The government’s decision to get rid of an expensive perk in the federal public service has cost taxpayers $3.7 billion so far, but at least one labour expert says Ottawa had little choice but to fork over the cash.
Still, the process probably started more than a decade too late.
“If they’d started dealing with it 15 or 20 year ago … the price tag wouldn’t have been as high as it is today,” said George Smith, a professor in Queen’s University’s department of industrial relations.
“It absolutely had to be done.”
Smith, a veteran negotiator who served as both a senior vice-president at CBC/Radio-Canada and an employee relations director with Air Canada, saw the elimination of the same severance-related perk in those two corporations. But both Air Canada (which privatized) and the CBC (which was facing major budgetary issues) tackled it much sooner.
The federal government waited until 2010 to pull the plug.
WATCH: How every federal civil servant receives a severance cheque
Essentially, under the old rules, federal workers got severance cheques even when they quit or retired of their own volition. It was a strategy designed to attract workers in the 1960s, when public sector salaries weren’t nearly as competitive.
The negotiated perk was in place for decades before the cost of keeping it (around $500 million a year) became unmanageable and the Conservative government took action.
In the six years since then, employees who accumulated severance under the old collective agreements had to be ‘bought out’ to the tune of $3.7 billion, so far.
“It’s surprising, in a certain sense, that the federal government hasn’t dealt with this earlier,” said Smith, adding the longer the perk remained in place, the more expensive it became.
“You earn (severance) at one salary level, but it’s paid out at your salary level 10, 15 or 25 years down the road. So the value of the benefit is growing in addition to the actual benefit itself … This is where liabilities build up on company balance sheets that just become unworkable.”
READ MORE: Ottawa has paid out $3.7 billion (so far) to end public service perk
Once Ottawa finally decided to act, he said, there were limited options. You can’t just eliminate an entitlement that employees have been accumulating over time under an old contract and then refuse to compensate them, he noted. And the unions fought hard to retain benefits that were in place for decades.
“It becomes not just a practical or business matter, but it becomes a political matter as well,” Smith said.
Like CBC and Air Canada, the federal government might have tried to limit the payout for more junior employees, or to “cap” the severance pay at the salary rate at which it was earned.
“I think you can argue both sides, but the value of doing it the way they did it is that you terminate it, you pay it out in today’s dollars, and you eliminate the liability going forward. And you’re done with it,” Smith said.
“There is some logic to that.”
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