In his 2013 budget speech (stay with it, it gets more interesting, honest) George Osborne, the UK Chancellor of the Exchequer, announced there would be a continuation of the policy of a 1% cap on public sector pay rises until 2016 . From a human governance perspective is that a wise decision? The immature school of thought sees salary as a cost to be minimized; especially in times of austerity. The mature school says salary cost is only one part of the total value equation; even in times of austerity.
Presumably, someone at the Treasury must have done their sums, on paper at least, and saw this as a ‘saving’ on public sector salary costs, when compared to what they would have to pay to match UK inflation of 2.8%. But that does not answer the mature question of whether the public sector will be made any more valuable by doing so. The total value of any organization can only be gauged by weighing its costs against the level and quality of the service it provides. This is a statement of the blindingly obvious but those who control the nation’s purse strings just don’t seem to get it.
So let us put this another way: will public sector workers feel more or less inclined to maintain their current level of commitment and performance when they feel they are losing out in both real terms and when compared to their fellow citizens employed in the commercial sector? Have Treasury economists factored the psychological contract into their calculations? Would they know how to make such a calculation or do they just not care about the dangerous, long-term consequences of their actions? Either way, breaking trust with your employees, by imposing arbitrary and indiscriminate conditions, can hardly be described as a value maximization strategy.
This point was brought home to me some years ago when I joined the board of a new charity as a Trustee and became closely involved in recruiting our very first employee. The salary we could afford was small even by third sector standards but we found someone who appeared to fit the bill very well. When it came to drawing up the contract she asked what our TOIL arrangements were and this took me aback; I had always associated the word toil with hard work, not Time Off In Lieu. It led me to question the attitude of this otherwise affable and suitable candidate; giving me the impression she was more interested in minimizing her time at work than maximizing her contribution. My second, more considered, response was respect for her stating absolutely clearly what she expected in return for taking on this low-paying but responsible job. I admired her plain speaking and honesty in getting both the legal and psychological contracts right from the very outset: surely the best way of preventing problems arising further down the line?
The legal and psychological aspects of any employment contract cannot be separated. Once a new recruit has been on-board for a few weeks they quickly learn how their place of employment works and, even if their legal contract does not change, their perception of their psychological contract certainly does. As the organization’s true culture becomes clear, and the demands of the job bear down, they start to mentally trade-off how much they are prepared to put in for what they are likely to get out. Immature management takes no account of this and their ‘take-it-or-leave-it’ attitude is bound to prove counter-productive.
If anyone in the Treasury Department is reading this management advice I would like to make a simple suggestion. Rather than treating the whole of the public sector as some indeterminate, amorphous and anonymous mass why not think of them as a collection of unique adults who are intelligent enough to decide for themselves whether they are being treated fairly or not? Furthermore, if you tell them honestly and directly where they fit into a long-term plan for the future of the public sector they will make their own minds up whether they want to make a big contribution or not. Only by treating people as adults are you likely to save real money whilst simultaneously providing better services. Of course, such a strategy will only work if the executives who run the public sector understand what a mature attitude to people management looks like. If public sector executives do not raise their professional game soon that 1% pay cap today may well turn out to be a very costly failure tomorrow.