Public-sector salary disclosure is meant to create a more transparent and accountable government, in much the same way mandatory executive compensation disclosure is supposed to shed light on private-sector compensation. The information revealed by Ontario’s regulators, however, hardly seems effective at reaching either goal.

Ontario’s government has been providing disclosure of public-sector salaries for more than 10 years. It requires the various parts of government and other agencies, such as the Ontario Securities Commission, to reveal the salaries and benefits paid to anyone making more than $100,000 a year.

The threshold is supposed to single out the senior employees of organizations covered by the legislation — and perhaps it does for typical government departments. But since the OSC has become self-funding, however, the $100,000 mark has long ceased to be a meaningful dividing line between senior employees and the rest of the OSC’s staff.

In 1996, the first year the OSC was required to make disclosure, it had five employees above the $100,000 salary mark; collectively, they earned slightly more than $600,000. By 2004, former OSC chair David Brown made more than that himself.

Also in 1996, the collective disclosed salary amounted to just 4.5% of the total $13.5 million that was paid to all OSC employees. For 2006, the latest disclosure year, 173 employees made at least $100,000, adding up to $27.6 million, which is in excess of 50% of the total salaries and benefits paid during the year. The OSC has yet to issue its annual report for the year ended March 31, but in its fiscal 2006 report, it projected that salaries would reach $51.6 million in the year.

Essentially, the OSC is now facing a problem similar to the one the banks once had under insider reporting rules, when hundreds of employees were given “vice president” titles, catching them in the rules even though the titles were largely ceremonial and most had no real influence over the banks’ overall strategies. This ultimately led to lots of superfluous reporting by the employees and didn’t do much to provide insight into insider trading trends.

Now, at the OSC, the $100,000 threshold appears to have become similarly irrelevant.

However, there seems to be no intention to revise that threshold. The OSC indicates it is up to the government to determine whether the level remains relevant. And the Ontario Ministry of Finance is standing behind the current policy. It notes that the purpose of making such disclosure is to “enable the public to compare an organization’s performance with the way it compensates its senior employees.”

But the government insists “people earning $100,000 or more are usually senior employees.” And, it adds: “The $100,000 threshold is a significant amount in the eyes of the public.”

The $100,000 mark was set as the dividing line for salary disclosure back in December 1995, when the legislation was first introduced, and it has remained fixed at that level ever since. If it were indexed to inflation, the threshold would now be about $122,600.

Revising the disclosure threshold to reflect inflation over the past 10 years would also reduce the number of OSC employees that have been required to disclose their salaries in the current year by about 30% — 51 of the 173 salaries that are currently disclosed would no longer make the cut under an inflation-adjusted limit. That still leaves a large number of mid-level employees providing fairly meaningless disclosure, but it’s a start.

The vast growth in the number of employees making more than $100,000 at the OSC surely wasn’t foreseen in 1995, when salary disclosure was first adopted and when the OSC was still a profit centre for the government. After self-funding was adopted in late 1997, the OSC’s roster of well-paid employees increased quickly.

At the time, the OSC was building itself up after years of chronic underfunding, by both staffing up and hiking salaries so they were more competitive with the rest of the Street. How bad was it? In its 1997 annual report, the OSC revealed it was forced to leave a “significant” number of its available jobs vacant to make resources available to its underfunded areas, such as enforcement and information technology.

So, for a few years after the OSC was given control of its own purse strings, both the number of employees earning more than $100,000 and the aggregate value of their compensation doubled year after year. In recent years, however, the rates of increase have slowed dramatically, into the single digits for 2004 and 2005.

@page_break@What’s now happening to regulators’ compensation? The latest data indicate the year-over-year growth rate jumped back up to about 18% in 2006, for both the number of employees disclosing and the aggregate value of their salaries. The jump in the value of disclosed compensation can be attributed largely to the growth in the number of people crossing the disclosure threshold, as the average disclosed salary was barely changed, increasing slightly from $159,111 to $159,705.

Examining the collective compensation of those earning more than $100,000 is one way to get insight into the OSC’s evolving salary structure, but it is skewed by the number of entrants into the disclosure pool and by people leaving the OSC for various reasons. A better way to look at it may be to examine the changes in compensation on an individual basis. Looking solely at employees with disclosed salaries in both 2005 and 2006, the data show the average increase year-over-year was 7.1% in 2006, and the median increase was 6.5%.

To test whether 2006 was an anomalous year, we also went back five years and compared the salaries of those on the disclosure list in 2001 with their salaries in 2006, if they were still with the OSC. In that case, the average increase over the period is 43%, which works out to a compound annual growth rate of 7.4%. Inflation over the period was about 11.6%, or 2.2% a year. In other words, the 2006 pay hikes appear to be fairly typical.

The next question is whether the raises are fair.

Wendy Dey, the OSC’s director of communications and public affairs, notes that the OSC is hiring in a competitive market and that the compensation must keep pace. “It is important for the OSC to have flexibility to set compensation at competitive levels so we can attract and retain the professionals we need to carry out the OSC’s statutory obligations,” she states, adding that salary hikes reflect a combination of merit, inflation and promotions.

How does the 7.1% average pay increase for 2006 stack up? Well, it exceeds the OSC’s projected 5.6% increase in total salaries and benefits for 2006. Moreover, it is running well ahead of inflation, and it is about double the average salary increase enjoyed by most Canadians, according to a survey of Canadian salaries released by Watson Wyatt Worldwide last year.

That survey found base salaries increased by 3.6% for all of Canada in 2006, and by 3.5% in Toronto, where the OSC is based. The reported increase was also 3.6% for both the private and public sectors. In the financial services industry, which arguably is the most direct competition for employees with the OSC, the increase was 3.8%; for professionals (another reasonable comparison), the increase was 4.4%.

You could make the argument that the OSC isn’t just competing with other firms in Toronto for talent; it is competing with job markets across the country. On that count, a similar salary survey by Hewitt Associates found salaries rose by 3.3% in Toronto last year, but that Calgary enjoyed a record increase of 5.3%. Even at that rate, the OSC appears to be giving relatively hefty pay hikes. Watson Wyatt’s survey reported only a 3.8% increase in Calgary salaries.

Dey points to more flattering data. A survey by recruiting and consulting firm Robert Half International, she notes, shows the average increase in starting salary for a corporate lawyer with one to three years’ experience in 2006 was 7.9%.

While that comparison is more favourable to the OSC, it is not quite apples to apples, as the survey is forward-looking, not retrospective. It also looks just at starting salaries, not at wage hikes for existing employees. Moreover, notwithstanding the substantial increase in starting salaries for fledgling corporate lawyers, the range the RHI survey gives for such sorts of workers is $62,500-$87,000, well below the $100,000 mark. And not all those disclosing salaries at the OSC are lawyers. The same survey predicted that base compensation for the legal profession overall, including employees other than lawyers, would rise by 4.5% in 2006, and that in the accounting and finance professions, it would increase by 2.5%.

The problem with current salary disclosure is that it doesn’t provide much insight for the average citizen. It is, arguably, too broad. What does it tell anyone about the effectiveness of the OSC to report the salary of a pencil-pusher in the human resources department? Moreover, there is no context for the limited numbers that are provided. Reported salaries can be distorted by maternity leaves and job changes, and there is no meaningful reason given for pay practices.

Regulators have recognized the importance of candid executive compensation disclosure at public companies, and are trying to improve it. (See story, below.)

It might be more useful if disclosure focused on those who have the most influence over the OSC’s performance — executives, branch heads and commissioners — and included discussion and insight into their performance.

Without a tighter focus and more detail, government salary disclosure does not provide transparency or promote accountability. IE