Now you see it, now you don't: Contrasting approaches to fairness and change in UK and Korean pay policies

Blog posts

2 Oct 2017

Duncan Brown

Duncan Brown, Head of HR Consultancy

Well, one minute you have a public sector pay policy, and the next, apparently, you don’t. In July, the Education Secretary, Justine Greening, announced in a written statement that the teachers’ September pay award would be ‘consistent with the government’s one per cent public sector pay policy’.  A Department for Education (DfE) spokeswoman explained that ‘this will ensure we continue to strike the balance between being fair to public sector workers and fair to taxpayers’.

But last week, after announcing an award above the one per cent limit for Prison Service staff, a letter from Liz Truss, the chief secretary to HM Treasury, to the School Teachers’ Review Body (STRB) – the body responsible for recommending teachers’ pay awards – and the other pay review bodies, covering some 2.5 million public sector workers, said that the shortages meant it was prepared to accept a pay rise above the one per cent limit for 2018-19:

…the government recognises that in some parts of the public sector, particularly in areas of skill shortage, more flexibility may be required to deliver world-class public services in return for improvements to public sector productivity.

Parents are probably more interested in world-class teaching standards and, given the high rates of vacancies and turnover, particularly in London, of newly qualified teachers revealed in the STRB’s 2017 report, most will be pleased at the government’s change of heart. Members of the pay review bodies themselves might well be feeling ‘better late than never’, given that all of their reports published earlier in the year highlighted the damaging impact, costs and risks of growing recruitment and retention problems. These problems have, for example, been hampering the operational capability of our Armed Forces in some parts of the world.

As news of this abandonment (or relaxation?) of policy dribbled out, I was in Seoul speaking on behalf of IES at a seminar organised by the Korean Labour Institute (KLI). An impressive audience of ministers and civil servants, large employers, such as Samsung, and domestic and international academics and experts considered the future pay policy required to support the continuing and remarkable economic success of South Korea. Dr Oh from KLI explained that Korean public and industrial sector labour agreements in past years have, one could argue, been the opposite of the UK’s austerity-driven policies. They have delivered guaranteed, regular age-based incremental pay progression in return for workplace flexibility, long working hours, employee relations peace and support for high productivity.

Salaries after 30 years’ service are almost four times starting salaries in Korea, compared to an average of 1.7 times in the European Union. ‘Costly’, HM Treasury might argue. However, these investments  supported GDP growth, of over 9 per cent per annum in the decade up to 2008. Some UK compensation and reward managers might also feel that a pay system free of restrictive job evaluation systems and detailed market pay surveys sounds remarkably attractive.

Even effective policies need to evolve, and as Korean economic growth has slowed to around three per cent since then (still double that of the UK) and as the population has aged, the policy has faced increasing criticism. Contractors and smaller companies paying much lower rates have grown significantly, creating a significant wage gap. Some type of more blended approach seems to be the likely outcome, with a stronger emphasis on Japanese-style job- and skills-based pay and collective performance rewarded through Anglo-American-style variable pay.

Earlier in September, I had spoken at a showcase of current research organised by the Office of Manpower Economics, the independent secretariat which supports the pay review bodies. I covered the early (still unpublished) findings from IES’ current research on the use of market pay supplements in the NHS, local government and Ministry of Defence.

We have found a highly responsible approach to their use, despite the widespread skills shortages and cap on pay awards, with detailed cost-benefit analysis and market justifications typically required to progress them through a rigorous evaluation process. Where used (as for social workers in London, for example), rather than being a knee-jerk response to shortages, we have found that they are generally part of much wider employment strategies. These strategies are designed to increase the labour supply, improve the recruitment process and enhance the employment experience, with guidelines and controls developed jointly by management and trade unions. Evidence-based policy and co-operation at work at the local-employer level, but is that what we are seeing at the national government level in the UK?

The Institute for Fiscal Studies presented their new research on public sector pay at the OME conference. Despite estimating that relaxing the one per cent pay cap would cost some three billion pounds in 2018/19, they conclude, based on their analysis, that there is a ‘strong case for easing pay restraint on high-skill public sector workers’ particularly in higher-skilled jobs and in London and the South East.

Whatever the policies required to promote economic growth and staff wellbeing in the UK and Korea, the process of how they are developed and agreed also seems to influence their success. For example, our recently published research report for the Equality and Human Rights Commission reviewing the evidence on ‘what works’ in closing gender pay gaps concludes that this can best be achieved by a sustained, multi-action and co-operative approach involving governments, employers, trade unions and subject experts, as was the case in the City of Boston.

The title of the Seoul seminar was ‘Korea: Towards a Fair Wage System’. The UK government might develop a fairer and more effective pay policy if it was to similarly engage in genuine multi-stakeholder consultation and involvement, rather than the current Treasury- and deficit-reduction-dominated approach.

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.