A CAP or cut in pay at the top level of the public sector could send a positive signal to the international investment community, the Department of Finance has said.
In a submission to the group asked by the Government to examine top-level salaries, the department also warns that any increase in pay for those at the top could have a damaging effect on the public finances.
It says that while the overall wage bill for senior management was “fairly small”, pay developments at the top level could have knock-on effects for those on lower grades.
The submission, provided by the department on request to The Irish Times, has been made to the Review Body on Higher Remuneration in the Public Sector.
The body was asked in April by the Minister for Finance, Brian Lenihan, to undertake a fresh review of top-level pay rates and to take account of the changed budgetary and economic circumstances and the changed private-sector pay environment.
The Minister also specifically asked the review body to benchmark pay in Ireland against those of other EU countries of comparable scale.
The body is expected to report at the end of this month.
Top-level groups in the public sector such as Ministers, judges and senior civil and public servants, are typically covered by the review body reports.
In its submission, the department says pay developments for all grades of staff must be seen in the context of the need to secure significant savings in current expenditure over the coming years.
Public sector pay accounts for one-third of total Government spending, and pay developments at higher level could “generate important demonstration effects”, the submission says.
It argues that pay trends at the top could have significant “downstream effects” as public sector workers at other levels are likely to bargain to preserve existing financial relativities.
“Given the much larger numbers at non-senior management grades, this would have a noticeable impact on the public finances – a negative impact in the case of wage increases at higher levels, and vice versa,” the submission states.
“The second important demonstration effect is the potentially positive signal a cap (or reduction) on higher-level pay would send to the international investment community.”
The submission also points to the likely impact of pay restraint in the public sector on wage levels in the wider economy.
“Employees in the traded sector (where employment is declining rapidly) may be more willing to accept pay reductions (needed to preserve their employment) if wages in the public sector are adapting also. There are clear equity issues that need to be borne in mind.”
The department also points out in its submission that since the review body last produced recommendations on pay in 2007, the pension levy had been introduced for staff in the public service and no performance-related bonuses had been approved in the Civil Service for last year.
