In his speech announcing the latest Comprehensive Spending Review, the Chancellor returned to the topic of progression pay in the public sector. He said: ‘Progression pay can at best be described as antiquated; at worst, it’s deeply unfair to other parts of the public sector who don’t get it and to the private sector who have to pay for it. So we will end automatic progression pay in the civil service by 2015-16. And we are working to remove automatic pay rises simply for time served in our schools, NHS, prisons and police. The armed forces will be excluded from [this]. Keeping pay awards down and ending automatic progression means that, for every pound we have to save in central administration, we can better limit job losses.’
Is he right about progression being somehow ‘antiquated’? Not at all. Progression pay remains common across the private sector. Some firms continue to separate general increases from progression payments, whatever the basis on which these are awarded. Other firms, notably in finance, operate ‘all-merit’ approaches which roll together progression with the general award. These types of scheme are unpopular with staff (see below) but the firms in question stick with them because of the scope they provide for control over pay budgets, something that is probably on the Chancellor’s mind as he made his pronouncements.
That the public sector is not unique in providing progression pay in addition to general increases is backed up by the official statistics. Evidence on the contribution of progression to pay growth appears in the figures from the latest Annual Survey of Hours and Earnings (ASHE), conducted by the Office for National Statistics each year, shed some light on this area. According to ASHE, full-time employees in the private sector in the same job for more than a year saw median earnings growth of 3.8 per cent, while for those in the same category in the public sector the growth rate was lower, at 2.8 per cent. Given that basic pay settlements in the private sector are running at around 2½ per cent, the gap with the figure for earnings growth is most likely explained by other elements, like promotion or progression. This suggests that progression continues to play a significant if often unacknowledged role in private sector pay growth.
Ironically enough, given the Chancellor’s stated intention to remove automatic progression in the civil service, progression payments for most staff here have been judged to be ‘non-contractual’. As a result they have failed to receive these payments under the current policy of pay restraint. And under the latest civil service pay guidance from the Treasury, departments have been ‘encouraged’ to include the costs of progression in the 1 per cent limit. As a result, the new policy means that some civil servants could see less than a 1 per cent increase to their pay in 2013. The longer this situation lasts, the harder it will be for HR/reward heads in civil service departments to establish a basis for joint discussions with employee representatives on new systems for progression.
And then there’s the question of incentives. When new pay systems are introduced in the private sector, they are often accompanied by‘sweeteners’ for employees to move over onto the new terms, particularly if they involve the possibility that some employees’ pay growth will slow as a result. Given the Treasury’s tight grip on the purse strings in the public sector, what scope might there be for sweeteners here?
The Chancellor appears to offer a trade-off between jobs and pay. If true, then this would be a new element because it hasn’t been part of the policy until now. But perhaps it should be regarded as political rhetoric since the restrictions on pay have been accompanied by the biggest public sector job cuts in the history of this country. In any case, the Spending Review itself is likely to result in over 140,000 job losses. And when he says the private sector pays for public sector progression, is this strictly true? Public sector workers as well as private sector staff make NI contributions. As for the private corporate sector, most firms pay their taxes, but lately there have been some notable exceptions.
Scope already exists for progression increments to be withheld in the public sector. In the NHS, some pay points have long been subject to ‘knowledge and skills’ assessments. And a new agreement makes every pay point subject to these and local measures of ‘performance’. For some years, teachers have had an upper pay scale, entry onto which is based on performance assessments. And teachers’ increments can be withheld for poor performance. That savings are a key rationale for the new policy won’t have been lost on most public sector workers. This in itself presents a problem, since if employees suspect that changes in progression systems are not aimed at enhancing their contribution and performance, but are simply aimed at saving money, then achieving their buy-in will be made more difficult.
However the Chancellor’s pronouncement puts plans for further changes more firmly on the agenda. Most of the plans posit the possibility of some link to ‘performance’, though they don’t specify how this is to be measured. But further changes will need to take account of the evidence on performance-related pay in the private sector. This shows that schemes based on ‘merit’ appraisals, and which roll up general increases and progression into the same performance-based award, are often disliked by employees and managers alike and in some instances have resulted in equal pay cases. The challenge for the public sector will be to come up with adaptations to progression systems which benefit both employers and employees, are seen to be fair, and continue to support staff development rather than undermine it.