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Monday, 30 May 1994
Page: 887

Senator COATES (7.06 p.m.) —I move:

  That the Senate take note of the response.

As chair of the Standing Committee on Finance and Public Administration, I should first thank the government for responding promptly to the committee's report of last December. I also note the extent to which it has attempted to address the operational problems in the performance pay system which were exposed in the committee's inquiry and a parallel performance audit by the Australian National Audit Office.

  Having said that, I have to add that the response is disappointing. It fails to address the committee's main criticisms of performance pay. The committee concluded that the APS performance pay system was the conceptually flawed result of a faulty process of policy development. The system rests on assumptions about motivation and the nature of work in organisations which are not valid or appropriate for much of the APS. It requires a degree of precision in the appraisal of individual performance and a level of acceptance of those appraisals which is not realistically achievable in many public sector agencies.

  Schemes like that in the APS enjoyed a brief fad in the OECD countries in the late 1980s but the bandwagon appears to have come to a halt just about the time that the APS leapt aboard. There is no evidence that any performance pay scheme like that in the APS has been successful in any other jurisdiction. Indeed, there is growing evidence that these schemes are failures. Only two weeks ago, the Economist—not a magazine which I usually find interesting—reported similar findings in the private sector. Managers who fell in love with the idea of performance-related pay in the 1980s are now said to have found the practice to be expensive, clumsy and demotivating.

  I find it highly significant that the response tabled today is the first official publication on APS performance pay in the five years I have followed these issues which does not cite overseas experience as a reason for adopting performance pay. The reason is obvious. The overseas experience is now long enough for conclusions to be drawn and those that are relevant are all adverse.

  The response does not address two other major failures revealed by the committee's inquiry. The first is the widespread lack of acceptance of the scheme within the APS. The committee found an unprecedented level of dissatisfaction with performance pay in the APS, not only at the level of individual officers but very much at top management level. The closest the response comes to acknowledging this is in a passing suggestion that the problems exposed by the committee's inquiry, and by the audit, are to be expected in the process of creating a major cultural change. The solution proposed in the response is that the coordinating agencies issue a circular.

  If performance pay is really about major cultural change, it is absurd to suggest that it can be managed by issuing circulars. If, on the other hand, it is the sort of program that can be managed by a few central agency circulars, it is hardly likely to produce major cultural change.

  The second major failure in this program which the response ignores is the failure of the coordinating agencies themselves to manage the change to performance pay. I believe that the scheme was doomed from its conception but, if it was to have any chance of success, it needed to have been better managed.

  The committee found that the coordinating agencies—the Department of Industrial Relations, the Department of Finance, and the Public Service Commission—failed to design a workable system. They failed to ensure that departments and agencies understood the defective system that they designed; they failed to specify a reporting system that would reveal what turned out to be widespread departures from the spirit and letter of the guidelines they issued; and they underestimated the need for investment in implementation. These failures and the unusually harsh criticisms the committee made of them are grandly passed over in the response which, I presume, was drafted by the coordinating agencies themselves.

  The new circular issued by the coordinating agencies does attempt to address the many implementation problems that were exposed by the committee and the ANAO. I do not wish to dwell on the proposed changes because they do not go to the fundamental problems of the system. I will point out, however, that one of the major changes proposed is the imposition of `suggested' quotas on the numbers of officers that may be rated at each of the appraisal levels. If these quotas are implemented, about 20 per cent of senior public servants who have been told by their supervisors that they have achieved a certain level of performance will have to be told that they are actually performing at a lower level. About three-quarters of these will stop receiving bonuses to which they have become accustomed.

  It is impossible to see any benefit that could flow from this proposal which could outweigh the costs of brutally downgrading and dashing the expectations of such a large proportion of our senior public servants. It would be a very difficult process to implement and, perhaps for that reason, the coordinating agencies' memorandum leaves some unusually large loopholes.

  Firstly, agencies do not have to implement the changes in the current appraisal cycle if the cycle is too far advanced. This will allow many agencies to defer initiating action until next year. Secondly, agencies will not have to report the results of any action they take until after the tabling of their next annual report after the first year of the changed system. Information on compliance with the suggested changes will not be available in many cases until the tabling of 1995-96 annual reports in October 1996. This is a remarkably leisurely timetable for the correction of problems in a program which initially was regarded as so important that it had to be rushed through in a few months.

  It seems unlikely to me that many line agencies will take up the suggestion of the coordinating agencies that they assault the self-esteem of many of the senior staff. A far more sensible response in line agencies would be that already adopted by the Australian Defence Force in respect of its officers. It is open to agencies to fold the funding for performance pay for senior officers into the pool of funds available for agency bargaining. Clearly all agencies should do this and I hope that the management of most agencies will have the good sense and the courage to do this.

  I regret that the government has not taken the opportunity presented by the committee's report to bring performance pay to an end in December by announcing that now. Even though the rhetoric suggests that performance pay is to continue to be defended, I just hope that the fact that the government, in stating that it is not responding substantively to our recommendation No. 1 `at this stage', provides an indication that the system might yet be abandoned as it should be.