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Monday, 30 May 1994
Page: 885

  The ACTING DEPUTY PRESIDENT (Senator Herron)—Pursuant to the resolution of the Senate of 13 February 1991, I present the government's response to the Standing Committee on Finance and Public Administration's report on performance pay which was presented to the President on 26 May 1994. With the concurrence of the Senate, the response will be incorporated in Hansard.

  The response read as follows—

Government Response to "Performance Pay"—Report from the Senate Standing Committee on Finance and Public Administration, December 1993

Government Response: April 1994


The Senate Standing Committee on Finance and Public Administration (SSCFPA) published a report into performance based pay (PBP) on 22 December 1993. That report was tabled on 1 February 1994. In a separate but related process, the Australian National Audit Office (ANAO) began an audit in June 1993 into the implementation of performance appraisal (PA) and PBP in the Australian Public Service (APS) and its report was tabled in early December 1993.

Over recent years the APS has moved its focus away from process onto outcomes, performance and quality results. In his statement on Performance and Accountability in the Public Service on 1 July 1993 the Prime Minister stated that the Public Service needs to sharpen its focus on performance still further, noting that introduction of PA and PBP is a means of achieving this goal.

The emphasis on rewarding good performance, and advantages of the approach taken in the APS through appraisal and PBP, were endorsed by the Management Advisory Board (MAB) in "Building A Better Public Service" (released in July 1993). In that publication, MAB suggested a strategic approach to further reform in the APS focussing on making performance count, better leadership and a strengthening of the culture of continuous improvement. MAB identified key public service values as including a close focus on results, providing fair and reasonable rewards as an incentive to high performance and continuous improvement through teams and individuals.

As well as the implementation of formal PA and PBP arrangements for senior managers, the major reform initiatives in the APS which support and promote these values include development of training linked to APS competencies and a greater regard for career planning. There is also a closer focus on providing enhanced processes for dealing with underperformance.

The PBP arrangements reflect the Government's ongoing efforts to change the culture of the APS by focussing people's attention on the achievement of the corporate goals of their agency. The Government's approach also represents further steps towards a more flexible pay system based on human resource capability, where a component of remuneration reflects a balanced evaluation of individual performance and work requirements.

A key objective of all performance pay systems therefore is to improve organisational performance. A pay system which closely links achievement, as assessed through formal appraisal processes, to reward provides staff with an incentive and direction to better focus on their corporate goals.

PBP, together with workplace bargaining arrangements for the APS, also addresses concerns about inflexible remuneration systems and eases the potentially negative impact of reduced promotional opportunities resulting from the changing demographic profile of the APS. By linking pay to productivity and efficiency outcomes, PBP and agency bargaining together offer all employees a stronger stake in the success of their agency.

PBP was introduced as part of the APS Workplace Bargaining Agreement which remains in force until at least December 1994. Any major policy changes to the current PA/PBP arrangements, including those recommended by the SSCFPA, will be addressed by the Government later in 1994 when settling its position on a successor, or modifications, to the APS Agreement. In the meantime, both of these reports have provided a great deal of useful information on the substantive policy and operational issues involved, and many of the issues raised in them have been addressed in a Memorandum recently issued by coordinating agencies.

The Government does not agree with statements by the Committee Chair that nothing can be retrieved from the current arrangements. The introduction of performance appraisal and pay has necessarily been a major cultural change for the APS. Many of the problems that have been identified relating to implementation are symptomatic of the cultural shift inherent in introducing the arrangements, the fast pace of change and the lack of familiarity and experience with such schemes on the part of managers and staff. As the Prime Minister also indicated in his 1 July 1993 statement, it will be necessary to all concerned to work at it and, if necessary, refine the arrangements to ensure PBP is an effective spur to good performance.

Government's Responses to Specific Recommendations

The SSCFPA made five specific policy recommendations concerning performance pay

Recommendation 1

the performance pay system be abandoned no later than the expiry of the APS Workplace Bargaining Agreement in December 1994

Recommendation 4

a task force, with representation from line as well as coordinating agencies, be established to develop proposals for arrangements to replace the performance pay system


The Government believes it is not appropriate for it to respond substantively to Recommendation 1 at this stage. The Government's view will be determined in the light of the programmed reviews by DIR and other coordinating agencies of the current PA/PBP scheme and of the APS Agreement, and in the context of negotiations on a successor Agreement. These are scheduled to be addressed later in 1994. The Government's response to these recommendations will follow.

In relation to Recommendation 4, formulation of proposals for Government consideration will be undertaken under the leadership of DIR and other coordinating agencies and will involve close and continuing consultation with all stakeholders, including line agencies and unions.

The Government remains of the view, however, that the Committee has undervalued the significance of the role of PBP, as the scheme currently operates in the APS, in supporting and sustaining viable and cost-effective PA schemes (see response to Recommendations 2 and 3 below) and as a means of recognising and rewarding valued performance.

The Government considers that the current level of involvement by coordinating agencies in the implementation of PA and PBP in the APS does not need to be extended, given the move to devolution in the management of the Service.

Recommendation 2

formal performance appraisal continue to be a requirement at the Senior Officer and SES levels and that it be extended to all levels of the APS as soon as possible and include an element of upward and peer appraisal

Recommendation 3

the funding of the Public Service Commission be supplemented for a defined period of, say, two to three years, to support a development and implementation process for performance appraisal across the APS


The Government continues to fully support formal PA for SES/SOS, together with ongoing development of measures for managing and dealing with underperformance at these levels. In this context, the Government believes that PA is an important element of the APS performance management framework.

As to extension throughout the APS, the Government supports the broad intentions of these recommendations, together with enhancement of the means to address underperformance at all levels in the APS. While the Government is uncertain at this stage about the practicality and cost-effectiveness of introducing formal PA arrangements at all levels throughout the APS, the PSC will be further examining possible approaches to improving the performance management framework in the APS.

Rather than extend the more formal process of performance appraisal to all staff, the Government considers that agencies across the APS should be addressing, including in the context of agency bargaining agreements, whether in their particular circumstances it is possible to introduce other improvements in their performance management arrangements for staff below the SOS levels. This would focus on improving teamwork and work planning, in particular through regular review of, and feedback on, individual performance and identifying and meeting individual development needs. The PSC will, within existing resources, provide appropriate assistance to agencies on good practice approaches to implementing these changes.

The Government, however, remains sceptical about the optimum viability of performance management arrangements, not only for the SES/SOS but for other levels, if there were no concrete or substantial incentive to participation through links with individual remuneration.

Recommendation 5

any such proposals [for arrangements to replace the performance pay system] provide that any above standard remuneration to individuals will be public knowledge


The Government holds firmly to its longstanding view, also adopted by previous governments irrespective of political affiliation, that remuneration ranges of public servants in the APS be public knowledge but that the precise remuneration (involving any performance elements) paid to individuals, and the reasons for this, should remain confidential. In its view the viability of PA arrangements would be seriously jeopardised if the outcome of confidential discussions on individuals' performance were made public.

That said, the Government supports improved reporting arrangements by agencies and Service-wide, and this has now been put in place (see response to Recommendation 6 below).

In addition to its policy recommendations, the Committee also recommended that, if it is decided that the performance pay system is to continue:

Recommendation 6

recommendations 1 and 2 in Audit Report No.16 of 1993-94, relating to reporting requirements and clarification of the objectives of the system be accepted and fully implemented no later than 30 June 1994


The Government agrees to this recommendation. Coordinating agencies have issued a joint Memorandum providing additional advice and clarification on current arrangements.

In relation to the objectives of the system, that Memorandum indicated that the two key objectives of performance pay in the APS are:

to promote a more flexible pay system where a component of remuneration reflects an evaluation of individual performance against work requirements over a defined period; and

to complement performance appraisal in improving the role of individual performance, through better focussing people's attention on the achievement of their agency's corporate goals.

The Memorandum also included details of revised and expanded reporting requirements which are to apply in respect of cycles concluding during 1993/94. These include the matters set out in DIR's response to the relevant ANAO recommendation included in Audit Report No.16 of 1993-94.

Recommendation 7

subject to the agreement of the Joint Committee of Public Accounts, the Government, in its response to this report, provide a detailed response to each of the other 26 recommendations in Audit Report No.16 of 1993-94


The Government agrees to this approach for responding to the remaining ANAO recommendations, without prejudice to the outcome of its deliberations as outlined in its response to Recommendation 1 above. The Joint Committee of Public Accounts has indicated that it also agrees to this course of action.

Many of these recommendations have been addressed in the Memorandum recently issued by coordinating agencies. The remainder will be addressed in the Government's response later in 1994.