How the public sector eats your taxes

Let's take a real world example of what happens to salary levels and staffing numbers in the public sector.

I have blogged earlier about the convoluted splitting apart and re-merging of the railways in NSW. Now, consider what happened to salaries during that time.

In the old days, working for State Rail didn't pay a lot of money. In fact, they were tight-fisted, miserly bastards, which might explain why the unions were so strong. It provided a reasonable level of pay in return for job security - you could bugger the Premier's dog whilst robbing a bank and not get the sack. But no one ever got rich working for the railways - unless you found a nice way to commit fraud (and not get caught or gamble all you ill-gotten gains away).

Then the SRA was split into four chunks, and 3 of them were put onto a "commercial" footing, complete with Boards of Directors, shareholders and all that malarky. Instead of employment for life, staff were employed on contracts. At one point, RAC had around 100 staff, of which over 80 were contractors. This led to some embarassing questions in parliament, and a crash effort was undertaken to convert them to permanent employees.

The thing is, those contractors didn't want to be taken on and paid at public service rates, so they ended up being paid 80-90% of what they were on as contractors, which was up to 50% higher than what an equivalent position in the SRA would pay.

For example, if someone at the SRA was on $60,000, a contractor would be paid maybe $100,000 - $110,000 to do that role. When they became permanent employees, they would sacrifice a bit of pay, but would not drop back to $60,000. They'd probably start at around $90,000. Plus bonus.

This put a lot of noses out of joint at the SRA, but of course the contractors worked 3 times as hard for double the money, actually made decisions, took responsibility and made stuff happen. They generally knew how to motivate people, rather than just shitting all over them. That didn't cut any ice over at SRA - as far as they were concerned, if two people had the title of HR Manager, then they should be paid the same, regardless of performance, responsibilities and outcomes.

Which is why although the SRA employed some people with a strong work ethic, they usually gave up a few years and joined the herd of grey-cardigan wearing drones, doing just enough to get by and nothing more.

Anyway, most of the staff at RAC were employed on a contract of some sort - in short, they could be fired for non-performance, which was a first for the railway sector. (And to the horror of many, the first rather ruthless CEO, Judy Stack, did just that to a few dud managers). They were also paid a straight salary, with no penalty rates, allowances or overtime. This was incomprehensible to a lot of people at SRA, because you might be on a base salary of $50,000 but take home $80,000 after overtime etc. But they were comparing apples with oranges - they saw someone down the road being paid $80,000 when they were being paid "$50,000" (even though they took home $80,000) and they wanted their base salary upped to the same level - but without giving up any of the allowances, overtime and penalty rates!

So after a few years, RAC and the RSA were merged to form RIC, and it was found that salaries right across the board were out of whack. It was the same story - RSA staff had a lower headline rate of pay, but in some cases, took home more pay than their RAC equivalents - but they wanted the same base pay as the RAC staff.

It was not a good time to be an HR manager.

Many of the RSA staff just couldn't get it through their heads that if they wanted the higher base pay, then they had to give up the overtime and other goodies. Their TRP (total remuneration package) would stay the same, but the way their pay was calculated would change.*

What happened of course was a debacle.

HR decided to move all the RSA staff to a straight salary, but their salary would be based on their total remuneration for the previous year. So some lucky bastards, who had been doing a stack of overtime, saw their base pay increase hugely. Some went from a base of $40,000 to a base of $70,000 overnight - with no requirement to give up the overtime that boosted their total pay in the first place! So if they kept doing overtime, they could find themselves earning $80,000+.

All that did of course was annoy the utter crap out of the RAC staff, who were suddenly being paid a lot less, and who had no contractual rights to overtime. It torpedoed their morale, and their productivity, which had been much higher than that of the RSA staff (which was one reason why they got paid more in the first place) went down the toilet.

The same thing happened again when RIC merged with SRA to form RailCorp.

And the other thing that happened along the way is that the salaries of the top managers exploded. RailCorp currently has around 750 managers earning over $100,000, and a fair swag of them are earning a lot more than $100,000. Now compared to Macquarie Bank, that's small change, but we're talking about a public enterprise here. Those 750 managers probably cost over $100 million per year, especially when you factor in superannuation contributions and other on-costs. And if you consider that most of them would have an office and an Admin Assistant (earning anywhere from $40,000 to $70,000), plus laptop, mobile phone (or Blackberry), car, parking spot and so on, you can see where a big chunk of the rail budget goes.

The salaries of managers were boosted by several factors. Consider these....

When the railways were broken up, managers suddenly had to become "commercially focused", so their salaries were bumped up to what was considered to be private sector levels. A job that might have paid $60,000 in SRA paid $100,000 or more in a "commercial entity".

When the first merger happened, pretty much every department was enlarged as a result. If you had 10 people in HR on one side and 50 on the other, then the new General Manager suddenly found themself managing 60 people - and they had to be compensated for the "added responsibilities" because they now had a "bigger" job. That $100,000 salary suddenly went to $120,000, without much of anything changing. Then downsizing would come along, and they'd be paid more for the stress of having to manage a smaller organisation. They were paid more when their staff got bigger, and paid more when their staff shrunk. Every management fad or restructure somehow fed into fatter pay packets.

The same thing happened with the next merger. Senior jobs that might have once might have paid $140,000 were now paying $280,000. An $80,000 job now paid $180,000. A $60,000 j0b paid $120,000, and so on.

The only people that missed out were those on the front line - those running the trains and cleaning the stations.

When you consider that this has probably happened in just about every government agency over the last 10 years, you can suddenly see why the NSW government has squandered and blown all the fruits of the boom, and the budget is now up shit creek.

I do want to make the point that I am not against paying people for performance. I have looked at the annual reports for the railways, the health department, the police and the education department, and worked out that last year, I took home more money that all but the most senior executives in those departments - but I worked my bum off for it, and I had to perform at a very high level to earn that kind of cash.

The problem with everything that I have talked about here is that the higher pay was not accompanied by a commensurate demand for higher performance. If you ask me, about 5% of managers should be sacked each year for poor performance - partly because it encourages the others, but mainly because it gets rid of the idiots, and allows someone else the opportunity to do a better job. You can't have a system of paying for performance unless people pay for non-performance - by getting the boot.

If you went through all the big government agencies, the ones with the big salaries, and asked how many managers earning over $100,000 were sacked over the last 5 years for non-performance (rather than fraud, assault, sexual harassment etc), you'd find the answer would be very close to zero. The public of NSW would have been better served over the last few years if those higher salaries had been accompanied by some well-publicised sackings - and sacking without any golden handshakes or redundancy payments. A simple, "You're no fucking good - now fuck off!"

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*If you want to know how complicated some of the public sector awards are, consider this.

RAC employed over 300 staff, and had one person to run the payroll and perform all HR functions. That's because everyone was on a straight salary, so the payroll run was pretty straightforward). The payroll guy spent a lot of time at the pub, playing pool and goofing off. He really only worked one day a month - the day the payroll ran.

Although the SRA had 40 times the staff, they had hundreds of payroll clerks, and a massive HR bureacracy. They needed a huge number of payroll clerks in order to process the hideously complicated timesheets, which were all filled out by hand, signed and then faxed into a central office. The timesheets were so complicated, they were longer than a normal A4 page - you couldn't fit enough boxes onto a normal A4 sheet and make it comprehensible.

The payroll staff also ran this wonderful system where they'd goof off all week, pretending to work, and then state that if they didn't work overtime over the weekend, the payroll couldn't be run. They'd then work Saturday (at time and a half) and Sunday (at double time).