: FAQ: Public Sector Compensation Restraint

For FAQ’s around the Public Sector Compensation Restraint to Protect Public Services Act, 2010, which applies in respect of employees that do not collectively bargain compensation, please see the Q.s and A.s posted in March 2010.

Ontario has felt the effects of the global recession and is running a deficit in order to create jobs and protect our public services.

Ontarians value and appreciate the contributions of those who deliver their public services. They also expect those who are paid by tax dollars to do their part to help sustain public services.

Everyone who is paid through taxpayer dollars is being asked to do their part.

MPPs are leading by example with a three-year salary freeze.

The government has brought forward legislation that freezes the compensation structures of non-bargaining political and Legislative Assembly staff for two years.

The legislation also prohibits compensation increases for non-bargaining employees in the broader public sector, including the Ontario Public Service, for two years. This will help redirect up to $750 million toward sustaining schools, hospitals and other public services.

For employees who bargain collectively, the government will respect all current collective agreements. When these agreements expire and new contracts are negotiated, transfer payment agencies and bargaining agents are to seek agreements of at least two years’ duration that do not include net compensation increases.

Q1. How important is the management of compensation growth to the success of the Ontario government’s plan for addressing the deficit?

A1. The 2010 Ontario Budget outlines the government’s plan for reducing and then eliminating the deficit.  It is a fair and responsible plan with an emphasis on job creation and growth, and protecting the public services Ontarians rely on.  This plan will cut the deficit in half in five years and eliminate it by 2017–18.  The public rightly expects the government to make responsible choices and to live within its fiscal plan. 

Managing compensation growth is a critical part of the plan.

Public sector compensation is the largest expenditure of the Ontario government. Any plan to address the deficit while preserving services and jobs must address compensation growth. More than $50 billion – or 55 per cent – of all government program expenses go to compensation, either directly or through transfers. 

The Budget plan set out measures to restrain compensation growth in the Ontario Public Service and Broader Public Sector (BPS), by freezing compensation structures of non-bargained employees for two years. 

The plan also contains a Policy Statement laying out the clear expectation that new collective agreements will be of at least two years in duration and provide no net increase in compensation for at least two years.  The fiscal plan provides no funding for incremental compensation increases for new collective agreements, which also applies to the Province’s share of any cost-shared programs. BPS employers and bargaining agents are expected to arrive at collective agreements that are consistent with the Budget plan and recognize this fiscal reality. This expectation remains firm.

Q2. What would happen to public services if demands for incremental compensation were accommodated.

A2. Accommodating demands for incremental compensation would necessitate the cutting of public services that Ontarians want most, such as education and health care.  The government’s objective is to protect public services, and everyone who is paid through taxpayer dollars is being asked to do their part in achieving this objective on behalf of Ontarians.

From 2003-04 to 2009-10, Ontario government program expenses grew at an average rate of 7.6 per cent per year.  This growth was partially driven by public sector wage settlements that averaged 3 per cent each year.  Over the same period, private sector wages increased at an average of 2.1 per cent per year and inflation averaged 1.9 per cent.  The rest of the growth in program expense was driven by increases and significant improvements in public services, particularly in health care and education.

These trends simply cannot continue.  Reducing the deficit and managing growth in interest on debt expense is critical to protecting services.

The plan to eliminate the deficit requires additional borrowing to support the public debt, and additional borrowing means increased interest on debt (IOD) expense.  Increased IOD expense means that there will be less money available to support public services.  IOD expense is projected to grow at an average annual rate of 12% from 2009-10 to 2012-13.

To balance the budget by 2017-18, and when factoring in added interest on debt payments, total expense growth from 2009-10 to 2012-13 must be held to an average of 1.7 per cent annually, even after factoring in the impact of the compensation restraint measures in the Budget plan. Beyond 2012-13, program expense growth must be held to 1.9 per cent annually. That program expense growth must cover all increases in the cost of providing public services, of which compensation is only a portion.

The government’s plan to restrain public sector compensation growth is a fair one.  It recognizes that while Ontarians value and appreciate the contributions of those who deliver their public services, they also expect those who are paid by taxpayer dollars to do their part to sustain them.

The remainder of these Q.s and A.s address the Policy Statement outlined in the 2010 Ontario Budget which addresses collective bargaining in the Ontario Public Service and the Broader Public Service. 

For FAQ’s around the Public Sector Compensation Restraint to Protect Public Services Act, 2010, which applies in respect of employees that do not collectively bargain compensation, please see the Q.s and A.s posted in March 2010.

Q3. What entities are covered by the Policy Statement on collective bargaining set out in the 2010 Ontario Budget?

A3. The Crown, its agencies and all other transfer payment entities, such as hospitals, school boards, colleges, universities, developmental services agencies, etc., that negotiate collective agreements with their employees, other than municipalities, are covered by the Policy Statement.

The fiscal plan provides no funding for incremental compensation increases for new collective agreements, which also applies to the Province’s share of any cost-shared programs.

All boards of health, including municipal ones, are covered by the Policy Statement.  All long-term care homes -- for profit, not-for-profit and municipally run -- are also covered by the Policy Statement.

Municipal collective agreements are generally excluded from the Policy Statement because municipalities are a separate level of government, who have their own duly elected representatives.

The government invites all municipalities to review the measures being taken within the Ontario Public Service and the broader public service (BPS) by the provincial government to determine how best to address restraint within their organizations.

Q4.What are the components of compensation and what is meant by "no net increase in compensation" as set out in the Policy Statement.

A4. Compensation consists of, but is not limited to:

  • Wage rates
  • Salary ranges
  • Health and other group benefits
  • Shift and other premiums
  • Vacation and other paid time off
  • Pension

Under the Policy Statement, no net increase in compensation means parties must negotiate collective agreements that do not result in an overall increase to the compensation given to employees for two years.  Any increase in any aspect of compensation must be offset by a decrease of equivalent value elsewhere under the collective agreement to ensure two years of net zero compensation increases.

Improved benefits and perquisites that would increase an organization’s total compensation package are not permitted under the Policy Statement, unless such increases are offset by decreases of equivalent value elsewhere in the compensation package (e.g. increased dental coverage could be permitted if offset by a decrease of equal value in vision care coverage).

The government respects the right of employers and bargaining agents to negotiate collective agreements.  Employers and their bargaining agents are in the best position to determine how to negotiate collective agreements that are consistent with the Policy Statement.

Q5. Will increases to benefit plan premiums or pension plan contributions be in contravention of the Policy Statement, even though the benefits provided are not increasing?

A5. The increased cost of providing the same level of benefits is not an increase in compensation. As a result, such premium or contribution increases, in and of themselves, would not result in non-compliance with the Policy Statement. 

It is not appropriate to increase compensation to offset an increase in the rate of employee contributions to the cost of pension or group benefits.

Q6. Are increases for individual employees through movement on a pre existing pay grid permitted?

A6. Yes, movement up a pre-existing grid, or a pre-approved formulaic increase in benefits, is permitted, as this is not considered an increase in compensation for the purpose of the Policy Statement.  Such structures must have been in place prior to March 25, 2010.

However, upward adjustment of an existing grid, or an across-the-board adjustment, is an increase that is not permitted, unless offset by a decrease elsewhere in the compensation package.

Q7. Would it be appropriate for an organization to utilize funding provided for service enhancements to address compensation instead? 

A7. As set out in the Policy Statement, the government expects that newly negotiated collective agreements will consist of two years of no net increase to compensation.  Compensation increases are inappropriate regardless of the source of funding. Compensation cannot increase even if other cost savings measures are introduced.

It would certainly be contrary to the Policy Statement to utilize increased funding earmarked for service improvements or increased levels of service to address compensation issues.

Q8. When does the Policy Statement take effect?

A8. The Policy Statement applies to the first collective agreement settled after March 24, 2010 for each bargaining unit subject to the policy.  These agreements should have at least two years of no net compensation increases starting in the calendar year 2010.  This allows parties to negotiate compensation for periods prior to January 1, 2010, where the previous collective agreement expired before January 1, 2010, and for periods after the two years of no net compensation increases.

These restraint measures will be required for a two year period under all Broader Public Sector collective agreements (excluding municipal collective agreements but including boards of health within the municipal structure).  It doesn’t matter whether contracts expire next month, next year or the year after that – all employers and employee groups will be expected to do their part.

Q9. Can increases to address the two years of no net increases to compensation be provided once the two year period is complete?

A9. As with the Public Sector Compensation Restraint to Protect Public Services Act, 2010, which applies to non bargaining employees, catch up provisions to provide compensation increases that retroactively cover the two years of no net increases would not be permitted under collective agreements subject to the Policy Statement.

Employers are not to provide additional compensation to replace compensation forgone during the restraint period.

To balance the budget by 2017-18, and when factoring in added interest on debt payments, total expense growth from 2009-10 to 2012-13 must be held to an average of 1.7 per cent annually, even after factoring in the impact of the compensation restraint measures in the Budget plan. Beyond 2012-13, program expense growth must be held to 1.9 per cent annually. That program expense growth must cover all increases in the cost of providing public services, of which compensation is only a portion.

Q10. How is the provincial government working with transfer payment partners and bargaining agents to support the Policy Statement?

A10. Through documents such as these the government is supporting the common understanding and expectations of all parties in addressing the public’s expectations that those compensated with tax dollars will do their part to sustain public services in these challenging times. 

The government is continuously assessing how best to support transfer payment partners and bargaining agents in complying with the policy statement and will be communicating additional information as appropriate.

Q11. How will the government address any non compliance with the Policy Statement?

A11. The government expects that its transfer payment partners and bargaining agents will do their part to protect public services by complying with the Policy Statement.  There are a wide range of mechanisms available to address non compliance through government policy, and the government is monitoring and will continue to monitor settlements.

Q12. How do obligations under the Pay Equity Act apply   to parties subject to the Policy Statement?

A12. The provisions of the Pay Equity Act continue to apply, and the Policy Statement certainly does not change that.

Q13. How does the Policy Statement apply to parties during collective bargaining and dispute resolution processes?

A13. It is expected that the parties will utilize the collective bargaining and dispute resolution processes to negotiate and conclude collective agreements of at least two years’ duration whose terms implement  the Policy Statement  no net compensation increases in the manner most appropriate for the parties. The fiscal plan provides no funding for compensation increases for future collective agreements.