Bloomberg News

Canada to Tie Public Servant Performance Pay to Spending Cuts

October 19, 2011

Oct. 7 (Bloomberg) -- The Canadian government is linking the performance pay of senior government workers to its effort to cut spending as it seeks to eliminate its budget deficit, Treasury Board President Tony Clement said.

To encourage over 8,600 executives to find savings, 40 percent of performance pay is being tied to the success of the government’s one-year “strategic” review of operating expenses, Clement said in a Bloomberg interview yesterday. The rest will be based on individual performance, a percentage that has usually been higher, according to Clement.

“We’re saying we’re all in the same boat,” Clement said by phone from Ottawa. “There’s an automatic incentive on all of the executives to help us achieve the targets of deficit reduction that the government has laid out.”

The government’s plan to eliminate its deficit by the fiscal year that begins in April 2014 depends on its ability to find C$4 billion ($3.9 billion) annually in spending cuts. The finance department projects Canada will run a deficit of C$29.6 billion during the year that began April 1.

The unions representing public workers have said the spending review will put thousands of bureaucrats out of work and prevent the delivery of basic services. Giving managers a financial incentive to cut spending risks creating an adversarial relationship with rank-and-file employees, the head of the country’s biggest union of federal public servants said.

‘Feeding Frenzy’

“When you tie things to dollars, there’s going to be a feeding frenzy, and I think that’s a huge mistake,” said John Gordon, national president of the Public Sector Alliance of Canada.

Clement, whose department sets compensation standards across the government, has been leading a review of about C$80 billion in program spending. He said the government may end up cutting more than C$4 billion.

“If a program is not as important as it used to be, or if there’s a way we can deliver the program in a more efficient and effective manner, then we don’t stop because we hit a C$4- billion number,” he said, adding that the review results will be incorporated in next year’s fiscal plan.

A panel that advises Clement on executive retention and compensation said in a July report that public-service executives tend to earn less of their compensation through performance pay, and more through pension and benefits, compared with comparable positions in the private sector and broader public sector.

‘Not Unheard Of’

A portion of the salaries of senior government workers is considered “at risk” and is paid depending on performance. The panel recommended linking 25 percent of performance pay to savings at the departmental level. “This is something that is not unheard of in the private sector. We thought that this is something that could easily be transposed to the public sector,” Clement said.

A slow economic recovery in the U.S. and market turmoil tied to Europe’s debt crisis hasn’t derailed the spending review, Clement said. The opposition New Democratic Party has called on the government to introduce further stimulus spending to prevent Canada from slipping back into recession.

“What is creating turmoil are countries with sovereign debt issues,” Clement said. “We want to continue to be a country that pays its bills.”

--Editors: Paul Badertscher, David Scanlan

To contact the reporter on this story: Andrew Mayeda in Ottawa at amayeda@bloomberg.net. To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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