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Tuesday, 7 December 1993
Page: 4026

Senator KEMP (4.44 p.m.) —I endorse the remarks of my colleague Senator Short on the Auditor-General's report Pay for performance. I do not propose to traverse the ground that he has covered so well in his comments.

  Mr Acting Deputy President, you will be aware that the Standing Committee on Finance and Public Administration is currently considering the whole issue of performance pay. I am a member of that esteemed committee, which has had a number of days of hearings with people throughout the Public Service. We may have one or two more days of hearings and then we will move to a report. I certainly would not wish to pre-empt that report. The Auditor-General's office has offered to brief our committee tomorrow on this report. I certainly look forward to hearing its remarks.

  This is a very important report, and it presents the government with a major problem. The performance pay issue was rushed in prior to the last election. It has always surprised me that the Public Service unions were prepared to agree to significant pay rises for higher paid officers in the service and agree to lower pay rises for the so-called lower grades. It has always surprised me that in a period of serious recession, with incomes being cut all over the place, the Labor government was prepared to negotiate an agreement which, certainly at face value, seemed to be particularly generous to higher paid officers and less generous to lower paid officers.

  The story of how and why this agreement was reached certainly has to be written. It has not been written to date. Nonetheless, the performance pay scheme came in. It is now a significant part of the pay for higher paid officers in the Public Service. This report shows that it has run into very serious problems. From the evidence that I have heard from public servants, I have to say that the Auditor-General's views are widely confirmed by my experience and by comments that have been received.

  Recently I had the privilege of addressing a seminar of middle management public servants. At the end of the seminar, the idea was that they should question me and put me on the spot so as to speak about the performance of senators. We are always questioning the performance of public servants, and we thought that public servants might like to return the compliment and fire some questions at me. The questions I received were not unkind.

  At the end of the presentation, I asked them whether they could assist me. I asked the large number—probably in the order of 60 to 80—of public servants who were there, `Is there anyone in this room who is opposed to performance pay arrangements?'. There was obviously a degree of nervousness. I said, `Let me repeat it, just to get it clear and make it easier. Is there anyone in this room who supports performance arrangements?'. Despite a couple of urgings, I could not get one hand in the air. I think that shows that, at least amongst the middle management levels of the Public Service, there is widespread concern about the whole nature of this in the Public Service, the theoretical basis on which this has been brought into the Public Service, and the practice which the Auditor-General is exposing in his report.

  Performance pay can be very generous. At the very top level, for higher paid public servants, it can provide bonuses of up to $15,000. This scheme may well have been brought in to address what were perceived to be some anomalies between the public sector and the private sector, but the hearings that I have attended seem to show not only that there is a somewhat shaky theoretical base for performance pay but also that the implementation of it is a nightmare.

  To illustrate just why this report is a big problem for the government, I will mention one of the recommendations which has not been mentioned to date. A number of agencies have decided to just provide a flat rate—in other words, to not really grade people on performance but provide a flat bonus to all who come within the ambit of the scheme. A couple of major agencies have done that, including, I think, the Australian Taxation Office. The Auditor-General recommends that this sort of arrangement, this flat rate payment, should be expressly excluded and says that it is contrary to the guidelines. The report goes on to state:

. . . agencies with more than six senior officers who rate and/or pay all staff the same be subject to a review of their performance appraisal and pay practices—

That is a very interesting proposal by the Auditor-General. The report further recommends:

. . . that DoF—

the Department of Finance—

be given the power to withhold supplementation for performance based pay for one cycle from agencies found to have taken a flat rating or payment approach to performance appraisal.

It is a very strong recommendation. It is directed at a number of senior agencies in the government that have, in effect, decided that it is better for staff morale to pay flat rate performance pay increases. Not surprisingly, this is causing a degree of angst in some of the departments, as we can see from their responses to this particular recommendation.

  The other issue that emerges here, which I do not think Senator Short touched on, is the need for government departments to be accountable on the one hand and to retain some privacy for the financial arrangements of officers on the other. This has been criticised in the Senate. Indeed, very real fears were expressed that this performance pay money could be used as a sort of political slush fund to reward mates. I can understand this because I think there is a real dilemma. Often in politics there are clashes of principle. One is the principle of privacy and another is the principle of accountability. In relation to performance pay, those two important principles clash.

  It is interesting that a couple of the more senior government departments were loath to provide the Auditor-General with the papers so that he could carry out his assessment because they felt it would intrude on the privacy of individuals. In the end, those departments, the Department of Treasury and the Department of Finance, decided to provide the papers, but the Auditor-General expressed concern that there should be any question at all that he should have access to all papers which relate to the expenditure of public funds.

  I conclude my remarks by saying that this is an important report. It has given the government a real problem from the perspective of the Senate Standing Committee on Finance and Public Administration, which I can speak for, albeit only on my own behalf. I think it is an important document and will certainly be carefully studied by members of that committee.

  Question resolved in the affirmative.