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Official Report (Hansard)

Session: 2008/2009

Date: 25 March 2009

NORTHERN IRELAND ASSEMBLY 
COMMITTEE FOR 
FINANCE AND PERSONNEL

Implications for the Northern Ireland Civil Service of Whitehall Review of Pay and Bonuses to Senior Civil Servants

25 March 2009

 

Members present for all or part of the proceedings:

Mr Mitchel McLaughlin (Chairperson) 
Mr Simon Hamilton (Deputy Chairperson) 
Dr Stephen Farry 
Mr Fra McCann 
Ms Jennifer McCann 
Mr David McNarry 
Mr Adrian McQuillan 
Mr Declan O’Loan 
Ms Dawn Purvis 
Mr Peter Weir

Witnesses:

Mr Derek Baker ) Department of Finance and Personnel 
Mr Leo O’Reilly )

The Chairperson (Mr McLaughlin):

I welcome Leo O’Reilly, permanent secretary in the Department of Finance and Personnel, and Derek Baker, the director of the central personnel group. I issue the usual health warning that the meeting is being recorded, so all mobile telephones should be switched off because they interfere with the recording.

Mr Leo O’Reilly (Department of Finance and Personnel):

I will not dwell for long, because Derek and the Department have provided a detailed briefing paper on the review of the Senior Civil Service workforce and reward strategy that was carried out in Whitehall by Sir David Normington. However, we thought that it would be useful, and important, to provide the Committee with some background information on the rationale for the present arrangements for Senior Civil Service pay and bonuses, including how they are derived and how they operate in practice.

The review was deemed necessary in light of weaknesses that were identified in the present system, such as issues about pay progression and pay differentials among various Senior Civil Service levels here and in Whitehall. However, since the report was written, there have been substantial changes in the scale of the economic downturn, its impact on the wider economy and, more specifically, in the context of the considerable public debate — locally, nationally and internationally — about the whole subject of bonuses, including how they operate and how effective and fair they are. Obviously, those factors have added substantial background colour to those considerations. No doubt, in the first instance, Whitehall will wish to take account of that general context and background when considering the report’s recommendations.

There is a considerable amount of detail in the briefing paper, but, rather than my repeating what is in it, it would probably be better if we deal with that information during our discussion.

Mr Weir:

With respect to comparisons between the Senior Civil Service here and in Whitehall, to some extent, senior civil servants in Northern Ireland benefit from, and are able to draw on, the work of their Whitehall counterparts. Therefore, it could be argued that there is less need here for originality and creativity. Subordinate legislation here is often drawn from work done in Whitehall, such as the measures that will be introduced concerning parity. Should that fact affect the job weightings of senior officials in the Northern Ireland Civil Service compared with their Whitehall equivalents?

Mr O’Reilly:

To some extent, we draw on nationally formulated policies. However, considerable stress is placed — and more so under devolution — on developing our own approaches to policy. Under devolution — and, previously, under direct rule — parallel legislation must be formulated, and, inevitably, different circumstances apply locally. In my area of personnel and finance, Northern Ireland’s financial arrangements are distinctive and unique and must be managed on a specialist basis. Although there are broad parallels with Scotland and Wales, there is no direct comparison between arrangements here and in Whitehall.

That being said, the overall level of remuneration, the size of remuneration and the number of people remunerated at particular levels are higher in Whitehall, because people there deal with national and international issues, whereas, in Northern Ireland, we deal primarily with regional matters, and that, as one would expect, is reflected to some extent in the overall levels of remuneration in the two areas.

Mr Derek Baker (Department of Finance and Personnel):

The job weightings for Senior Civil Service posts in Northern Ireland and Whitehall are underpinned by a job evaluation methodology. Each job is assessed on its own merits in order to derive a score. I fully accept that there may be occasions when a civil servant making legislation in Northern Ireland follows a parity process, which, therefore, does not require the same degree of originality; however, the job evaluation methodology assesses each job on a range of six or seven dimensions.

Mr Weir:

Does that assessment take account of the fact that a job may benefit from following a parity process?

Mr Baker:

It would do that. For example, a job evaluation might take account of an individual’s span of responsibility — the amount of monetary or staff resources for which he or she is responsible — and the job would be scored accordingly.

If a Whitehall civil servant and a Northern Ireland civil servant both have 200 staff, they will receive a similar score. However, if the Whitehall civil servant has to exercise a greater degree of judgment because the policy issues at stake have a national significance, that person will receive a greater score than the civil servant in Northern Ireland, where the decisions have much less significance.

Mr Weir:

I want to ask about assessment and parity, and I appreciate what you have said about the differences between the roles of civil servants in Whitehall and in Northern Ireland. However, does your argument not also apply to civil servants in the more junior or middle ranks of the Civil Service?

Mr O’Reilly:

Yes.

Mr Weir:

That is a very succinct answer.

Mr O’Reilly:

I am trying to work out what is behind your question.

The Chairperson:

Mr Weir is a straightforward person. [Laughter.]

Mr Weir:

That is right; everyone seems to think that there are motives behind all the questions being asked today.

Mr O’Reilly:

The member is reflecting concerns about pay variations among Civil Service Departments across the UK. Northern Ireland is treated as a single unit for the purposes of pay determination at mainstream Civil Service levels.

Mr Weir:

The bonus system for senior civil servants in Northern Ireland, for example, mirrors the Whitehall system to a large extent. Is that philosophy of parity and read-across applied at lower levels, or are senior civil servants benefiting from something that their lower-level colleagues cannot but which the lower ranks in Whitehall have the opportunity to benefit from?

Mr Baker:

I understand your point. As Leo said, in Whitehall Departments and the devolved Administrations, pay arrangements for Civil Service grades below senior level have been devolved to individual Departments. Individual Departments have a different series of pay settlements, and there are some local variations at middle-management level in Northern Ireland. However, by and large, the grading structure is similar across the United Kingdom. The performance management arrangements are similar, and the pay arrangements are broadly in parity.

There are pluses and minuses. For example, from August 2006, the Northern Ireland Civil Service agreed a three-year pay award for staff below senior level, which was equivalent to a 4% increase per annum. That was quite generous compared with some subsequent Whitehall pay awards, although the pay awards in some Whitehall Departments may have been in excess of that. It is swings and roundabouts, but the system is broadly in equilibrium across the United Kingdom.

Mr McQuillan:

Why has the common job evaluation system resulted in pay bands for Northern Ireland permanent secretaries being lower than those of Whitehall Departments, while the bands for the other two Senior Civil Service grades — assistant secretary and deputy secretary — are the same as in Whitehall Departments?

Mr Baker:

It is simply a function of scale. The permanent secretary grade in the Northern Ireland Civil Service is generally equated to the director general grade in the Whitehall Civil Service, which is half a notch below the equivalent of a permanent secretary in Whitehall. That simply reflects the scale and span of control typically held by a Whitehall permanent secretary. Northern Ireland Departments are much smaller than Whitehall Departments, which is why permanent secretaries in Northern Ireland have a separate pay band.

Mr McQuillan:

Does that not have a knock-on effect further down the scale?

Mr Baker:

Not necessarily; it depends on the individual job weighting. A director in Whitehall may or may not have a broader span of control than his equivalent — a deputy secretary — in the Northern Ireland Civil Service. That director could have a smaller span of control. All that would be picked up in the specific job evaluation for that post.

Mr Hamilton:

I will pick up, and perhaps go a bit further, on the point raised by Peter Weir about the difference between the parity of senior civil servants in Northern Ireland with their counterparts in Whitehall, and those in middle and junior ranks having locally agreed settlements. In many ways, that is one of the bigger problems, in that there will always be an interest in bonus levels and a bit of a furore about paying bonuses. MLAs experience that as much as civil servants, so we feel your pain in that respect.

There is a dichotomy between senior civil servants getting bonus payments in parity with their counterparts across the water, while pay settlements for middle- and junior-ranking civil servants are negotiated locally. I appreciate the point you make, Derek, that sometimes that may be to the benefit of people here, but, at other times, a regional flavour is given to that pay settlement. If there is that difference, there will always be a perception that senior civil servants have a cushy number, with parity, and that those in the lower and junior rankings do not. Why has that difference developed? Is it not a fair point that perhaps moving away from that parity may iron over some of those problems?

We have also heard from the unions that, at those lower levels, there are major differences between the pay scales of middle and junior ranks, and even differences in benefits such as maternity leave. You may say that it is the unions’ job to raise those issues, but it is a reasonable point. Again, there is that dichotomy between senior civil servants having parity and those in middle and junior rankings not only getting different pay settlements but different benefits. Is that not a problem?

Mr O’Reilly:

Derek will fill in the detail, but there are two types of parity. There is parity in relation to being part of the same broad system, but there is also parity in relation to the actual level of earnings compared with, for example, someone doing the equivalent job in Whitehall. In both the Senior Civil Service and at other levels, there is a difference between the average earnings of someone in Whitehall and those of someone doing an equivalently weighted job in Northern Ireland.

At other grades in the Civil Service, because of recruitment, retention and pay issues, staff in Whitehall receive higher levels of pay, as well as London weighting, and so forth. I am not sure whether we have readily available figures on pay rates in other parts of the UK — Scotland, Wales and the English regions which would provide interesting comparisons between what is happening here and in the other regions.

Mr Baker:

First, I will deal with the issue of maternity leave, although I know that it was not the main focus of your question. Maternity leave applies to the entire Northern Ireland Civil Service, and it is a different issue. The rates of maternity leave in the Northern Ireland Civil Service are less generous than those in the Home Civil Service. It is a very good point and is something that we will want to consider, and have been considering, in the context of managing sickness absence. I think that I am due to attend the Committee next week to discuss sickness absence, so perhaps we will return to the issue then. That applies not only to staff below the Senior Civil Service but across the board.

The original rationale for hooking the Senior Civil Service in Northern Ireland to the Senior Civil Service in Whitehall stems from the fact that work has been done over time — and was given a greater push around five or six years ago — to re-establish the purpose, rationale and role of the Senior Civil Service, its raison d’être, the required competences — which are set out in the professional skills for Government framework — the performance management structure, and so forth.

The view was that that is common across the United Kingdom. It is common to the Senior Civil Service here as it is to that in Whitehall. For that reason, the Northern Ireland Senior Civil Service is linked to those arrangements in Whitehall. For us to reinvent the wheel on issues such as the grading structure, the performance management systems or competence frameworks may have been seen as nugatory.

The pay and grading structure or the performance management framework might, arguably, be common and consistent across the United Kingdom — and legitimately so. However, I fully take your point that there could be an argument for putting in place arrangements that would develop a more local focus for establishing the quantum for a pay award in Northern Ireland — as opposed to the system — and what the annual award should be. There may be opportunities to do that. For example, the Senior Salaries Review Body (SSRB), which has a UK-wide remit, specifically considers health and social services in Northern Ireland as well as the healthcare sector in Great Britain in order to make recommendations for the health and social care sector in Northern Ireland. Therefore, there are opportunities. That is a good point and merits consideration.

Mr Hamilton:

I do not know whether the current system is right or wrong, but we can mull the issue over in our own time. However, the perception of an inconsistency can be allowed to grow, as is presently the case, particularly when pay and benefits across all sectors, public and private, are being scrutinised. That is useful information.

The Chairperson:

As you say, it is an important point.

Mr O’Loan:

Paragraph 11 of your briefing paper refers to the growing need to pay salaries above the grade minimum when recruiting externally. Is there solid empirical evidence of the need to do that? Is there a difficulty in recruiting and retaining senior civil servants?

Mr O’Reilly:

I will make a preliminary comment before Derek answers that question.

Generally speaking — and this is reflected in advertisements for Senior Civil Service posts — we stress the normal expectation that people will start at the bottom of the scale. However, there is a caveat: someone may have a particular set of skills and may merit a higher starting salary than the minimum on the scale. The arrangement is that, for people within the system, standard Civil Service pay and promotion rules apply. A standard pay increase is awarded to people who are promoted. That will apply to employees who move from a lower grade into the Senior Civil Service.

For people coming in from outside the Civil Service, there is much more likely to be negotiation and discussion about the starting salary. Usually — or, possibly, invariably — higher salaries are offered to people coming from the public sector in Northern Ireland or in the rest of the UK or, more particularly, from the private sector. Sometimes, if we want certain skills, we have to pay more than the minimum available in the Civil Service to people coming in from other careers elsewhere.

Mr Baker:

Generally, retention is not a difficulty in the Senior Civil Service. We do not have the relatively high turnover rates that were highlighted in the Normington Review and, in particular, the high turnover rates among externally recruited staff. In the two and a half years in which I have been in this post, I am aware of only two senior civil servants who have resigned from the Senior Civil Service to take up posts elsewhere. That is out of a total cadre of 200 or 210 staff. That is a very small percentage, and that is in addition to those who reach retirement age. Therefore, we do not have a retention problem.

We could provide empirical evidence of people being recruited to the Senior Civil Service from outside — either from the private sector or from the wider public sector — who may have started on higher salaries than the grade minimum because the salaries that they were already on in their previous employment were higher than those offered at the minimum of the grade that they were coming into. The difficulty is that, if I were to provide that evidence, I would almost by definition be personalising it. The numbers coming in, in any given year, are very small. However, it is a fact, and we know from recruitment, that the top candidates — those with the skills needed for a particular job — were earning more in their previous employment. It is difficult to bring people in if you are trying to reduce their salary and put them onto the scale minimum. It is possible, and some negotiations have been tried in that regard.

Mr O’Loan:

That answer does not fully reassure me. Your figures on retention were very clear — there is no retention problem. It is certainly not obvious that the kind of enhancement or incentive that you mentioned needs to be given to achieve the primary appointment at the high level of skill and ability that we want. You said that retention is less of an issue here than it is in Britain. Nonetheless, from what you say, I do not see a case for using public money to significantly incentivise people to move into these posts.

People may be interested in the post at the rate advertised. In certain cases, people who do not succeed in negotiating a starting salary might not take the post, but someone who is perfectly capable of delivering to the standard needed might be able to take up the post. I have not heard a convincing argument that there is a significant need across the range of posts to incentivise in the way that has been described.

Mr Baker:

That would happen in only a very small number of posts in which a particular specialism or expertise is needed. That brings me back to my point that, by definition, we would almost be personalising the posts.

Over 80% of Senior Civil Service posts are filled through a process of external advertisement but many end up being filled by internal candidates who apply through those external competitions. In each case, the internal Civil Service arrangements apply, and the individual goes on to the minimum band of the relevant pay scale or benefits from the pay and promotion arrangements that Leo described.

Individuals would only be brought in above the minimum salary level in a small number of posts where a specialism is required. Our experience is that that does happen and that the salary levels in the private sector and the wider public sector often tend to be higher than in the Northern Ireland Civil Service. Therefore, some negotiation with the individuals concerned is required.

Mr McNarry:

I understood about half of that. To take up what Declan said, why would anyone apply for a job to take a cut in wages? Are they headhunted? I accept what you said about specialism and expertise, but I cannot understand anybody who would apply for a job to take a cut in salary; I have not met anybody who would do that. Can you elaborate on the negotiation process? Are you saying that, because the specialisms and expertise required are not available in-house, promotion is denied? Could someone not be trained in the skills that you identify for a post to save a poor soul coming in from outside, presenting themselves and accepting a wage cut?

Mr Baker:

I will address your last point first. The professional skills for Government framework, to which I already referred, sets out the competences, skills and expertise that are required at each grade in the Senior Civil Service. A huge amount of time and effort is being put into the development of our own talent in-house so that we can equip a pool of senior civil servants, or staff below the Senior Civil Service at grade 6 or grade 7, with the necessary skills and competences so that they can compete effectively and successfully for promotion into the Senior Civil Service or to the next grade in the Senior Civil Service. I do not want to create the impression that we abandon our own people. We have development programmes, and we invest in those.

Although it may vary from advertisement to advertisement, what typically happens when Senior Civil Service posts are advertised in the public-sector jobs section in the ‘Belfast Telegraph’ is that they will specify the pay band for that particular grade. The pay bands are quite big, and that is a separate issue. Some of the pay bands are extraordinarily long. That may be a problem in its own right.

For a publicly advertised post, the advertisement will normally state that the expectation is that the starting salary will be at the minimum of the pay band. However, it will usually include the caveat that a higher starting salary may be negotiated or may be accepted if the individual is bringing exceptional skills or experience to the post. If an individual comes top of the competition, and the selection panel and the prospective employing Department decides that that individual has exceptional skills that are above anything else that have been seen as part of the competition, it is in those circumstances that they are prepared to negotiate a higher-than-minimum starting salary.

Mr McNarry:

That is very good. I see that people who are at the band minimum often earn at least 1·5 times what an MLA earns. Most of them earn twice what an MLA does, and yet it is us who scrutinise them. Something is wrong.

Mr Hamilton:

Should we be getting more?

Mr F McCann:

Are you looking for a pay rise?

Mr Baker:

That may be a matter for the SSRB, Chairman.

The Chairperson:

There seems to be little difficulty in filling those posts, so will you explain why we need to have pay scales that are as high as Whitehall’s?

Mr Baker:

It stems back to the earlier discussion about the Northern Ireland Civil Service adopting the basic grading, performance management and pay structures of the Senior Civil Service in Whitehall. If you are suggesting that the pay scales are abnormally long, I tend to agree with you.

In my experience, no senior civil servant in the Northern Ireland Civil Service comes anywhere near the top of those pay bands, or ever will come anywhere near them. Those bands simply serve to create a somewhat mistaken impression. That was a fair comment and a fair query.

Mr O’Reilly:

You also made a point about whether the bottom end of the scales should be as high as they are, given the recruitment and retention picture that we have painted.

The Chairperson:

The junior and middle ranks of the Civil Service are negotiated locally. They are on a par with private industry, and we do not experience any significant problems of retention or recruitment. Why, therefore, are we following the Whitehall pay structure if the levels of remuneration that are involved are not an issue?

Mr O’Reilly:

As Derek said, the answer is that that has been the pattern locally. We followed the Whitehall pattern but with an emphasis on sticking to the bottom of the pay scales and people progressing from the bottom of the scale upwards.

One could make a number of comparisons. One could do comparisons with the rest of the Civil Service, the private sector and the public sector. Broadly speaking, for the weighting of the jobs, we do not think that the minimum salaries are widely out of kilter with what is being paid in other parts of the public sector in Northern Ireland and in the regions of the UK.

The Chairperson:

I would argue that that has a collateral effect on the actual structure of salary scales and bonuses, which should be taken into consideration. I apologise to Declan, because I interrupted him as that question occurred to me.

Mr O’Loan:

I support your line of questioning, and I think that the answers are interesting and significant. Bonuses were brought to us during the Thatcher era, when many attempts were made to improve the quality of the public service.

The argument was that by introducing elements of the private-sector model into the public service, it would work better. I do not think, by any means, that everything that was introduced was wrong. However, the more that I have thought about it, and the more discussions that the Committee has had, I am coming to the view that bonuses have been a fundamental error. Is it not the case that the criteria by which bonuses are paid, such as high levels of leadership, and so on, are integral to the post and, therefore, are already recognised and rewarded in the main pay scales?

Mr O’Reilly:

Perhaps Derek can explain that more fully to you. However, in respect of your initial comments, I think that, surprisingly, there may be a large degree of consensus between us. The very concept of bonuses creates difficulties, particularly in the present climate. There are all sorts of concerns among the general public and elected representatives around the concept of people getting paid more than they should be for a job. It is as much a concern for us managing that as it is for elected representatives.

Unless bonus schemes are managed in a particular way, they can have a negative effect on the workforce. Many of us think that the way in which the present system operates, and has operated, here has had a substantial disincentivising effect on people rather than an incentivising effect. The quotas that are applied, and the way in which they operate, can mean that bonuses do not motivate people. It is a bit of a truism; however, the general belief is that bonuses do not really motivate people and that people who do not receive bonuses become very demotivated. The only net effect that bonuses have is a demotivating one. In a sense, we were “stuck” with them, because that is the GB system that we were mirroring.

The Chairperson:

If there were bonuses for delivery and sanctions for underperformance, perhaps people might be motivated.

Mr O’Reilly:

That is a good point. However, it depends on the structure of the bonus system. There are a number of models: there is a model in which only very few people receive a bonus, and, by definition, that system focuses on targeted performance; there is a model, used in many parts of the private sector, in which virtually everybody receives a bonus, but there is a differentiation in the size of those bonuses. In the private sector, the remuneration packages tend to consist of relatively small amounts of base pay with large bonuses linked to specific performance targets.

The Chairperson:

Bankers have made a mess of that system.

Mr O’Reilly:

We, unfortunately, tend to have gone to the middle ground, which, in some ways, is the worst place to be. Bonuses are allocated to 75% of people but not to the other 25%. It is true to say that, in the public sector, there is sometimes less capacity for individuals to have a profound impact on their Department or organisation. That is simply because there are controls and constraints on operational methods in the public sector compared with the private sector.

The Chairperson:

That throws into question why we are taking this approach to pay structures given that it is difficult for people to make an impact. Declan, you keep opening up these interesting discussions. Jennifer has indicated that she has a question, but I do not know if it is on the same topic. I apologise, Derek, but, as I have kept her waiting, perhaps you could pick up on both questions.

Ms J McCann:

Can you clarify the distinction between the existing pay systems, the non-consolidated bonuses and performance that is rewarded by an increase in base pay? How is that maintained in practice?

Mr Baker:

That touches on Mr O’Loan’s point, and it has created difficulties. The concept is that the base pay award is supposed to focus on individuals — the development of their skills, their reaching the level of competence that is expected for their particular grade and, indeed, their potential for the future. That is the concept. The non-consolidated bonuses are meant to focus on the delivery of outcomes and objectives in-year. At the start of the year, and in agreement with their line manager, individuals are supposed to set out a series of personal objectives relating to the organisation, to their own business area and to their development capacity in the organisation across a number of dimensions.

However, I would suggest — and I may be implicitly agreeing with the thesis of your question — that a degree of ambiguity creeps in, and that staff can become confused about the rationale for awarding a base pay award or a non-consolidated bonus payment. That is somewhat ambiguous; the Normington Review picks up on that issue and tries to address it. It is a weakness in the current system.

Ms J McCann:

To follow up on the point about ambiguity and weakness: is there a risk that people will be rewarded twice for the same thing?

Mr O’Reilly:

Until a few years ago, there was a mandatory link between base pay award levels and bonus levels. That mandatory link was broken, so there could be a differentiation between the level of pay award and the level of bonus. As Derek has said, those precise, sophisticated definitions do not always match people’s perceptions.

Mr Baker:

The answer to your question is yes, potentially. The Normington Review examines that issue. It proposes solutions and clarity on variable performance-related payments — bonuses, in layman’s language — and progression through basic pay scales. I accept your point.

Ms J McCann:

Would that lead to greater transparency?

Mr Baker:

The Normington Review proposes a solution for that, with greater clarity about the payment of bonuses on the basis of specific deliveries of outcomes.

Mr O’Loan:

This exchange, and the frankness of your answers, have been very useful; I welcome that. We will discuss the detail of the Normington Review later, but there are indications that radical change is needed, although we should not feel that we should follow the Normington line.

Mr Mc Narry:

Good morning, gentlemen. You are being refreshingly open with us, and I welcome that. This is an immense issue in the public domain, and I hope that that openness will be transmitted to the public. I hope that the media will pick up on the issue, particularly in the current economic climate. In the public interest, I will relate the discussion to differentials between the public and private sectors.

My background is in the private sector. If a bonus reflects performance — and you accept that — does that mean that non-payment of a bonus reflects failure? There are no punitive measures in your system, so I do not know how you cope with underperformance.

My line of questioning might answer the question of why persons unknown to me would apply for a job and take a cut in wages. That might be what he or she would do, but then bonuses and pensions are added to the overall package. From the private sector point of view, pensions in the public sector are very attractive.

We have discussed what bonuses reflect and underperformance — although I will not go into that issue because I have my own thoughts on departmental underperformance. Are bonus payments part of an overall contract package for Senior Civil Service positions? Are pensions part of that package? What package did the last person appointed as a senior civil servant at pay bands 1 and 2 receive? Will you describe that package, because people need to use it as a point of comparison?

Mr O’Reilly:

I will start, and Derek can fill in the detail, or correct me, as necessary.

Bonus and pension arrangements are part of the overall package, and the potential for bonuses is often mentioned to job applicants. The pension arrangements, which you rightly highlighted, are a significant part of the overall reward package in the public sector. It is always important to remember that a pension is a major part of the remuneration for senior staff in the public sector. As members know, a number of years ago, when reporting on Senior Civil Service board-level pay in published accounts, the total package was valued not only by pay and bonus but by the benefit of the overall pension package, which is a substantial element.

I do not want the Committee to think that the non-payment of a bonus reflects individuals’ “failure”. Although there are various views on the competence of the Senior Civil Service, it would be completely unfair to say that 25% of us underperform. There will always be an element of underperformance that is, and should be, managed carefully. However, it is not anywhere near the level of 25%.

Mr McNarry:

It is unlikely that individuals will voluntarily state that they do not want a bonus — an option that is also open to you, Leo. How do the public gauge the merit of someone receiving a bonus when that has been decided by you or your mates? To how many of the 25% will you not give a bonus because they did not perform?

Mr O’Reilly:

That is a difficult decision. Bonus payments are based on a relative, rather than an absolute, system of comparison. In other words, an individual can do his or her job, achieve the annual objectives set during the year and still not receive a bonus. That can happen because of a judgement that other people in that Department have also achieved their objectives, but in much more difficult circumstances. That sort of judgment is made at the margins.

The Chairperson:

Leo, is it not the case that the existing problem was compounded when bonuses were paid despite agreed business objectives not being delivered? Does that not raise the question: of what were the 25% who did not receive a bonus guilty?

Mr O’Reilly:

I appreciate the point. From time to time, some areas of the public sector have a much higher profile as areas of concern for elected representatives. The judgement that must be made comes back to the definitions of the operational and economic environment in which people work. Sometimes, an individual may be lucky enough to work in a part of the Civil Service that has a stable organisation and is going along well.

The Chairperson:

Other people encounter innovation and change.

Mr O’Reilly:

There can be much interest from elected representatives. An individual may be performing well in relatively stable circumstances. Compare that situation with an area that is undergoing major changes and experiencing disruption. In that instance, we want to encourage the best people to move there to sort out the problems that have arisen. Those individuals are much more likely to be in the eye of the storm of criticism.

A judgement must be made: to what extent are difficulties being encountered because of circumstances external to the particular organisation, and to what extent are they caused by the shortcomings of the senior management team? An element of judgement is involved; sometimes the judgment is correct, and sometimes it is not.

Mr McNarry:

That was interesting.

Mr Baker:

Perhaps I could pick up on one of Mr McNarry’s first questions on managing poor performance. Setting aside the reward mechanisms, bonus payments, and so forth, it is an interesting question, to which the straight answer is that our performance management, or appraisal, system provides for dealing with poor performance. That system is in place, and it is the responsibility of the line manager to identify poor performance and have a difficult conversation with the individual concerned.

If the individual is deficient in certain areas, the line manager will agree a “remedial plan”, if I can use that term. An individual who is deemed to be an unsatisfactory performer would not receive any base pay award, let alone a bonus. However, anyone who works in the public sector in general, and the Civil Service specifically, knows that we are not good at managing poor performance; all our surveys show that. We just do not do it well; it requires a degree of moral courage —

Mr McNarry:

Do you admit to poor performance? If you admit to something, you can manage it. It seems that none of the Departments will admit to poor performance; perhaps if they did, it would help them.

Mr Baker:

I am talking about performance at the individual level, and about individual performance appraisals. As an organisation — perhaps all organisations are the same — we are not good at having that difficult conversation with the individual and taking appropriate action. We shy away from it because it is uncomfortable, awkward and difficult. It is a perennial problem to which we keep returning. I have not found the Holy Grail solution to it yet, but managing poor performance is an issue.

Mr McNarry:

Staying on that theme, I can imagine that, in a private-sector company that is experiencing operational difficulties — it is happening all the time these days — the managing director calls his staff together and makes a proposition to the effect that things are tough, that the company needs to reduce costs and tighten up all round, and that he needs his staff to take a pay freeze or worse. Let us not discuss what the worse situation might be. Are your staff protected from a similar approach by you?

Mr O’Reilly:

They should not be protected from a similar approach. In our context, the final decision on such an approach would be taken by Ministers at a political level. However, they could well ask officials for advice on the options that are available in such a situation. The circumstances that are faced by private firms are immediate; the issue in the public sector is that there is seldom such a sense of immediate crisis. To some extent, therefore, the need to create that sense of immediacy in a crisis rests, ultimately, with elected representatives. That immediacy in a crisis is generated by their accountability to the electorate and its thoughts about what is going on. However, those options, particularly in the current climate, in which difficult circumstances exist in certain areas of the wider economy, it is quite right that people ask those questions. It is right that you raise those issues.

Mr McNarry:

I am not in favour of cutting jobs or freezing pay for the sake of it. However, I am conscious of the comparisons that have been made with what has been happening to your colleagues across the water, whom I have been reading about. We will follow here, but, as usual, we may not be prepared — although I hope that we will be — to explain the situation to those who may be affected. Heaven help us that we are prepared; I do not like to see anyone being put in a vulnerable position. I am grateful for that answer.

In your briefing paper, you highlight the low or medium salaries that are paid to senior civil servants here as compared with salaries that are paid in Whitehall. We have made the comparison between the private sector and the public sector, but now we are down to our own people here and Whitehall. You state that the figures that are quoted represent an element of regional pay. Is that because there is a higher percentage of Senior Civil Service appointees in Northern Ireland starting at the bottom of the scale, which is what you were indicating, or lower down the scale in comparison with their counterparts in Whitehall? If that is the case, does that reflect lower wage demands in the Northern Ireland labour market as compared with GB?

Mr Baker:

It is a reflection of the fact that a higher proportion of Senior Civil Service vacancies in Whitehall are filled by external candidates coming from other sectors. We are talking primarily about the south-east of England, where the salaries that individuals receive in their respective sectors is higher than those in the public sector, therefore they start much higher up the pay scale. The answer to your question is yes; those people will, typically, start well above the minimum of the pay scale for the particular grade in the Senior Civil Service. That has been driving up Senior Civil Service pay levels, averages or medians in Whitehall. Again, that point was picked up by the Normington Review, which states that it seems that pay levels in the Senior Civil Service and Whitehall are being driven as much by the working background of individual appointees as to their positions once they get into the Senior Civil Service. The review wants to address that issue partly by growing more of its talent from within and promoting from within.

Mr McNarry:

Does the appointment of ministerial advisers, and their salaries, complicate matters?

Mr Baker:

No, it does not. Ministerial advisers are not regarded as part of the Senior Civil Service. They are, of course, special civil servants, but the figures are not included in the review, and I do not think that they complicate matters at all.

Mr McNarry:

Is there no envy surrounding some of those alleged high flyers who are brought in — I speak as having been one, of course, but not a so-called high flyer?

Mr Baker:

I am not aware of any such envy.

Mr McNarry:

I am glad to hear that. That was not the case in my day, but perhaps things have changed.

Mr Weir:

I was going to ask whether that answered your earlier question about taking a pay cut to do a different job.

Mr O’Reilly:

To go back to your point about whether that reflected a regional pay element, one could say that it does, to some extent, in the sense that we do not experience the same pressures. By and large, we can recruit and retain people — in most cases — by starting at the minimum of the salary scale. In the vast majority of cases, we do not have to move beyond that to recruit and retain people. However, I acknowledge the Chairperson’s earlier point, and perhaps that raises a question about whether the minimum is low enough, which could be another issue.

There is also the more general point that there must be some regional recognition of those numbers, and they should not be out of line with what is being paid in comparable parts of the rest of the public and private sectors in the local economy. For economic reasons, there is no justification for doing that.

The Chairperson:

That disparity emerged when we considered Senior Civil Service pay rates with equivalent positions in the private sector. It is obvious that there is a significant disparity.

Mr O’Reilly:

I am not trying to be defensive, but more work needs to be done to get at the truth of the facts. The figures quoted in the Varney Review are based on standard occupational classification analysis, which embraces a wide range of posts in the public and private sectors. It is quite challenging to get the exact number.

The Chairperson:

The Committee was assured that the Department would be making a direct and effective input into the Varney Review, which identified the issue of the disparity and identified a consequence, which was that it stymies the growth of the private sector. Is that not an issue that should be considered?

Mr McNarry:

I think it is an issue that we should consider.

Mr O’Reilly:

There is an issue. However, one could quote various statistics — as always. The figures quoted in the Varney Review were based on a particular comparison from a selection of the standard occupational classification figures for that particular group for a particular year. If one were to look at other years, one would see very different figures, because they move around quite dramatically from one year to the next. The principle is right.

Mr McNarry:

I asked Mr O’Reilly if the Committee could have sight of those pay band structures, plus bonuses plus pensions. He nodded his head, so I think that we will see them. We need to see exactly what that package is, and then comparisons can be made.

Mr O’Reilly:

The bonus figures are relatively straightforward.

Mr McNarry:

The pensions have a value.

Mr O’Reilly:

They are valued, particularly for —

Mr McNarry:

I bet the people who are getting them know what the value is every year. Perhaps you should go and ask one of them.

Mr O’Reilly:

We can check on the —

Mr McNarry:

As near as you can.

The Chairperson:

When you are recruiting, interviewing and appointing, you indicate that the pension is a part of the package. It is one of the three elements: the pay structure, the bonus and the pension package.

Mr O’Reilly:

The pension package is described verbally. In all departmental accounts, for the members of the board, the value of the pension package will be quantified in a technical sense. It is a recognised way of quantifying the value. It would be easy to lift the numbers available in all published departmental accounts, but I wonder how big an exercise it would be to do it for every member of staff.

Mr McNarry:

I only ask for an idea of the value of the pension of one person in pay band 1 and another in pay band 2. What is the uplift from £61,000 and what is it from £86,000? What does that package represent?

Mr O’Reilly:

You are asking for the value of the three components.

Mr McNarry:

Yes, I am.

Mr Baker:

I will pick up on Leo’s point about the principle being right. As to the 22% variance, the same figures the previous year would have produced a –3% variance, and the figures for the subsequent year would have produced a +2∙6% variance. The figures bounce around all over the place, and one really needs to examine trends over time to make a comparison. It is a difficult comparison to make on the basis of one year.

Mr O’Reilly:

The main reason for that is the small sample.

The Chairperson:

We can argue about the figures, and we accept that there are variables and variations. We live in a time of economic constraint. Do you accept that it would be inefficient to operate a pay structure within the Senior Civil Service that is higher than required in the context of the local labour market and economic conditions? If so, it is a straightforward inefficiency in the management of the Civil Service.

Mr O’Reilly:

It would have an impact on the management of the Civil Service and the wider economy. The point has been rehearsed frequently — notably in the Varney Review — that, if the public sector sustains much higher levels of earnings than the private sector, it creates an obvious disincentive for people to work in the private sector and create wealth in the economy. That point is acknowledged.

Mr F McCann:

You have pointed out that the Senior Civil Service applies the recommendations of the independent Senior Salaries Review Body in respect of pay uplifts and bonuses. To what extent does the SSRB take account of local evidence, including the specific needs of the public sector and labour market conditions of the North when it is making its recommendations for annual pay and bonus awards that are applied across the various regions?

Mr Baker:

The answer to that is that it does not. I referred to that point earlier when I answered Mr Hamilton’s question. There may be an issue: the Senior Salaries Review Body could be invited to take account of local labour market conditions and make a recommendation specifically relating to the Northern Ireland Civil Service when it makes its recommendations for the Home Civil Service and take appropriate evidence. It does not currently do so — we do not currently do so — but it may be something that we might want to examine.

The SSRB has been set up with a specific remit to make recommendations on a wide range of senior public sector remuneration levels, and it has developed that expertise, knowledge and capacity over many years. If such a body did not exist, one would probably have to invent it. It is a fair question.

Ms Purvis:

One of the principles set out in the Normington Review is that it would not propose to increase the size of the Senior Civil Service pay bill. Under the proposed new model, an individual’s pay would be determined by five components, three of which would be variable, including weight, scarcity of skills and performance. Is it correct, therefore, to assume that the maximum point of the proposed basic five-point pay scale would be well below the maximum point on the existing pay scale for senior civil servants?

Mr Baker:

I do not know, because the detail has not been worked out. However, that is a reasonable assumption. If variable elements will determine the final remuneration package, it seems that the proposed five-point pay scale — although no one has determined any numbers for that pay scale — would be much tighter than the existing, very long pay band. It is a reasonable assumption, but the programme of work to put flesh on the bones of those recommendations has not yet started in earnest.

Ms Purvis:

If that were the case, and the new model were implemented, would there be a no-detriment rule, so that existing members did not experience a reduction in salary?

Mr Baker:

Again, that kind of detail has not been determined, but the general principle that tends to apply is that there should be no detriment. If a new system were introduced that resulted in a shrinking of the basic pay scale, and an individual found himself or herself higher up on the current pay band than they would be on that pay scale, it may be that they would be able to retain that salary on a marked-time basis until such time as it was worked out of the system and the new pay scale caught up; it would, in effect, be a no-detriment rule. I am only speculating; I would not like to be held to that in the future. That is the principle that tends to apply at present when changes are made, but that is a specific detail that would have to be worked out through an implementation programme.

Mr O’Reilly:

To supplement that: those recommendations are interesting, but quite a bit of work will need to be done to interpret them to apply to our local circumstances — if that is what is decided — because they are tailored to address issues in the south-east of England, which is a completely different labour market.

For example, if there were a five-point pay scale that had the same minimum and maximum points as the present minimum and maximum points in Whitehall, there might be a prospect of civil servants potentially receiving earnings that they would have no prospect of currently receiving. There is a substantial and complex range of issues to be considered.

Ms Purvis:

Paragraph 22 of your briefing paper refers to potential problems with the Northern Ireland Civil Service implementing the Normington Review, particularly in relation to job weight, content and responsibility, and the new job evaluation system. Does that raise some doubts about the applicability of the full Normington model to Northern Ireland? How feasible would it be to cherry-pick some of the elements of the Normington model?

Mr Baker:

That is a fair question; we have spotted the same issue. If an individual is in a post that has a particular job weight, he or she may be reluctant to move to a post with a lower job weight, and take a subsequent cut in pay. It is an obvious flaw in the proposal. The Normington Review recognises the flaw; it did not propose a solution, but it suggested that a solution should be identified in the practical outworking of the full package of proposals. We are watching with interest to see what that solution might be.

At present, I cannot see a way around that problem; it would be difficult to solve. The full Normington Review — which you may or may not have seen — simply makes the point that robust management action should be used to get around the problem. That is somewhat aspirational, and I would like to see how we will get over that.

I am speculating, but it may be that, in the context of the much smaller Northern Ireland Senior Civil Service, we would not make as much use of the individual job weight premium payment, and the basic pay scale might be adequate for our purposes. That would apply only in exceptional circumstances — an exceptional job with particular pressures would carry that premium. That might be one solution. It would be very much the exception rather than the rule. However, it is a difficulty and, as Leo O’Reilly said, we would have to consider the practical outworkings carefully to ensure that it would be appropriate for our circumstances.

Ms Purvis:

I know that you were awaiting the outcome of the Whitehall review, but, given the basis of what you have seen so far, do you think that there would be any merit in having a specific Northern Ireland review, which was something that the Committee had suggested? Could you move towards that suggestion, given that you have seen the outcome?

Mr O’Reilly:

To some extent, there will have to be some element of a Northern Ireland review, because, as we have said, whatever the Normington Review materialises into in Whitehall, it is highly unlikely that we would simply lift it unamended and apply it. There will have to be some element of Northern Ireland consideration of the emerging issues.

As Derek said, there are elements of the existing system — for example, the way in which the SSRB reports — that do not have a distinctive Northern Ireland component, and those issues should be considered.

Mr Baker:

For example, in implementing or taking the recommendations of the Normington Review, it would be possible to undertake or commission a piece of work — or, indeed, ask the Senior Salaries Review Body to undertake a piece of work — to develop bespoke arrangements that reflect our circumstances. That is entirely feasible. We have not taken a decision on that and, ultimately, that will be a decision for Ministers, so I do not want to pre-empt any decision that Ministers might take. However, it is entirely possible that that would be the outcome.

Ms Purvis:

Given that the Committee is, today, also examining DFP’s corporate plan, and that that has to be done by 30 June 2009, do you think that that is feasible?

Mr Baker:

No, I do not think that a radically new pay structure or pay system for the Senior Civil Service will be in place by 30 June. However, the pay award for the Senior Civil Service for 2009 has to be in place for 30 June. The Normington Review proposes a timetable for the full implementation of all its recommendations — there are various components — and that is due to kick in from the 2011 pay award.

The Chairperson:

Dawn highlighted the fact that the Committee has a continuing interest in whether an independent and comprehensive review will be introduced. The Committee wants that review to cover all staff — from the head of the Civil Service down. In those circumstances, the Committee’s options are to support that approach, which it has indicated to the Minister. As regards the new structure, the five-point approach and the variables, there is a reasonable variable to be taken into consideration, and there is an opportunity to progress that. However, it would have to be seen to be an objective and comprehensive review — not simply elements of the Civil Service but its entirety — to satisfy the considerable public concern.

Dr Farry:

I have a couple of short questions.

The Chairperson:

If they are short questions, that will be a first.

Dr Farry:

What levels of risk do Senior Civil Servants face as regards job security in contrast to the private sector? If there is a failure of delivery in the Civil Service, the consequences for senior civil servants seem to be fairly minimal. However, job security as a consequence of a business-wide failure for senior managers in the private sector can be quite dramatic.

Mr O’Reilly:

There are two elements to that. On the one hand, the straight answer is that senior civil servants face a lower level of risk; there is no point in beating about the bush on that one. On the other hand, in the private sector, reward packages for more senior people tend to reflect the fact that they face a higher level of risk. That is quite appropriate, because those people are much more likely, in some circumstances, to lose their jobs if something goes badly wrong.

However, some of the research on this issue suggests that — although there can be highly publicised profile cases of people moving on or retiring — in practice, the vast majority of people who work in the private sector, particularly in larger corporations in GB, tend to have a fairly stable, long-term career with those organisations. Therefore, it is a mixed picture. The answer to your initial question is that senior civil servants face less risk.

Dr Farry:

How many members of the Senior Civil Service have been dismissed for poor performance in recent years?

Mr Baker:

No members of the Senior Civil Service have been dismissed during my two and a half years in post. However, I do not know what the exact figures are stretching back over a long period.

Mr O’Reilly:

The simple answer is that very few, if any, senior staff members have been dismissed.

Dr Farry:

Is it conceivable that senior civil servants could massively underperform in their jobs? What approach would be taken in such circumstances?

Mr Baker:

It comes back to performance management. If an individual’s performance were assessed as being consistently unsatisfactory, eventually, “inefficiency proceedings” would be taken against that individual and he or she would be dismissed on inefficiency grounds. That facility exists.

Dr Farry:

We can take a lot of comfort from the fact that no one has been dismissed in recent years. [Laughter.]

The Chairperson:

It was a short question.

Mr O’Reilly:

We hope that, by the time people get to Senior Civil Service level, their performance and progression up the system, generally, should reflect their performance in job. If an individual is not performing in job, that should have been recognised before he or she entered the Senior Civil Service.

Dr Farry:

It is not a foolproof system.

Mr O’Reilly:

No, it is not foolproof, but no system, in this sense, ever will be.

The Chairperson:

Thank you very much. That was a very interesting session, as evidenced by the level of engagement. I draw this session to a close, and I record our appreciation for the quality of the responses and engagement.

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