Egan Associates has closely followed the progressive enhancements in employment conditions negotiated over the last half century. While we acknowledge the many challenges associated in providing all working Australians and families with an appropriate standard of living, it is our view that payments to a proportion of the Australian workforce are currently out of step with the rest of the world.
Australia’s preservation of penalty rates, overtime, and other cost-additive provisions has in some cases lost relevance in a world where access to information and assistance via the internet is 24/7 and goods and services are available for purchase online or through traditional channels seven days a week. Many of the current employment conditions and provisions were established before the advent of these factors and at a time when most families were supported by only one working adult.
We are not suggesting that some activities and working hours should not attract a premium. We clearly acknowledge that the changing nature of work in many occupations requires different skills from those relevant in the 50s, 60s and 70s and realise wages across all segments of the workforce will be influenced by the availability of suitably qualified and skilled employees. In this context, we strongly support government and employer commitment to continuing education and training.
Yet the fact remains that if Australian businesses are to grow, they need to be globally competitive or face further outsourcing of semi and highly skilled tasks to lower cost or more efficient workforces. Given this, businesses’ deployment of capital and use of technology must reflect international best practice and their labour cost inputs need to be competitive.
In our judgement, put quite simply, productivity growth and global competitiveness will only arise when our units of output per unit of cost (including wages) meet and/or exceed world standards. Our analysis has revealed that this is not presently the case.
Similar lenses to those employed to explore productivity for workers covered by awards and/or enterprise agreements should be used to view pay for senior managers, executives, key management personnel (KMPs), and government employees.
We have observed that private sector employees exempt from enterprise agreements, including senior managers, executives and KMPs, have experienced one to two years of fixed remuneration freezes, while award or enterprise agreement covered employees have in accordance with established agreements steadily obtained remuneration increases in excess of the consumer price index.
Government employees have also gained fixed remuneration increases greater than award-exempt private sector employees, as their adjustments are in accordance with agreements, industrial provisions or a general expectation that there will be regular though modest increases to employees’ fixed remuneration at all levels.
Some would argue that the recent restraint in the pay of award-exempt employees including KMPs is part of a necessary post GFC correction to match reward to outputs. We would note that the market is still in a period of transition, and that adjustments to remuneration settings are unlikely to have run their course.
Premiums in staff and executive reward should be based on the demands of the work, considering complexity, diversity, accountability and work conditions. The scope and complexity of many senior management roles within leading companies has increased significantly over the last twenty years as companies have become increasingly global and have grown significantly in terms of revenue, profit and market capitalisation.
Certain minimum remuneration must be provided independent of performance outcomes to match these varying workforce attributes, yet management and Boards of both public and private organisations must ensure that they do not allow reward adjustments to outstrip growth in outputs. At the management level they must ensure there is a relationship between bonuses awarded and organisation outputs, which impact directly on shareholder and taxpayer welfare.
If productivity is not a driving factor at the top of the organisation, it will be difficult to implement it elsewhere.
After considering various stakeholder opinions on productivity, we offer a viewing point on the focus necessary to improve Australia’s productivity to the levels required to foster wage growth and improved living standards for all of the nation’s workers.
Egan Associates is not in a position to offer all the answers but we have endeavoured to identify areas where further investigation may highlight regulatory or legislative impediments detrimental to the national interest as well as abuse and/or misuse of power or influence by business, governments, lobby groups, senior executives including the Board or workforce representatives.
Achieving a more productive economy clearly requires cooperative engagement from all stakeholders. This entails:
- Employers committing funds to research and development, innovation, and ongoing training and development of the workforce;
- Management recognising their role and accountability in elevating productivity;
- Governments continuing to contribute to the education of our youth and those seeking to change careers; and
- Employees engaging in the world of work under terms and conditions that have relevance on a global footing, contributing to the nations’ competitive advantage.
In terms of reward, employers should:
- Align the value of the work people are asked to do and what they get paid;
- Acknowledge that if portions of the workforce take on complex and onerous tasks they should be paid a premium considering environmental hardship and physical risk;
- Ensure that the most effective and best trained people progress in terms of position importance and reward; and
- Avoid paying premiums to management or any worker (particularly incentive premiums) if their contributions do not improve long-term shareholder wealth.
Governments and their leadership play an essential role in establishing a framework both in terms of policy and regulation. Their decisions either foster or inhibit international engagement, productive work practices, workforce training and trading relationships. Ultimately governments can engender an environment which is pro development and advancement for the benefit of all in the community or they can be obstructive to prosperity.If the government does not act on productivity, any private sector action will be undermined.
Therefore, the government should:
- Commit to further award simplification;
- Move away from the view of the world of work created in the 1950s and 1960s in terms of workers receiving premiums for varying shifts and certain days of the week;
- Remove legal provisions that are an impediment to employment because wages or work practices are out of step;
- Provide financial encouragement to increase growth, skills and innovation by way of further education, R&D grants and trade grants;
- Open employer access to sources of capital and skilled labour at internationally competitive pay rates to ensure planned and prospective development reflects ‘best in class’ outcomes;
- Ensure its own workforce is productive, its work practices contemporary and its conditions of employment reflective of the 21st century; and
- Investigate the merit of greater tenured exchange with the private sector at a leadership level while not unduly disturbing the core of expertise which ensures government and industry meet their stakeholder expectations.
We note that the recently elected Coalition Government in Australia has clearly stated that one of its key tasks is to implement policies targeted to make real improvements in productivity, competitiveness and growth, ensuring Australia becomes a stronger economy capable of delivering stronger real wage growth and job creation.
The government’s agenda is comprehensive, representing a challenge on a scale and scope not addressed by any other single Australian headquartered entity. It will mean improving the nation’s productivity performance, growth prospects and ability to compete globally while maintaining principles of balance and fairness. It will need to have regard to factors of jurisdictional risk, socio-political risk, currency risk, raw material and supply risk. It will also need to be accomplished while oversighting the day-to-day inputs and outputs of the National Government’s $350 billion plus budget.
We also note that the Australian Governments at both Commonwealth and State level have been undertaking reviews of their workforce requirements, performance management systems and outcomes with a focus on improving productivity.
If the government is to increase its workforce productivity, it needs to:
- Control movement through the pay range, ensuring employees are paid for skill and contribution and not just for time served;
- Ensure clear lines of accountability exist;
- Invest in technology and shared services to improve workforce productivity and potentially reduce reliance on low skill roles;
- Investigate whether the current employment structure is the most efficient, or whether it makes more sense to have fewer employees with more paid in a higher pay bracket contributing to enhanced productivity; and
- Bring workforce entitlements (including special superannuation legislative provisions) into line with the private sector to increase mobility between the workforces, create a level playing field for Australian workers and improve the global attractiveness of the Australian workforce.
This article is the executive summary of a more detailed discussion paper on Productivity, a product of Egan Associates’ effort over a number of months. The full report can be found here.