March 2015 Report of the Advisory Committee on Senior Level Retention and Compensation

Principles Underlying Compensation of Senior Leaders

Since 2000, the Advisory Committee has considered a series of compensation principles in formulating its recommendations. We have reviewed these principles and examined those adopted by private as well as public sector organizations. We believe that the total compensation of senior leaders should be fair, reasonable, affordable and transparent and that it should serve to attract, retain and motivate public service senior leaders to deliver modern, cost-effective and responsive services to Canadians. We also believe that elements of senior leader compensation should be differentiated from the total compensation of collectively bargained employees in a manner which reflects the levels of responsibility and accountability inherent in management and leadership positions.

We have agreed to principles, attached, which demonstrate respect for senior leaders and the work they do, while recognizing the requirement for fiscal restraint. These principles have guided our recommendations and will continue to frame our future deliberations and recommendations.

Economic Increase for 2015-2016

You asked the Committee to provide you with recommendations for economic increases for senior leaders for the next two fiscal years, that is to say 2015-2016 and 2016-2017. We have taken into account several factors, including the Government's commitment to achieve a balanced budget in 2015-2016, the current economic and fiscal context and affordability. We also realize that the Government is involved in negotiations with bargaining agents at this time; that these negotiations could be impacted by an announcement regarding senior leader compensation prior to their completion; and that the outcomes of these negotiations could influence compensation decisions regarding senior leaders. In considering these issues, we are able to provide a recommendation for an economic increase for 2015-2016, but would propose to return as part of our subsequent work with regard to a recommendation for 2016-2017.

We recognize the complexity of the work facing public service leaders in today's context. While traditionally senior leaders have received economic increases at least commensurate with those negotiated with unionized employees, that has not always been the case. We believe it is important for senior leaders' compensation to be addressed in a timely and transparent manner. We recommend senior leaders be given an economic increase for fiscal year 2015-2016 that is no less than what is provided to unionized employees as a result of the current round of negotiations. If this recommendation is accepted, we believe that an announcement to this effect should be made as soon as the Government makes a decision.

Corporate Commitment for 2015-2016 and Beyond

In July of 2011, the Advisory Committee endorsed the use of at-risk pay to achieve results in support of a government-wide corporate commitment. The Government accepted this recommendation and implemented a corporate commitment for fiscal years 2011-2012 and 2012-2013 and for an additional two years in support of its fiscal priorities and goal of returning to a balanced budget by 2015. A portion of at-risk pay was awarded for results achieved in support of the corporate commitment.

In reviewing the results and experience to date with the corporate commitment, we have noted challenges in its implementation, particularly with regard to the establishment of the link between it and the specific outcomes that individual executives are expected to achieve. It has also been difficult to distinguish between various levels of performance, given the nature of the commitment. We are aware that the requirement to allocate a specific portion of at-risk pay to the corporate commitment increased the complexity of administering performance management programs by requiring a separate performance assessment process. The Committee was advised that the cascading of the corporate commitment was not effective in motivating individual performance to a degree that justifies the complexity it introduced. It is important that the performance management process be managed effectively and in a way that draws a clear link between the desired corporate commitment outcomes and the individual contributions expected of each senior leader. These issues should be addressed to ensure engagement on the part of senior leaders, providing them with a greater sense of empowerment and individual as well as organizational control over their contribution to an enterprise-wide objective.

We support the continued use of a corporate commitment aligned with government-wide priorities. We recommend that changes be introduced to make its implementation more flexible. Specifically, we recommend that:

• A public service-wide commitment reflecting Government priorities continue to cascade down from the most senior level to all participants in the performance pay regime;
• The performance agreement for each executive and Governor in Council appointee establish a commitment adapted from the Government-wide corporate commitment to reflect each senior leader's particular role and organizational context, with a view to increasing direct and personal accountability for the results; and
• The split in at-risk pay between corporate and individual commitments be eliminated and the assessment of the corporate commitment be integrated into the overall assessment of the individual commitments of each senior leader. This would allow deputy heads to truly assess and reward the contribution of each senior leader to the final results according to each individual's unique context.

We are of the opinion that these changes would increase the effectiveness of the corporate commitment and recommend that they be implemented for the 2015-2016 performance cycle. In addition, we recommend that a review of this new approach be conducted after the 2015-2016 performance management cycle to determine whether this simplified method of administering the corporate commitment enhanced or impaired its effectiveness in meeting Government objectives.

Work Plan for 2015-2016 and 2016-2017

When we met on December 1, 2014 in Ottawa, you asked us not to be constrained in our thinking by the parameters of the current senior leader compensation approach and to examine issues from many different perspectives. We have initiated discussions and analysis to identify appropriate comparators for public service total compensation. We have begun to consider potential linkages between recruitment and retention of senior leaders and the approach to total compensation.

As we look ahead to the next two years of the Committee's mandate, we plan to explore:

• The ability to recruit and retain talent in the public service with the current approach to compensation;
• A proposed structure for senior level total compensation; and
• Further options for performance incentives for senior leaders.

To achieve this, we would like to understand more fully how senior leader work is compensated in other jurisdictions and what we can learn from them. We would like to consider options for short and long term financial incentives and non-financial incentives. This work would also inform our recommendations for an economic increase for 2016-2017.

I am honoured to provide you with our recommendations to date and with our plan for the next two years.

We anticipate presenting the Government with our next report by March 2016.

Principles Underlying Compensation of Senior Leaders