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Overaward payments at OTC

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Developments at OTC a good example of the pressures that inevitably build up in any overly centralised system of wage fixation.

There is clearly a parallel with developments at Telecom in 1981 - which played a key role in the demise of the indexation system

Towards the end of that system a tightening labour market led to substantial overaward payments being paid in the private sector mainly in order to attract and retain skilled employees in short supply. Technically of course these payments were

outside the wage principles. However most awards in the private sector are minimum rates awards and while the Commission exercises control over award rates - and seeks to prevent unions claiming additional overaward payments - it has no power to prevent employers voluntarily paying overaward payments.

There are of course some paid rates awards in the private sector - such as in the building industry - where employers are technically forbidden to make overaward payments. However even in these awards, market (as well as industrial) pressures have

led to widespread overaward payments.

However the public sector is generally far more constrained in offering overaward payments. Federal public sector awards are almost invariably paid rates awards. Moreover because of Government regulation, primarily through the so-called

"co-ordination arrangments", these awards are generally adhered to.

This means that the public sector is far more constrained by the restrictions of the wage principles than the private sector. By 1981 some public sector pay rates had fallen well behind the market. No major employer can sustain this situation for long

and pressure for "catch-up" pay rises proved impossible to contain. However such pay rises could not be validated by the centralised system. This resulted in the 1981 Telecom dispute which was effectively resolved outside the wage principles.

Soon after, the Arbitration Commission announced that there was insufficient commitment to the wage principles and it announced that it was abandoning the indexation system.

Similar pressures are clearly emerging again. With the tightening of the labour-market, employers have been willing to offer significant overaward payments to recruit and retain skilled employees. In some areas where the public sector is in direct competition for labour there is pressure to try and match

these payments or lose skilled workers.


The Government has made a lot of noise about allowing Government Business Enterprises to operate on a more commercial basis. This is supposed to include freeing up the co-ordination arrangements. Mr. Willis's intervention in OTC's pay arrangements clearly

demonstrates the limits of the Government's resolve in this area.

There is no simple solution for Mr. Willis. If he allows OTC to continue to pay the overaward payments, then the Government could be seen as sanctioning a breach of the wage principles (as with Telecom in 1981). There would also be pressure for flow on into other public sector technical and white collar areas.

On the other hand if Mr. Willis uses his authority to stop OTC paying above the award he is condemning them to lose skilled employees, and seriously jeopardising their ability to operate as

an efficient, commercially oriented enterprise.

Clearly events are set up for a "fix" whereby the employees continue to receive the money, but the payments are dressed up to make them appear consistent with the wage principles. This of couse will not do much for the integrity of those principles.

There are a number of implications for policy from the OTC experience. The first is that pay and conditions must be set in the public sector in a way that enables public sector employers to compete for labour with the private sector. Pay and

conditions should be set on a more market oriented basis. This means moving away from paid rates awards towards a combination of minimum rates awards and voluntary agreements. At the same time Government Business Enterprises should be exposed to greater

competition in their product markets.

The second is that any system of wage fixation that makes no provision for market forces will eventually collapse. This is the main problem with the Kelty plan which seeks to further rigidify relativities under the guise of award restructuring. While there are some positive aspects to the Kelty plan, overall

it would increase the degree of regulation and centralisation of the wage system.

It would do this in two ways. First it promotes the use of supplementary payments to absorb and institutionalise overaward payments and by generally seeking to make minimum rates awards more like paid rates awards. This would simply import the sort

of inflexibility that exists in the public sector into the private sector.

Secondly, it seeks to provide direct linkages between key classifications in major awards. This means that if one award moves, then all the awards that are linked with it must also move, presumably by the same amount. .

14 December