Canadian Payroll Reporter

FEBRUARY 2014 2 Canadian HR Reporter, a Thomson Reuters business 2014 legislation this spring. But imposing arbitrary hard caps on public sector salaries may not be the best solution, according to Hugh Mackenzie, economic consultant at Hugh Mackenzie and Associates, based in Toronto. "I don't think it makes sense just to arbitrarily pick a number and say, 'If you're working in a schedule one agency or in the direct public service, your sal- ary is going to be capped at X,"' he said. "I really don't think that makes a lot of sense. I think it does make sense for the provincial government to take some direct responsibility for levels of com- pensation in the broader public sector that it controls." Public vs. private sector compensation When considering public sector com- pensation, it can be useful to see how salaries stack up against similar senior executive roles in the private sector. The general trend? High-level executives in the public sector tend to make less than their private sector counterparts. "The general conclusion from a num- ber of studies, some of them based on public data and some of them private studies… tend to show that at the bot- tom of the pay range, the public sector tends to pay more than the private sec- tor. In the middle, it's sort of even. And at the top of the pay range — the top third to top quarter — the private sec- tor compensation tends to exceed public sector compensation," said Mackenzie. "On a like-to-like comparison, senior leaders in the public sector are paid less than senior leaders in the private sector. That tends to vary a lot from place to place. Where there is direct competition for talent — for example, where the pub- lic-sector employees are involved in the investment business — those differences tend to be a little narrower. In other ar- eas, they tend to be quite wide." Despite these sometimes dramatic pay differences, the two sectors do not operate in a vacuum. "If you look back at the history of Ontario Hydro, the biggest impetus for increases in compensation… was the ef- fort to fix the industry up for privatiza- tion under the Harris government in the late 90s," said Mackenzie, adding the private sector tends to put pressure on public-sector wages. "(This) speaks to the role that pri- vate-sector compensation has in putting upward pressure underneath the com- pensation of senior leaders in the public sector." Salary caps 'Band-aid' solution There's certainly political pressure to impose some type of salary caps, said Jason Clemens, executive vice-president at the Fraser Institute in Vancouver. The public sector actually goes through a boom-bust cycle, he said. "Right now, we are coming out of a pretty marked recession and a very slow recovery… so you see pressure to con- strain public-sector wages. If you fast- forward three or four years or (whenev- er) you assume that things are booming again… most of us would assume you're going to see very generous contracts in the public sector, because that's what we've seen in the past." But using caps to control for that might not be the best solution, said Cle- mens. "The salary caps are a Band-aid that you do in the period when you have to constrain wages. As soon as things pick up… you'll see the salary caps are gone and you'll see more generous contracts being negotiated." Instead, public sector compensation should be linked to the market so work- ers don't face such marked changes dur- ing boom-bust cycles, said Clemens. "Almost all of the compensation in the public sector could be linked to the private sector… what that means is you're going to get less increases during good times, but you're also going to get less decreases in bad times," he said. "Because of the way we set wages in the public sector, it actually makes public-sector workers worse off because they have to live through these boom- bust cycles. Whereas if we had a more disciplined method to set wages and compensation that was linked to the market, then you wouldn't have these kind of boom-bust cycles to the degree we do in the public sector." Private sector puts pressure on public wages Continued from page 1 Continued on page 7 ■ PUBLIC VS. PRIVATE Salaries of top executives Highest paid public sector executives in Ontario 1. Thomas Mitchell, president and CEO, Ontario Power Generation: salary of $1,720,000; benefits of $6,768. 2. Laura Formusa, president and CEO, Hydro One: salary of $1,036,740; benefits of $2,561. 3. Wayne Robbins, chief nuclear officer, Ontario Power Generation: salary of $935,236; benefits of $4,683. 4. Albert Sweetnam, executive vice-president, nuclear projects, Ontario Power Generation: salary of $843,095; benefits of $4,752. 5. William Moriarty, president and CEO, University of Toronto Asset Management Corporation: salary of $773,830; benefits of $1,835. Highest paid private sector CEOs in Canada 1. Hunter Harrison, CEO of Cana- dian Pacific Railway: base salary of $1,045,069; total compensa- tion of $49.1 million. 2. James Smith, CEO of Thom- son Reuters: base salary of $1,549,566; total compensation $18.8 million. 3. John Manzoni, CEO of Talisman Energy: base salary of $947,000; total compensation of $18.6 mil- lion. 4. Paul Wright, CEO of Eldorado Gold: base salary of $1,456,000; total compensation of $18.6 mil- lion. 5. Donald Walker, CEO of Magna International: base salary of $324,909; total compensation of $16.8 million. Source: Ontario Public Wage Dis- closure/Canadian Centre for Policy Alternatives/The Globe and Mail

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