BUILDING THE CONFIDENCE TO COPE WITH THE FUTURE

BUILDING THE CONFIDENCE TO COPE WITH THE FUTURE

Local authorities will recently have received details of the first in what is likely to be a long series of expenditure reductions. These relate to the current financial year, but the emergency budget on June 22nd signalled further reductions, more drastic than any in recent experience. There are now widespread expectations of cuts in funding in excess of 25%, and predictions of losses of at least 120,000 jobs across the public sector. And there may be further reductions in future years.

The inevitability of these reductions, combined with uncertainty as to exactly how and when they impact on particular Councils and particular services, risks creating a climate of fear in the local government and wider public sector workforce. This is further exacerbated by the prospect of a 2 year pay freeze for employees earning above £21,000, and potential erosion of pension benefits.

At the same time, there will be no reduction in the expectations that services will deliver to higher standards, with continued pressure for better co-ordination and improved outcomes.

Keeping the workforce engaged, motivated and committed through the next few years will be a major challenge, and one in which the HR function will have a major part to play. Steve Vale looks at some recent developments and considers some ways of meeting the challenge.

Against the current background, local authority employers need to take three important steps:

• be aware of the risks to employee morale, motivation and commitment in these unusual times and circumstances;

• emphasise positive achievements and developments in the local government sector which show that it already has met, or is likely to be able to meet, many of the challenges it faces;

• make the highest possible effort to secure the engagement of the workforce in meeting those challenges.

In the latter context, it will be important that the workforce feels that we are all in this together, and that the challenge of surviving the future (and potentially having to make sacrifices to do so) is shared by the whole workforce, without the interests of one group being favoured at the expense of another’s. Much has been written recently about employee engagement, but, in this article, the focus is on the importance of a concept of “fairness”, which has a wider meaning than an employment law based idea of fair treatment, in securing the continued engagement of the workforce.

These three steps will be vital if employees are to maintain confidence in the ability of their organisations and themselves to weather the coming storm.

Step 1 –awareness of the risks
This is not the first time in recent memory that local government has been faced with the prospect of major expenditure reductions, resulting in service cuts and job losses. And there are valid lessons to be learned from previous experiences.

But, as a number of commentators have recently pointed out, there is a new dimension to the present situation. In a recent editorial, the Municipal Journal highlighted some of the “unhelpful rhetoric” in the political debate about the spending cuts. This is in danger of downgrading the value of the work of public sector staff and managers, so that there are seen merely as a drain on the taxpayer.

This editorial was sparked by an article by Steve Freer, CIPFA Chief Executive, which argues that ministers seem to be in danger of blaming the public sector workforce for the deficit and the need for expenditure reductions. Whilst cuts and job losses are inevitable, and the potential need for pay freezes and reviews of pensions should not be hidden, Mr Freer is concerned that this message is becoming entangled with others which draw attention to the public (and, by implication, local government) sector’s perceived multiple failings and latent inefficiency.

This creates a twin danger of demoralising the workforce – “precisely the people who need to be at the top of their game to manage the delivery of cuts” – and, by accentuating the negative aspects in the sector’s overall performance, distorting the public view and making it even more difficult to engineer solutions which seem fair to all stakeholders.

In a recent paper written for the Workforce Foundation Annual Debate, Will Hutton – who has now been confirmed as the leader of a Treasury review of public sector pay, focused on the problem of disparities between the lowest and highest in organisations in the sector – draws attention to another risk. This is that, given the genesis of the current deficit, the workforce will feel that it is collectively bearing the consequences of a series of actions by a few reckless bankers, and that it is plainly unfair that the latter have been allowed to return to “business as usual” while others pick up the pieces.

As a result of these developments, there is a heightened risk that the local government workforce will feel disengaged, victimised and scape-goated.

Steve Freer encapsulates the risks associated with the current approach: “Far from beating up public servants, would it not be much smarter for the Government to be pitching for their co-operation and support at a deeply practical level? ....public servants would then be made to feel that they are part of the solution rather than part of the problem.” Without the motivation of the workforce, the task of transforming services, of doing more with less and of improving outcomes through the sharing of services will be much harder.

The problem for those within local government is that, for political reasons, the “unhelpful rhetoric” from the Government may not change, and that any impression of unfair victimisation may be perpetuated and exacerbated by the trade unions. In the run-up to the emergency budget, Unison has already struck its usual note of defending its members from politically- motivated “attacks” on the services they deliver and their pay and pensions.
Given this unhelpful macro-environment, the challenge of countering negativity and keeping employees motivated is likely to fall to management, HR and other stakeholders at local level. There is probably nothing new about that, except, as some of the issues raised above show, the challenge will need to be met against a very much more difficult background than in recent times.

As senior managers and HR professionals will be only too well aware, there is no easy or straightforward way of meeting the motivation challenge. And it is not the intention of this short article to review all the potential routes to doing so.

But, alongside everything else, there are two things which local authorities should consider:

• Fighting back in the propaganda war
The commentators referred to in this section have all pointed to the potential dangers that local government employees will feel they are being unfairly portrayed and targeted. The feeling that their employer is helping to fight their corner by seeking to combat incorrect or unjustified perceptions will be important to sustaining morale;

• Seeking to embrace a new concept of fairness in the workplace which is based on a concept of just deserts and proportionality within the employment relationship
This is a new dimension, with a concept of fairness which goes beyond traditional equalities-based ideas of fair treatment.

Step 2 – fighting back in the propaganda war

The power of central government, politicians and trade union leaders, supported by a story-hungry media, to shape the debate is undeniable, and local attempts to counter the negative portrait of the public sector they present may conjure up pictures of David and Goliath.

But there are two areas in which local authorities, individually and collectively, need to think about redoubling their efforts. These are:

• Highlighting the complexities and diversity of “the public sector”, i.e that it is not a single entity, and distinguishing local government from the rest of the public sector wherever it performs differently or better; and

• Destroying some of the myths that have grown up around local government employment, particularly on issues like pay and pensions.


Distinguishing local government from the rest of the public sector wherever it performs differently or better
Immediately after the election, the Confederation of British Industry published a report, Time for action: Reforming public services and balancing the budget, setting out plans it thinks the new government should adopt to get public finances under control.

Unsurprisingly, this document calls for a lower trajectory in public spending, noting that efficiency savings per se are unlikely to produce a sufficient level of expenditure reduction. Because cuts to front-line public services per se are undesirable, the CBI argues that the key lies in greater productivity across public services, and for immediate action to cut labour costs.

It goes on to identify actions that need to be taken immediately to deliver savings in the short and medium term. This includes selective application of pay and recruitment freezes, parts of which have already been taken up by the government. The report suggests:

• A recruitment freeze applied in all or some parts of the public sector. Frontline staff – including for example, soldiers, police, teachers, firemen – could be exempt; and

• A freeze on the pay of all back office staff paid above a certain level, freezing incremental pay systems or other progression payments, rewarding only exceptional performance.

The remaining steps the CBI recommends are a familiar litany of improvements which need to be made, which is implicitly critical of the way public services are run and managed and draws attention to perceived major failings across the sector as a whole – even the report itself confesses that many of the following are not new:

• Modernising public sector pay structures so that they better reflect contribution and performance, rather than rewarding stability and length of service;
• Sharing services to reduce duplication – especially back office and transactional support service functions;
• Transforming outcomes through “total place” style collaboration;
• Cutting excessive management layers;
• Reducing sickness absence to private sector levels;
• Externalising services with efficiency savings as a specific objective, and also as a means of re-engineering pay and reward structures for employees delivering public services;
• Exposing public services to competition;
• Applying new technology to transform services and the way they are delivered;
• Improving the procurement function;
• Reforming public sector pensions.

In the context of keeping up employee morale, the issue here is not whether the CBI’s recommendations are new or whether they are a valid means to delivering savings whilst protecting front-lime services. The problem with the CBI’s report is that it tars the whole of the public sector – including local government – with the same brush, and gives the impression that the whole sector is doing nothing – or nothing fast enough to tackle the issues it highlights.

To be fair, the last statement is a slight exaggeration – the report does give some examples of progress in the public sector, and, significantly, many of these are drawn from local government. The latter include:

• Shared service arrangements between local authorities;
• Partnership arrangements between Glasgow City Council and Serco, to produce 20% efficiency savings;
• A “total place” approach to supporting families in Swindon;
• “Total place” initiatives in London Boroughs;
• Creation of a flatter, “commissioning Council” management structure in Brighton and Hove Council.

But Councils can and should be publishing many more examples of how they are already engaging with many of the improvements which the CBI sees as necessary to cut costs and improve services, and how these may contrast with the rest of the public sector.

Achievements which run counter to the CBI’s implication that little is happening include
• a de facto pay freeze across most of local government in 2010 (apart from teachers, whose pay local authorities do not control), achieved even before the announcement in the emergency budget;
• many instances of contribution-based pay systems to give better incentives for good performance;
• a growing number of shared Chief Executives and shared management teams to reduce management costs across Councils;
• a growing body of success in transforming services through new technology, new partnerships and/or “total place” approaches to services delivery;
• successful partnerships with the private and other sectors to deliver improved services and/or lower costs;
• major development and improvement of the procurement function, including cross-Council co-operation;
• recent and successful reform of the Local Government Pension scheme , to increase employee contribution rates and secure future sustainability (see next section for more comments on this).

Obviously, there is much more for local authorities, individually and collectively to do, but the key point at this stage is for the sector to show that it has begun to get to grips with some of these issues, with successful outcomes which are capable of being replicated and expanded much more widely to tackle the funding crisis.

This needs to be demonstrated in a much more co-ordinated and media friendly way than currently, perhaps with some sort of campaign at national level. But individual Councils can also take much greater steps at local level to bring to public attention progress which is being made, especially where this is distinct from apparent inertia in other parts of the public sector (although seeking to do this in a way which does not “alienate” or undermine relationships with actual or potential partners) .

This will modify and correct the picture created by the CBI as far as local government is concerned. It will not only show that, in many areas, local government can be distinguished from the rest of the public sector (a message which also needs to reach ministerial ears), but will also build morale and confidence in the workforce that there are positive ways that the financial challenge can be addressed, and where employees engage with them, their achievements will be recognised.


Destroying some of the myths that have grown up around local government employment, particularly on issues like pay and pensions

The backdrop to the current funding crisis is littered with myths about public sector pay which, certainly in the case of local government, do not bear much scrutiny. These relate to:

• pay levels at senior level:
o there is a widespread misconception that senior managers in local government are paid more than the Prime Minister (whose pay seems, for no particular reason, to have become the key benchmark). But the last (2008) LGE survey shows that the average pay level for Chief Executives in England and Wales was £127,000 – considerable below the latest prime ministerial salary of £142,000;
o Average pay levels for all other management tiers in England and Wales was less than £100,000;
o Whilst average remuneration packages at senior level in the largest categories of Council (Counties, Unitaries and Mets) do exceed £142,000, none of them exceed £200,000;
o The average pay level for the tier of management below Chief Executive level does not exceed £142,000 for any category of Council;
o The numbers of individual local authority managers with earnings in excess of the Prime Minister is very small. Figures obtained by the Taxpayers Alliance suggest that in 2009 only around 210 managers, across the whole of local government in England, Scotland and Wales (over 400 Councils) earned more than £142,000 ;
o The average pay figures for Chief Executives in local authorities do not compare unfavourably with senior pay levels in the Civil Service, where, according to figures released by the Cabinet Office in June 2010, almost all 170 or so heads of departments and agencies have starting salaries above £150,000, with 23 having salaries above £200,000.

• pay differentials
The terms of reference for the Hutton-led Treasury review of public sector pay are to come up with recommendations that will introduce a “public sector pay multiple” so that the ratio between the pay rates for the highest and lowest paid employees in any organisation should not be greater than 20:1. Using the current pay full time pay rate for spinal column point 4 on the NJC scale of £12,145, this would mean that the highest salary in local government should not exceed £243,000, and there is no evidence that this is the case in other than a tiny number of Councils – and even then, it is not exceeded significantly. By comparison, the NHS Chief Executive earns around £260,000, which is around 20 times the lowest point on the Agenda for Change scale. By further comparison the ration of CEO pay to average pay in the wider economy is now reckoned to be well over 50:1.

• pay levels in comparison with the private sector
The CBI report notes that the average weekly wage in the public and private sectors is now virtually equal at just over £450 per week. This indicates that the higher cost of living awards paid in the public sector in the last 2-3 years have not seen public sector pay run ahead of the private sector, but have enabled a process of catching up. And it needs to be remembered that local government pay is towards the lower end of the public sector spectrum, and so may still not be on a par with the private sector average.

The CBI argues that the virtual parity at the present time justifies a pay freeze in the public sector, as if it is automatically right for private sector pay to exceed that available in the public sector. Where this has been argued in the past, the justification has been based around the greater job security in the public sector and on the allegedly better pension provision. In the next few years, however, job security in the local government sector will be much reduced. See next section for comments on pensions.

• pensions
Much of the debate around the future sustainability of so-called “gold plated” public sector schemes has been based on those schemes where contributions are used directly to fund the pensions paid. Most calls to reduce the potential costs of public sector pensions tend to lump the Local Government Pension Scheme (LGPS) in with the latter. But, in fairness to the members of the scheme, Councils should be pointing out that, whilst the LGPS is relatively expensive to operate, it is fundamentally different in nature to many other public sector schemes:

o The LGPS is relatively affordable , with current benefits requiring employer contributions on average of around 14%, following a recent review of the sustainability of the scheme;

o Over 50% of the scheme costs are met by employee contributions and investment returns. Employee contributions have historically been at fairly high levels (5-6%) and have recently been increased to help secure the scheme’s future viability. Members now contribute up to 7.5% of pay;

o The LGPS normal retirement age is 65, paralleling most pension schemes in the private sector, and it is now much more difficult for members to retire and take their pension early, without an actuarial penalty.

Whilst there may be a need for further changes to the LGPS to ensure its long-term sustainability, it is in a very different position to many other public schemes, and the need for changes to it are probably less pressing as a result.

Step 3 - Consider a new approach to employee engagement, based on a concept of fairness

In a recent discussion paper for the Work Foundation – called Are we heading for a fairer workplace? – Will Hutton has argued that the way to retain employee engagement and commitment during an era of cutbacks is through a new concept of fairness.

Seeking to define this concept, Hutton says: “Until now, we have paid lip-service to the idea of fairness
in modern organisations. We worry about, and legislate for, ‘equity’ and ‘equality of opportunity’ but these ideas are not the same as fairness which is more instinctive and visceral – and which provokes such an immediate and angry response if we feel its sanctity has been violated. In this paper I will argue that the restoration of fairness in … organisations is … fundamental to giving business new legitimacy and to engaging our employees to give something of themselves to their work, to their customers and to their employers which they currently seem determined to withhold.”

The concept being put forward is based on an important aspect of fairness, which is proportionality - an embedded sense that giving someone their due proportion should be respected. It revolves around ensuring that all employees should get their “just deserts”, through distributive and procedural “justice”. It is closely allied to the idea of balance, and the idea that the consequences of action should properly relate to the intentions behind it.

A key measure of an employee’s just deserts is that hard work deserves proportional reward, and that diligent, sustained effort should be seen to be properly and appropriately rewarded. In this context, crude output-based performance related pay schemes, which do not also take account of the effort required to achieve the required output, or take account of the fact that sustained effort does not always produce the required output, would not be proportional.

This concept has potentially important implications for organisations in terms of:

• Reward – it is a sense of proportionality which fuels the feelings of injustice over the fact that, in the UK private sector, the ratio of CEO pay to average pay has exploded from 47 to 1 to over 81 to 1 in the past decade, and which underpins the idea, that, based on a fair assessment of relative effort, a ratio of, say, 20 to 1 is fair in most public sector organisations.

• Employee engagement, if it can be seen throughout the organisation that the treatment all employees receive is proportionate to the efforts demanded of them.

There is, of course, an obvious tie-up between what Hutton is saying in this paper about reward and the terms of reference of the review he has now been asked to head up by the Government.

The route to a high performance organisation, Hutton argues, must have two defining characteristics:

• Clarity of purpose and of values; and

• A commitment to fairness which engages employees.

Hutton speaks of a need to revive a sense of business purpose and values in organisations such as those in the banking and investment communities. In most Councils, however, the sense of purpose and values are usually already relatively well established, at least in latent form. The need is more likely to enable all employees to understand how they are working in support of and are making a contribution to that purpose and those values, and feel that everyone else in the organisation, at whatever level, is doing the same.

The second condition will be demonstrated by managers as leaders earning the trust of employees through committing to fairness, particularly during a period when the employees are having to endure pay freezes, reductions in benefits, changes in role and job losses. Fairness will manifest itself in many ways:

• In terms of remuneration, outcomes must be proportional to effort, and salaries, wages and bonuses must reflect due desert and be transparent, and earned through effort or result directly linked to the organisation purpose;

• All procedures and processes must embody fairness – e.g. performance management arrangements, target setting, promotion and progression , disputes resolution;

• Fair processes must be matched by fair outcomes.

None of these ideas will be unfamiliar to anyone working in a local authority HR department, but what is important is clarity and transparency – that the organisation communicates to its employees that these fair processes and outcomes are manifestations of its overall values and standards and of a real commitment to seeing them applied in practice. Otherwise there is a danger that they are undervalued and taken for granted.

Hutton sees a role for the trade unions and HR departments as custodians of good fair processes, and calls for an elevation of the profile of HR within organisations on this basis. HR should be reinvented as a function equal to the finance function, which in addition to organising the transactional part of the employee/employer relationship, from payroll to dispute resolution, is the custodian of “the deal” – the moral bargain between:

• an employer anxious to enlist employee engagement around the organisation’s purpose; and

• an employee who will, as a result, be ready to engage more fully.

Part of this role should be to “fair-proof” all internal procedures to make sure that they meet fairness standards – implying a broader assessment than merely checking that they are non-discriminatory. And HR needs to facilitate the debate between management and employees to make sure they all have a common understanding of what fairness means and how it governs procedures and pay relativities, and what it should mean in practice in terms of “pay, process, respect and voice.”

In an era of austerity, this will mean ensuring that unwelcome developments such as wage freezes or benefit reductions are implemented with equality of sacrifice with no exemptions. This is important not just because it will equalise financial sacrifice, but because it is a clear symbol of inclusion, engagement and fairness.

Trade unions also need to change their approach in the era of austerity, Hutton suggests, moving away from an adversarial approach, based on egalitarian values, to one which takes the broader view of fairness and equity. Trade unions need to become much more engaged in a dialogue over the organisation’s purpose, “fair-proofing” of procedures, job design, the structure of pay, and the commitment to innovate and be customer responsive.

“Trade unions are confronted with a choice. They can stick to their knitting – pay, conditions and job security. Or they can embrace this new agenda as opening up possibilities for achieving respect, autonomy, fair process, tempered security, the opportunity for self-expression and of course due pay for due effort at work.”

There is a degree of recognition of this point within the local government trade unions on this point. In the same speech in which he attacked the government’s proposed public sector cuts (see above) Dave Prentis of UNISON conceded: “We are not looking for a fight. We will always be prepared to talk, to engage – to negotiate, that’s what trade unions do. And where we find agreement, to move forward.” A recent article in the MJ, of which Heather Wakefield of UNISON was the joint author, referred to the value of involving trade unions in improving public services, drawing upon a number of case study examples, and that union involvement can help build and support employee engagement particularly at a time of uncertainty.

For his part, Hutton concludes that:

“Fairness lies at the core of what comes next for … organisations. It cannot be ignored because its abuse in recent years has triggered an enormous erosion of trust and has set back our capacity to motivate the discretionary effort from our employees which, in its turn, drives the innovation, creativity and productivity…… We should not hold back in our efforts to embed fairness into the mainstream of organisational thinking and practice. Our recovery will be altogether more sluggish if we fail”.


Conclusions

This article has been based round 2 very recent papers on how organisations in general, and those in the UK public sector, need to respond to an era of cutbacks, in terms of the way they treat their employees, develop new pay systems and employment procedures, and so restore or maintain employee engagement.

What is striking is that, far from the recommendations in these reports sounding completely new to the local government sector, there are many examples of individual Councils already having responded to them. Many of the CBI’s suggestions for reforming employment and remuneration practice in the public sector have been implemented by a number of Councils. And the wider ideas of fairness in Will Hutton’s paper are not so very far away from the way employee relations have been conducted, when at their best, in the local government sector in recent times.

There is a clear message that, although there is bound to be trepidation over the immediate future, Councils need to be more conscious of the steps they have already taken in the right direction. This will in turn build confidence across the organisation and within the workforce, that (at the very least) some of the groundwork has been done which will enable them to cope with the financial crisis, with the organisation’s core values and its ability to engage effectively with its employees intact.

Making more noise about local government’s achievements, and the robustness and fairness of its workplace policies, will have a double benefit of allaying many of the negative myths that have been created, and building the confidence of all its stakeholders of its ability to cope with the future.


The CBI report Time For Action Reforming public services and balancing the budget is available at


Will Hutton’s paper for the Work Foundation is available at: www.theworkfoundation.com


Steve Vale is a Consultant in Human Resources and is a regular contributor to Croner-i HR for Local Government. Croner-i HR for Local Government is an online employment law and practice reference source designed specifically for HR Managers and their teams in local government.

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