you do not do it in the front page of the newspapers. You are trying to motivate an entire organization.
If we can restore that sense of pride, I do not think that that will be a significant barrier. I think people will accept it. Certainly, that has been the sense in talking with everybody.
Having said that, they have to be well paid against the broader public sector, such as the presidents of universities, major teaching hospitals, organizations like this. They should be paid at or above that level, but I do not think they expect to hit those high levels, providing we can restore their pride in the job that they do for the public interest.
Senator Fitzpatrick: You are saying that there is a sense of service that can be exploited or developed?
Mr. Strong: There is very much a sense of service. This is something that consistently comes through. Frankly, without it, you would have seen an even bigger exodus in the last six years. People would not have stuck around.
People really believe that, and I think they carried the hope that there was going to be a way of restoring this sense of pride and a recognition about the value of these positions. As I say, we have made the recommendations on salary, but if we do not follow it with restoring this sense of pride and value in the job that the public service does, then we will have maybe bought ourselves a year or two years, but no more. We need to do that other activity as well; business needs to do it; Parliament needs to do it.
We called for the visioning exercise because we felt that it would not only hopefully point us in a direction where there was some sense of unity, but it would get people talking about the value that the public service plays for all Canadians.
I can tell you the areas where they are absolutely critical to me in the private sector in terms of performance. There is a tie in between how good our public service is and the economic well-being of our country. In my mind, that is clear. One of the problems is that you do not get many people talking about that and people forget it. It is typically Canadian. We forget that we have a non-partisan, ethical public service that has integrity. Yet you only have to pick up the newspapers to know what happens to some of the countries where they do not have that. I think we take that totally for granted.
That is a very important second leg of revitalizing the public service, in my view and in the committee's view.
Senator Fitzpatrick: That is encouraging. It is ironic that the good work that some of the senior civil servants do help industry. Many of these bonuses and appreciation in stock values are a result of the good work that our senior civil servants have done. There are the free-trade negotiations.
Mr. Strong: There are trade agreements and competition policy.
Senator Fitzpatrick: A very important aspect of your job is to restore that sense of pride and satisfaction within the civil service.
The Chairman: Senator Thérèse Lavoie-Roux.
Senator Lavoie-Roux: I hope we do not intend to give even our best public servant the possibility of options or salaries comparable to one that I saw in the newspaper last week. It was something like $25 million.
On page 4 of your report you say that you observed the low morale of the public service due to the various factors that we have enumerated before. You probably do the same kind of exercise or work for the private sector. Do you feel that the effect is similar in private enterprise, where there would be some restructuring and people are laid off and so on? Is it typical of the public service or is the reaction worse in the public service than it would be in the private sector?
Mr. Strong: I think that it was a little worse in the public service for a couple of reasons.
Firstly, a six-year freeze on compensation is an incredibly long period of time. That sort of thing happens in the private sector. Sometimes people take cuts, but there is always a very clear expression of why and people at least understand that the company is trying to go from one point to another. The length of the freeze was exceptional.
Secondly, managing any organization through the sort of change that the federal government has gone through is difficult. Plenty of people in the private sector have blown it. The size and complexity of the public service makes it an absolutely daunting task. It was a tough task to manage people through that downsizing.
It is ironic. I have been through a number of those downsizings. This is sometimes lost on people. You have to worry more about the people who stay than the people who leave. Once people know they are leaving, they usually get a very good package, and the uncertainty in their lives has gone. They know they have to go and look for a job and they have this money.
For the people that stay, firstly, the uncertainty is still there, and, secondly, they have this incredible sense of guilt about their friends and colleagues, whom they have worked with for 25 years, who are without jobs. You must have a process that almost allows people inside to grieve. We found no evidence of anyone enunciating a vision of where the public service was heading, or of trying to deal with the people who were left.
Having said that, I do not mean to be critical because it is an incredibly complex task, when you look at the size and scale of the public service. But that is the sort of thing. My view is that it is a little bit worse than what we would have seen in the private sector. Also, there were fewer levers to be able to address them.
In the private sector, if you were going through that, you would identify A, B and C as being high flyers. You would make sure that they got a salary increase. You would take care of the people that you wanted to retain. You have the flexibility to be able to do that without all of the fairly complicated processes in the public service.
Senator Lavoie-Roux: You probably were not requested to do so, but did you notice a repercussion of this low morale on the lower levels of the civil servants? Did this have a repercussion on the other workers?
Mr. Strong: We really did not look at that. Let me answer another way. Amongst the leadership group that we studied, we sense almost the exact opposite. We found people working longer hours, just doing more. In fact, their work weeks were expanding, part of it caused by the downsizing, probably part of it by a sense of insecurity because people do become very concerned. All of that is normal in an organization. We comment in the report that people's hours of work had expanded.
My sense was, though, that we were at the point where, had nothing been done, had the issue not been identified and had we not started to talk about it, you might have started to see a negative impact. We actually comment on that in the report. The timing was just at the point where that had not started to happen, but that is pretty judgmental.
The Chairman: My question was exactly that, so I will ask a supplemental. It is about the people at the lower levels or echelons of the civil service, who have had their salaries frozen since 1991. Your report, out of necessity, recommends immediate, fairly substantial salary increases. If these folks at the lower levels are suffering the same stresses as everyone else in the downsizing process, it sure would not help their morale very much to be told that the folks up at the top are going to get big boosts.
Have you seen any impact? Although the head of the union has come out pretty hard and strong on that, it is an important question. It is important to get the morale of the leadership up and to get them feeling comfortable. It is also absolutely critical to bring the whole group along. One has to follow the other. I would hope that we do not ignore that issue because I think it is a critical one.
Mr. Strong: It is a question of fact, and I will ask Shirley, in terms of the unionized, did their salaries have a range of movement over that period of the freeze?
Ms Shirley Siegel, Executive Director, Senior Level Retention and Compensation, Treasury Board Secretariat: No, they were frozen as well.
Mr. Strong: Again, there were two issues and they are outside of our scope of responsibility. "La Relève" is intended to address many of the issues that are non-monetary. Then, of course, in terms of the monetary issues, those are all being individually negotiated and dealt with. So, there are some initiatives there. As for the rest, I would be stepping outside of what our committee had looked at.
The Chairman: Not to put words in your mouth -- and I tend to do that -- do you feel it would be important that consideration be given to those folks as well, at least to the degree that they are given recognition for work well done? Perhaps an explanation of La Relève would help in miniature to understand what is transpiring at that end.
Mr. Strong: As I understand, La Relève is intended to focus on that across the entire public service. Again, it is addressing some of the problems that I have talked about and which exist not solely amongst the leadership group.
The Chairman: Senator Kinsella.
Senator Kinsella: It seems to me, Mr. Chairman, that the last two series of questions and this dialogue we have had speak to a fundamental issue of national policy that we, as a country, are going to have to face. I am speaking of the widening gap between those in Canada who are making large salaries and those who are making "get-by" salaries.
My understanding of the box that your committee has been placed in, is that you are trying to respond to the competition that the private sector is imposing on the senior levels of our public service. The ultimate criterion or norm that you are forced to use is indeed the standard that has been set by the public sector. Otherwise we will not have our senior managers: they will all go to the private sector.
Do you agree that there is a widening gap occurring in Canada between the rich and the poor, defined in terms of salaries. There is also a psychological gap, which I think is a more potential revolutionary threat, between those who have psychologically meaningful jobs and those who have jobs where there is no meaning to them, where there is no morale associated with them.
Even if we increase salaries by a flat percentage for those in senior management and those in the non-management categories, the gap becomes wider, because the salary base is already larger with the senior group than with the non-management group. But your proposal is to make a larger increase at the top, so within the Public Service of Canada, we are going to have an even wider gap between those who will be rich in terms of salary and those who will be poor.
You can apply some practical examples to this even within the public service and measure it against the poverty line. When I look at a comparison with the military, I worry very much when a private out of CFB Gagetown in New Brunswick, the province that I represent, is making about $20,000 a year and the poverty line is around $24,000. That private must supplement his income. He was called up to fight the damage caused by the ice storm. He had to give up his part-time job. The Hydro-Québec people who worked alongside him were making $85 an hour, overtime.
There is something fundamentally wrong, in my judgment, in our compensation system, which is exasperating this great division in Canada that is getting greater between the rich and poor in terms of salary and also in terms of psychologically meaningful jobs.
Did your committee, which is forced into a box, grapple philosophically with this problem?
Mr. Strong: Our salary proposals have not been driven alone by the private sector. The work that we did demonstrated that the broader public sector -- municipalities, hospitals, universities -- were paying more than the people at the top. It is not just the private sector.
At the end of the day, though, when you decide to pay people more money, the issue is whether you think they are worth it and whether they are going to create more value for you and for all the people of Canada. That is not addressing your point, which is very much a broader point.
I would argue that by being able to attract and retain a higher calibre of people, they will more than pay back that extra money in terms of the benefits that they will bring to all Canadians. I do not have a social conscience about recommending those levels of salary. All Canadians will reap those benefits. That is my view of how the marketplace works.
Senator Bolduc: I have a supplementary question. Do you not think that the higher rate of taxation in Canada is such that we have to make a differentiation? At the top it is a 50 per cent tax rate. When we talk about $150,000, there is quite a difference in the take-home pay.
Mr. Strong: That is true. Going back to Senator Kinsella, the root of many of these issues is also the question of education. The issue about jobs that are not fulfilling, much of that rests around education policy. Again, that is not a comment from the committee. That is just an observation from its chairman.
The Chairman: Senator Lavoie-Roux.
Senator Lavoie-Roux: Unfortunately, I did not have time to read the whole "First Report: Advisory Committee on Senior Level Retention and Compensation," because it came to me about an hour before the meeting. Do you feel that the government should do something with other, lower levels of employment?
Mr. Strong: I think they are doing it. That is a question that you should have asked the minister when he was here. He is responsible for that. It would be presumptuous of me to comment.
Senator Lavoie-Roux: In order to be fair, there should be some kind of analysis of the situation.
Mr. Strong: We did not do it rigorously, but I suspect that the external comparisons will give you a different answer from the one that we got for the senior levels.
The Chairman: How do you see this schedule moving along? You have dealt with the salary issue now. You are going into the visioning thing, I would expect. Do you have a timetable for that?
Mr. Strong: We want to review the timetable when we have our next meeting. A number of studies are due back to us. For example, you asked about the Crown corporations. Again, this is a very complex area where we have called for a study in order to come forward with what we think will be more sensible ways of dealing with the COs of Crowns. There are 37 of them. They are very different in nature, in size. Some of them are publicly funded; some of them are virtually private sector. We just did not have enough information to make recommendations.
One of the major things that we will be tracking is how to introduce the at-risk compensation, which is a part of our recommendations. We have called for the development of the at-risk component as well as proper training and development, which we advocate that all managers should go through. This could be a two- or three-day seminar so that they administer this in a common way. This, in itself, can be an aid to cultural change. We will be looking at that.
We will revisit statistics in terms of where people are in their salary ranges and discuss the issues around the implementation of salaries. We are going to watch all of those.
We have called for a series of other things. There really is a long list. We tried to make the report simple, but actually when you go through and stroke out the number of things that we call to be done, there really are a lot of them. We will be keeping track of them all. We will be looking at the proposed timetable. In some cases, we recommended specific dates because we thought that without them, they might lag. In others, in fairness, we have to leave it to the public service to set their own timetable so that we can comment on them.
There are a couple of new areas that we are going to pick up: the issue of pensions, and the whole area of how to simplify human resource management in the public service. We found that there are many practices and processes which are viewed through the eyes of somebody from the private sector. They are very complex and are absolutely designed to make life difficult. In a lot of cases this has come about because of history; in some cases because of regulations or legislation that has been created. We are going to look at whether or not that can be simplified. Maybe the slate could even be wiped clean and we could come up with a whole different approach. That could become a lifetime project. I suspect it is going to be very complex. But we feel obligated to look at it because we encountered the problems often, where we would ask for information and it was not available. There is no information system. We could not even get some relatively simple information on the executive cadre of the federal public service. We have therefore called for some sort of human resource information system to be put in place so that you can begin to actively manage this group of people who are so important to us all.
We have called for a more detailed review of potential succession needs. With this great big group of people approaching potential retirement, we have to start thinking very actively about how we are going to start to replace them. In our view, we may well have to start some mid-career hiring because approximately 90 per cent of your senior people could be retired by the year 2005, and of the group that are underneath them, 70 per cent could be retired. If that were my organization, I would be as nervous as heck.
Senator Kinsella: Could you send our committee a copy of the studies that have been commissioned by your committee and any future studies that are completed?
Mr. Strong: That is up to the Treasury Board. If they do not have any objection, it is not a problem for me. All of the studies that we commissioned are in the public domain.
All of the activities that I have talked about are referenced in here. They tend to be hidden away in the text, but they are all in there.
The Chairman: Senator Ferretti Barth.
[Translation]
Senator Ferretti Barth: Your committee is in favour of increasing the salary of senior level executives. How can you justify such a strategy to the population, that is, a reduction of services and an enormous increase in the compensation of senior civil servants? My colleague, Senator Kinsella, was saying that we will have rich and poor civil servants. Will the government do something to address this brain drain or will he let people go without doing anything? I know that in the Privy Council, with Jocelyne Bourgon, there is a program called La Relève. Does this program still exist and what do you think of it? Has this program allowed the government to hire more skilled and more competent people?
[English]
Mr. Strong: Let me answer not necessarily in the order that you have asked. In terms of our ability to attract people into the service, it is an absolutely chronic problem at the moment. We have surveyed graduates. Nobody wants to come and work in the public service today. This is in sharp contrast to, say, 30 years ago. Money is a part of that but, as I said before, it is not all of it. It is the perception that it is no longer a profession or a calling that is recognized as having value. So, amongst graduates, we know we are not attracting people.
In terms of what would have happened if we would have done nothing, I can only speculate, but my belief is that people would have continued to leave. However, that is not the real problem. The real problem is that the best people leave and the people who are not as good stay. It happens in organizations. The first to leave are always the best. It is a further erosion of the overall quality.
Again, that is judgment, but that was our view. That is why we, without wishing to be dramatic, said in the report that we really did believe that the government was at a watershed. Had it not sent strong signals about the importance of the public service and then backed that up with money, we would have had a serious problem.
I do not believe that we can put in place the necessary skills and talent probably without having people come in at mid-career, given what is going to happen in the next decade. On that basis, if you are going to attract people, you must have reasonably competitive salaries.
In terms of how you can justify paying that sort of money to people, again I come back to the same argument that I used previously. At the end of the day, by paying those salaries, you should be able to attract the sort of quality that will deliver value back to all Canadians. To me, that is the justification.
It is so difficult for us in Canada to contemplate what it would be like not to have a good public service. I can tell you, you can go to other countries, though, and you sure notice the difference. Again, it comes down to believing in the role that the public service plays and believing in the high standards that we have enjoyed for many years, and then wanting to maintain those.
[Translation]
Senator Ferretti Barth: The ordinary citizen interests me very much. We try to put some order back into a civil service that does not succeed in keeping the people it needs. On the other hand, we have punished our population, there is no where to go when one needs services and on the other hand, we can't stay this way. The public service will get weaker and weaker. We will remedy the situation by using the weak point of human nature: money. If we pay high salaries, we will get back those people we have lost in this world of big brains. How are we going to explain that to a population that has suffered so much?
Why did we not see it coming? This is the first report of the committee. It is a report that deals with the first year. Next year, there will be a second report and then, a third; then we will have recommendations, consultations, modifications and the rest. What are we going to say to the people? What are we going to say to our young university graduates? While you study the situation, we have to open our doors to the young and give assurances to the population.
[English]
Mr. Strong: All of those activities are under way. The question that I forgot to answer relates to La Relève. If you look in it, you will see that many of those things are identified and are being addressed.
Again, I come back to the fact that this whole process is a journey. In other words, do not believe that you can re-energize and renew the public service and create a new culture in six months. It is a journey which the clerk and other senior leaders have undertaken. But there are many things that the politicians can do to help them on their way. I make that point because, again, they will have the largest influence on self-worth and value. That is one of the reasons why we have been upfront in the report.
The question of value and what you pay people is a difficult one. People tend to believe that, if you have a job where you are going to pay somebody $20,000 and the same job where you will pay someone $150,000, you will get a better quality of person if you pay them the higher salary. They have certainly seemed to accept it in hockey and nobody seems to complain about that. If they believe that, then you have to believe you are going to get better value for paying that. I do not think you are creating an elite. You are compensating people properly, probably less than they are worth in true private sector market terms, to do a good job for Canadians.
I do not have a problem selling that as a concept, although I understand that if somebody is out of work or on welfare, they would probably take me to task for it. But I do believe that for the country overall, we will benefit from being assured of that higher quality of public servant.
The Chairman: Senator Bolduc.
Senator Bolduc: You are talking about the fact that you would like to replace the regime by rémunération à risque.
Mr. Strong: Yes.
Senator Bolduc: I understand that you want to have a new performance system where the pay will be according to performance. I do not disagree with the principle, but the implementation of that is extraordinarily difficult and complex in the public service. For example, the government wanted to save money, so they cut jobs and there were measures to encourage people to leave the service. In the Auditor General's report of this year, it says:
[Translation]
It is impossible to make a rigorous assessment of the direct contribution the various incentives have made to expenditures reduction.
[English]
If there is something that is measurable, it is that, and apparently it was not possible.
Imagine how it can be for a higher civil servant in a ministry where the service is giving advice to his minister. It is not like marketing a good that we have in private business. So, it is very, very difficult.
Mr. Strong: Senator, perhaps of all the issues, this was the one that engaged us most in terms of debate. At the end of the day you have two choices: You pay somebody salary or you pay them salary plus something at risk. There is no in-between.
We weighed the pros and cons of those very carefully. We chose the at-risk because, without question, we found that there is a demand from many, many people for accountability, for measurement of results, for delivering results. Remember, these are not necessarily the same sorts of results that you have in the private sector, and we tried to recognize that. We tried to recognize the differences in the public service. We excluded some people from it, people who are part of quasi-judicial tribunals. There were a number of positions where we said, "That is not appropriate."
For the balance, we said that we think we prefer the at-risk because Canadians generally like the idea. The very worst that can happen is that you will finish up with a much better dialogue and a definition between bosses and subordinates and colleagues of cross groups as to exactly what the public service is trying to achieve, because it forces you to do that.
In order to measure performance, you have to decide what it is you want to do and agree on it. I believe that that, as a process, has value itself.
Senator Bolduc: In the administrative process, when there is an implementation, people have a tendency to treat themselves softly, as Adam Smith used to say about the professor at the University of Edinburgh. This is human nature.
Mr. Strong: No, it is not human nature. It is perhaps a more traditional sort of culture in some sectors, and I would suggest that the public sector is a little bit that way. But I do not think that that needs to continue.
La Relève, as an example, calls for the Public Service of Canada to become a learning organization. In order to become a learning organization, you need to give feedback: you need to tell people what they do well; and you need to tell people where they need to improve.
My generation is hung up on not saying those sorts of things. The younger people crave it. They want this sort of feedback. They think they are being short-changed if we do not give them feedback and if they cannot talk to me about how I can improve my job. For the younger generation, it is an absolutely critical component. The younger people will feel short-changed without that sort of environment. When I started, if you could not say something good about somebody, you never said it. But that is not the way of organizations today.
Senator Bolduc: When I began in the fifties, we had a very good civil service here in Ottawa. I am not saying that it is not good today. I mean that it was super in those days. People were paid a fairly modest salary, not as much as a university professor, if I remember. They were proud of their job and they did the best that they could.
Mr. Strong: They were proud of their job, and how did other people feel about the job that they did?
Senator Ferretti Barth: Very good.
Mr. Strong: That is the difference between yesterday and today. Today, other people do not feel good.
Senator Bolduc: Perhaps it is because governments, in general, are doing too many things, including things that they should not do.
The Chairman: Copies of the report prepared by Mr. Strong and his committee may be obtained from the Distribution Centre, Treasury Board Canada, in Ontario.
The committee adjourned.