The benchmarking results starkly illustrate a widening gap between top echelons and the average worker, writes Kathy Sheridan
Amid the acres of print on this week's second benchmarking report, one headline in this newspaper was concise and predictable: "Wage increases confined to staff on higher grades".
It summarised what for many is now the core problem in national morale: the widening gap between the top echelons and the average worker, the same average workers who agreed to wage restraint and social partnership and thereby sustained the competitiveness that drove the Celtic Tiger. They are being ordered to tighten their belts. Meanwhile their bosses continue to scoop the cream and see no reason to stop.
On the same day as the benchmarking report was published, this paper revealed that the VHI is seeking Government permission to pay its next chief executive €650,000 a year, nearly twice the salary approved by the Cabinet. A new deal for semi-state chief executives means that Pádraig McManus, the chief executive of the ESB, will be making about €500,000 a year. Donal Connell, the chief executive of An Post, and Declan Collier of the Dublin Airport Authority, among others, will be on about €342,000 a year. At more than €200,000, the salary of the secretary-general of a government department is now seven times the average industrial wage.
A round of raises for the Taoiseach (his raise alone being worth more than the average industrial wage) and his Ministers, robustly and repeatedly defended by them in a wobbling economy, is deferred only because of unprecedented public criticism.
In the December issue of Liberty, a Siptu publication, its general president, Jack O'Connor, said the recent pay review for senior civil and public servants was "based on what has been happening to the remuneration packages of top people in the private sector over the past few years, who have been awarding themselves multiples of what workers have received. And it's worse than that, because their bonus payments are often contingent on their success in cutting workers' pay and conditions."
The article was accompanied by a picture spread of four top Irish businessmen, whose rises in 2006 ranged between 24 per cent (Sir Anthony O'Reilly) and 51 per cent (Eamon Rothwell of the Irish Continental Group)- "while the rest of us averaged 4.9 per cent".
A 2006 study by HR consultants Inbucon showed that full-time directors scored average wage rises of 18 per cent while junior staff saw their wages fall by 3 per cent. Managing directors and other executive directors typically came out with bonuses of €47,000 and €37,000 respectively.
In many cases, bonuses are worth 100 per cent of salary, while share prices float up and down, regardless of how well or how badly senior executives are doing their job. They blame external factors such as oil or the fall-out from sub-prime mortgage lending in the US, so where does that leave the "performance-related" bonus culture ?
Figures in Britain show that chief executives in the FTSE 100 doubled their earnings in the past five years. Is it possible that they can be twice as good or working twice as hard as five years ago? According to Prof Kevin J Murphy at the University of Southern California, cash compensation for chief executives has climbed from 25 times the pay of the average worker in 1970 to a peak of almost 600 times average worker pay in 2000. It has now dropped back to 360 times.
The stock response from employers' groups to questions about senior executive pay inflation is that such men and women march to a different drum.
"It's a matter of fact that pay movements at senior management levels have moved ahead of inflation . . . You're talking about very different contractual relationships," says Brendan McGinty, director of human resources and industrial relations for Ibec, which represents the state's biggest employers. "In many cases, the remuneration is performance-related or performance-based, which is not necessarily the case for ordinary workers. If any of these people do not perform as the shareholders require, then they are subject to serious sanction and can ultimately lose their job."
So can he explain then the common phenomenon whereby bonuses continue to be paid to underperformers? "In many of these cases, bonuses are based on how the business has performed over a period of time. These increases by top people have been earned . . ."
Yet a cursory look at the business pages shows they do indeed march to a different drum, but not the one outlined by Ibec. Following huge sub-prime losses at Citigroup, its chairman and chief executive, Charles Price, stepped down certainly, but with a $40 million (€27 million) farewell package.
A Financial Times Harris poll found that 60 per cent of the British public think the government should cap the earnings of senior executives. A poll of British human resources managers - the people who see the fall-out at first-hand - conducted by Incomes Data Services found that more than half of them thought executive directors were overpaid and the differentials too wide.
Does it matter? Many in the business and political world clearly think not, characterising such arguments as the politics of envy or as the Harvard economist, Martin Feldstein, calls it, "spiteful egalitarianism". If that's what it is, it is clearly not confined to the proles. The semi-state chief executives are getting their increases, for example, because their pay is said to be 14 to 20 per cent behind the private sector average. Does "spiteful egalitarianism" apply only to the drones?
According to Prof Tom Begley of the UCD School of Business, "Disproportionate ratios of pay between the top people in a company and average employees has been a longstanding source of controversy even within business. In the last 20 to 30 years, the ratio has gone up and up, so pay increases have been larger for top executives. Certainly the evidence is there."
Does it affect morale, which supposedly motivates employees to give of their best? " It tends not to help," says Prof Begley. "A big employee concern would be whether there's a clear connection between performance and what the top executives get - and one of the biggest is that despite having lost value on the stock market or had a bad year, the top people are still getting bonuses. And that happens a fair amount. Then you have those termination packages to CEOs, who have been such an abject failure that they're fired and 'condemned'," he laughs, "to get two years additional salary."
Ibec's Brendan McGinty comments that "in the private sector, we have seen sizeable packages going to ordinary employees, multiples of statutory arrangements".
MEANWHILE, AS SENIOR executives walk away with millions by way of compensation and pension, employees brace themselves for the brave new world of defined contribution pensions and the public sector takes another leaf from the private book. Bord na Móna, for example, is placing itself to become the first semi-State to abandon defined benefit pensions arrangements.
In the private sector, this is called joining the real world. Asked whether company bosses will be taking the pain of the altered universe, Ibec's McGinty merely says that "We need pay moderation across the board. We do have to be cognisant of pay movements in the economy as a whole."
In fact, he believes that the union leaders' allegation that the public sector has adopted the worst of private sector excesses (following the awards to higher grades only) is "just a cover attempt to move the goalposts and to ignore the fact that there is an agreement about the manner in which public pay would be made".
Mark Fielding, the chief executive of Isme, the small and medium enterprises organisation, robustly defends owner and managers in his sector (who typically each employ 27 people, and about half the national workforce in total) by claiming that their average annual rate of pay is €50,000 to €100,000, at its maximum around the same as a principal officer in the civil service.
"But it's obvious that if you're on €25,000 a year and the head of the company is on €220,000, there is certainly a problem," he says. "But we're always going to have massive differences. The market will dictate. You will always have U2, who will be earning gazillions, and the band - also good musicians - who get 100 per gig at the local pub."
Like McGinty, however, Fielding prefers to focus on the public sector's "whingeing" about the benchmarking awards or lack of them.
"The major excuse always thrown out by public sector workers is that their work can't be measured and is therefore undervalued," he says. "But the Klems report by the EU has measured it. In the 10 years between 1995 and 2005, private sector productivity in Ireland increased by 61 per cent; public sector productivity dropped by 6 per cent in the same period.
"Efficiency in the public health sector dropped by nearly 30 per cent, despite getting 30,000 extra employees. Efficiency in education dropped by 16 per cent. Of the last benchmarking round in 2002, 75 per cent was awarded on the condition that they embraced change. Where is it?"
His take on public versus private sector differentials is that perks, privileges and pension on the former add up to a 69 per cent premium, as opposed to the 12 per cent (pension premium) discounted by the benchmarking review body.
"I've seen figures as high as 25 to 35 per cent for pension; job security is estimated at 8 to 12 per cent. Fewer working hours and more annual leave add up to another seven per cent . . ." And, he adds, absenteeism is about twice that of the small business sector. In the end, though, it's all about money.
"It's about the significance of money," says Mary Keating of Trinity College's business faculty. "It somehow makes visible the value and status of what a person is doing and it comes to the point where the amount is irrelevant. It's like being in a club and the visibility of that value to the cohort of people with whom they believe themselves to be on a par. It's just another form of benchmarking."
But who are senior executives trying to impress? Apparently not the people who work for them. To anyone trying to tap the national pulse, the signs are that maybe that's where they should begin.