In the first of a new series focusing on data and statistics, the OECD’s Matthias Rumpf looks at how much public servants are paid in some OECD countries.
Few issues are more likely to provoke a row than the pay of public servants – overpaid and underworked or selfless heroes who could be earning more in the private sector? We can’t settle that debate here, but, using data from Government at a Glance 2013, we can at least give you some sense of how public sector pay compares across some OECD countries.
The most basic approach is simply to look at annual compensation in USD – in other words, salaries paid in local currencies converted into US dollars and then adjusted for purchasing power parity, a statistical technique used to compare the cost of living in different countries.
That’s useful, but it doesn’t show how public servants’ pay compares to that of other workers in their own countries. To do that, we can look at their pay relative to all tertiary educated – in other words, people with a college or university degree. That measure is especially useful for comparing the pay of senior public servants, who typically are graduates. In OECD countries, the most senior managers in the public service earn 3.4 times more than the average graduate, suggesting that such careers are an attractive option for graduates.
One last comparison: public service pay relative to GDP per capita. “GDP per capita” is calculated by dividing the size of a country’s population into its GDP, and it gives a sense of how prosperous people feel in each country. It’s probably especially useful in making comparisons of pay for junior staffers, such as secretaries. In Poland and the Netherlands, their pay levels are well above GDP per capita but in the Slovak Republic and Estonia they’re well below.
OECD work on public employment and management
Government at a Glance 2013 (OECD, 2013)
Public Sector Compensation in Times of Austerity (OECD, 2012)
Who’d be a CEO? Back in the days when the legendary Jack Welch was leading General Electric – and increasing its market value by more than a third of a trillion dollars – chief executive officers were the heroes of capitalism. These days, they seem as likely to show up on top-ten lists of failure.
Consider Thorsten Heins, appointed CEO of smartphone maker Blackberry in January 2012 at a time when it was haemorrhaging market share to Apple and Samsung. Mr Heins struggled to turn things around, but by the time he was eased out 22 months later the company’s share price was down almost 60%. That, in turn, hurt Mr Heins’ own earnings, which were linked to the share price. However, considering that he walked away with a farewell package estimated at between $14 million and $16 million, there’s another question you’d have to ask: Given the chance, who wouldn’t be a CEO?
Whether their companies are winning or losing, the popular perception is that CEOs are always winning – showered with bonuses when business is booming, gently let down on golden parachutes when things are going badly.
The reality, of course, is more complicated. For every CEO with a $6,000 shower-curtain, there are others working long days in forgotten corners of desolate business parks. Still, there seems little doubt that as a class, CEOs are doing fairly well for themselves. The Financial Times reported figures from the International Labour Organisation showing that the average pay of top CEOs in Germany rose from 155 times average earnings in 2007 to 190 times in 2011. In the United States, the multiple is 508 times.
But if CEOs are overpaid (and some would argue that – compared to footballers like Wayne Rooney or Hollywood stars like Robert Downey Jr. – they’re not) how should societies respond? One of the biggest trends in recent decades is “say on pay”, which provides company shareholders with some role in determining executive compensation. Does it work? Views differ, as was clear during a discussion earlier today at OECD Integrity Week.
One of the key advantages of “say on pay” – at least in theory – is that it should allow executive pay to be better linked to the company’s performance. But reporting on the experience of the United Kingdom, Martin Petrin of University College London cast doubt on whether that was really happening. According to data he presented, executive pay in leading UK companies has risen by an annual rate of 13.6% since 1998, while the share price of these companies has risen only by an annual average of 1.7%.
He also questioned another of the much-vaunted benefits of say on pay – namely, that by making executive-pay setting more transparent, it leads bosses to moderate their demands. By contrast, he said, it can lead to “ratcheting up”. This is where companies declare that since their executives are all above average (otherwise they wouldn’t have been hired), they must be paid above the median for their industry peers.
But despite the potential criticisms, the panellists generally accepted that say on pay is now an unstoppable tide. In some countries, such as the UK and Switzerland, say on pay is – to some extent – legally mandated. Others, such as France, have steered more towards self-regulation.
Denis Ranque, a leading French businessman and president of the High Committee on Business Governance, argued that hard law was not always the most effective approach. Speaking in French, he pointed out that “Enron had a system of governance where all the ethics boxes were ticked.” Rather than relying on hard law, he said, we should emphasise the role of transparency in executive-pay setting and in wider issues of corporate governance. “Just remember, whatever you do will be in the papers tomorrow. Think about your mother or your daughter’s reaction when they see it.”
But if say on pay is inevitable, it raises another question – who gets to have a say? Typically, it’s limited to shareholders, but the French academic Charley Hannoun said it may be an issue that’s of less concern to shareholders and more to stakeholders, most notably the company’s employees. After all, he argued, they were the ones most likely to be affected by the growing disparity in pay between the people at the bottom and the people at the top.
OECD Integrity Week 2014 – a week of public events focused on integrity in business and government and the fight against corruption.
Corporate governance – OECD research and analysis
Board Practices: Incentives and Governing Risks (OECD, 2011)
Corporate governance: Lessons from the financial crisis (OECD Observer)
How much you pay in tax depends on personal allowances, tax rates and brackets, social security contributions and benefits; the numbers can start to get confusing.
One way to cut through the muddle is to think in terms of the tax wedge. In basic terms, this is the difference between the net earnings that a worker takes home at the end of the year and what it costs to employ that worker. On the employer’s side, this cost includes the worker’s salary as well as employer contributions for social security (e.g. healthcare, pensions); on the worker’s side, the negatives are income tax and employee social security payments, while the positives include the salary and, possibly, cash benefits, for instance.
The tax wedge ranges from just over 15% in Mexico for a single worker on an average wage, to just over 55% in Belgium.