Among many economic and political issues of the day one ‘ticking time bomb’ is flying well under the radar – which should be of concern to HR and reward leaders across all sectors.
The issue is the likely explosion of public sector pay. It is not a new problem, but more acute now than obviously realised. Why?
It has historically been the case that after government enforced public sector pay restraint, Trade Unions negotiate ‘catching up’ increases which have a whole market impact. In past decades the immediate impact has been nullified by both wage and price inflation, in pretty short order. The market then returns to some sense of order and equilibrium.
What has happened since the public sector pay constraints imposed in 2010 has not followed the classic pattern, because of the very different economic climate over the prevailing period, with continuing low inflationary pressures.
But, this means the problem coming out of pay constraint is going to be more complex and potentially more painful, with potentially damaging consequences.
The accumulating risks and challenges:
Inflation is starting to rise, increasing pressure on low and mid-ranking public service pay levels, yet with little recognition that private sector comparators have also been constrained by commercial imperatives, so claims for ‘catching up increases’ through national pay negotiations are in many cases likely to be false.
Such national pay negotiations are likely to ignore the market differentials between regions and areas of the UK, so that nationally agreed settlements will continue to distort public and private sector relativities by location and add unjustified cost to the public purse.
Pay management has become more complex, yet because pay has been governed centrally, there are limited skills in the public sector to work up a clear forward pathway.
This skill gap has led to a lack of strategic thinking, where pay is seen as the focus of the way forward, yet in the commercial world the wider aspects the employment deal are understood to be what truly drives motivation, engement and performance. See QCG’s upcoming event on engagement and reward
The solution = independent and expert advice!
Politically and in terms of media interest the focus is more often on top pay – but it’s not where the problem lies.
The challenge is to get pay right for the millions who are in key roles across the whole of the UK public sector from minimum wage to senior management. Who’s really thinking about what to do across this highly complex market, which at almost every level interacts with the private sector – so truly has a whole economy impact?
The answer lies in bringing together reward professional from all sectors – and distancing the thinking of the proposed solutions from both political and media scrutiny. Obviously government must ultimately decide, but let the people who know about reward thinking, decisions and their downstream impact have their say.
Otherwise the government will continue to be seen to be paying for a bad name!