Politician Salaries

Last week's federal budget proposes to freeze the salaries and budgets of federal politicians. It is not at all surprising that most Canadians support this, as is indicated in this Vision Critical survey:

"More than four-in-five Canadians endorsed the government’s proposal to freeze wages for MPs, cabinet ministers and senators (92%) and freeze the overall budgets for the offices of ministers, as well as departmental operating budgets (81%)."

However, beyond the soft glow many people feel when they see politicians interrupted in their seemingly-insatiable appetites for ever-greater compensation -- salaries, tax-free allowances, office budgets and pensions -- which they get to vote for themselves, there is a bigger question: what is the appropriate compensation for an elected politician?

This is not an easy question to answer for politicians, but then it isn't much easier to ask that question for the majority of us who are not politicians or civil servants. For the majority who are in the private sector, for the most part it is market forces that determine compensation. If the demand exceeds the supply, average wages for a profession or trade will tend to rise. Also, if the employer see a strong correlation between skill and business performance, wages will reflect that. Wages also rise with increasing skill and, especially for union members, seniority. While imperfect, for most in the private sector there is a strong correlation between market value and wages (plus non-wage benefits). Those of us in the technology field often get to take an ownership stake in the companies we work for (stock options) as one of those non-wage benefits.

Market forces recognize business value, but not often other sorts of value. For example, is it possible or even reasonable to compare the compensation of a banker and a carpenter? Some will take a position based on a set of morals, whether justified or not, that a skilled carpenter delivers more of value to society than a mediocre banker, yet the banker is paid more. In our society's economic system, regardless of so-called moral values, compensation is tied to business value, and therefore it is no surprise that bankers earn more.

Even this rough form of compensation justification flies out the window when it comes to the public sector, whether we are talking about politicians or workers. With no business metrics or the hard realities of actual money-in-hand to guide compensation, we are left with other, perhaps less-satisfying guidelines: comparisons with the private sector for equivalent work and, for politicians, opportunity costs.

Private sector comps are easy enough for most civil servants. If you're an engineer doing a particular type of work, offer a salary similar to that of an equivalent worker in the private sector. This assumes that the private sector salary is set by market forces and is therefore a reliable indicator. It is also important to maintain a good correlation for higher-skilled workers since it would otherwise be difficult to recruit and to retain staff. Despite this, public sector jobs tend to pay less, presumably with the compensating factors of higher job securities and pensions. For the ambitious there may also be less opportunity for advancement, but that's not a subject I want to tackle here.

Valuing the work of politicians is not so easy. They are doing real work and, despite the low esteem that many of us hold for them, that work deserves appropriate compensation. There are no easy comps with the private sector, and even if it were done the results would rankle many: CEOs and other high-level management staff in the private sectors can earn millions of dollars annually. Few Canadians would tolerate that level of compensation for our politicians, and the politicians know it.

The standard that is often used is that of opportunity cost: the private sector compensation the politician would forego while in office. Since many of them are highly-educated and come from high-paying professions, it is arguable that politicians should be paid accordingly, plus something extra for the risk of running (and losing!) and for the time needed to get a real job after they leave office, voluntarily or not. They also incur expenses that in a private sector position would be compensated with attendant expense claims. In a real business, there is always some boss, even for the CEO, that can refuse to sign off on expenses or remove an employee who persistently runs up large bills. Politicians in office don't have the same type of oversight so, to avoid the difficulty, they are granted expense budgets that they generally must stay within to avoid unwelcome scrutiny.

Putting aside expenses, which any worker in either sector must be compensated for, is opportunity cost a suitable mechanism for determining the base compensation for politicians? I am not so sure that it is a good measure. The reason is that it contains the assumption that politicians ought to receive compensation that fits comfortably within the career-long arc of compensation they expect for a person of their skill and education. That is, to provide compensation in line with the private sector work that most of them would reasonably expect. However, do we want politicians who see public office as simply as one job among many during their careers? Is that an attribute we want to see in our politicians?

It is often argued that without that level of compensation it would be difficult to attract many otherwise ideal candidates for public office, that if the money offered is too much lower that the quality of politicians would fall. In a way this is quite funny, since there is some valid question about the quality of our politicians; I don't think money improves the quality of the politicians vying for our votes.

Instead, I suggest that compensation be modest in comparison to current levels. That way, we get fewer politicians who are attracted by the money and more who are attracted to the idea of public service, and even with the idea of improving, or at least changing, society in line with their political leanings. To be fair, we already see this in many of our federal politicians -- I don't believe that either Harper or Ignatieff is in it for the money -- although at the provincial and city council levels one has to wonder. Regardless of the level of government, I would like to see the experiment done and then see who does or does not run for office. It wouldn't hurt and it might help; even if only to save us all a few of our tax dollars.