December 03, 2007

Public Sector Rich Lists

Matt Sinclair has gone on the attack about the Public Sector Rich list and my criticisms of it on his blog. I must clear up one thing- Matt points out quite rightly that the report got a heavy amount of media attention- I hadn't remembered that it had got that media attention and apologise to anyone who was offended by my statement that it hadn't. To be honest I viewed that as the least significant sentence of my argument- its far more important to be right than to be noticed but I retract that statement fully and realise that whatever the public sector rich list was, it was well covered.

Ok lets turn to Matt's more substantive points- the article is uncharacteristically full of sneers and jibes- more worthy of a lesser blogger than Matt who is more often a polite and interesting interlocutor. The average private sector CEO is paid less than many of the individuals on the public sector rich list- but ultimately that average is not comparable to some of the big organisations we are talking about here. Take the Royal Mail, it is a reasonably large organisation delivering to 27 million addresses in the UK. Its not exactly a small manufacturer- its chief executive deserves to be compared in terms of wages with the boss of a FTSE 100 company which undoubtedly it would be if the thing was privatised all together. The average FTSE 100 chief executive takes home 737,000 pounds worth of salary but added to other benefits takes home almost 3.2 million pounds.

If we believe that FTSE 100 chairmen have skills which make them good leaders of large organisations than we ought to be employing them in the public sector. If we argue they don't, it calls into question the fact that they are paid these massive wages to begin with. Now Matt can argue quite rightly that there is no obvious link between a large salary and good performance in the public sector, but neither is there necessarily such a link in the private sector- despite the fact that shares have only gone up 7.5% in the last year, salaries according to the Daily Telegraph have leapt 40% for the same period. The Remuneration committee at the Royal Mail seems to have as much of a good idea as how this functions as that of any major company. Ultimately if you believe that these guys make up 120 times the average worker in what they can add to a company, there is no reason not to recruit them to work for the state at the same wages. If you disagree with the salaries you must disagree at some point with the principle that these salaries are necessary to attract the best executives to run these companies both privately and publicly.

Lets put this in a more sensible form- Matt is completely right that just because someone is paid millions wrongly that doesn't mean it is right to pay another person millions. But that applies in both sectors- unless Matt is arguing that the public sector doesn't require the skills to run its extensive bureaucracy that a large company requires- and across many jobs. Perhaps the TPA should do some more focused work on where the wage of a particular public employee isn't justified- suggesting alternative models for recruitment that would produce a better person in the job. Perhaps the government doesn't need to employ the best lawyers, accountants, consultants, hospital chairmen, company directors, perhaps the public can settle comfortably for second best and pay that way- but doesn't that call into question whether the best really are the best.

In a society which awards high wages for particular jobs and skills, if the public sector wants to use those skills ultimately it will pay the appropriate market price. I'm not sure what bit of that sentence that Matt disagrees with.


Vino S said...

I agree with your post. You make a good point - given that we have an unequal society and that this inequality is justified by the fact that certain individuals have rare and useful 'managerial' or 'entrepreneurial' talent then it makes sense, if the state wants to employ them, that it should pay the rate for the job.

Matthew Sinclair said...

All these comparisons to the private sector are spurious. I doubt all private sector bosses are good value but I also doubt they're all bad value. Your continuing attempts to set up a "all bosses aren't worth big salaries" or "all bosses are worth big salaries" dichotomy is getting absurd.

If a private sector boss is bad value then the shareholders are the ones who pay. As such, they should - and sometimes do - kick up a fuss when they're short-changed.

We've argued that a number of these public sector bosses are not providing good value (they're getting paid a lot despite poor, low value performance). As we're the ones who pick up the tab in the public sector we should kick up a fuss when we don't get proper value. That doesn't apply to every boss on our list, however, an essential first step is to actually have a list so that we can make these judgements.

Gracchi said...

So Matt can we agree that a number of these salaries are justified. In the cases where they aren't justified, is your objection to the competence of the individuals earning those salaries or to the idea that this job comes with an associated salary.

Your position is much more refined than the position of your list or even of the TPA website with its comparisons to the average worker- I'm sorry I don't buy this.

Vino S said...

matt, you keep asserting that shareholders will (somehow) cut down the pay of poorly performing bosses in the private sector. There is no evidence for this. By definition, half of firms are performing below average. And yet, average bosses pay goes up far faster than average workers' pay.

Matthew Sinclair said...


Is this is all based on your assumption about what the comparison with the nurses etc. was for? I've answered that point already.

In response to your question. Some of the salaries are justified. Others are just higher than they should be for the position. Others aren't justified by the officials' performance (the ones we included in the table "Rewards for Failure"). It varies.


Sometimes shareholders have controlled pay directly. I gave an example in my post. More often they control pay indirectly by selling shares in firms that appear not to be taking their interests seriously. If they sell shares the managers risk the firm getting taken over and losing their jobs.

I have no idea what your little "By definition" is meant to prove.

Gracchi said...

I don't think this is going anwywhere. But thanks Matt and Vino for commenting. That's my last word.