Measuring performance of central banks is as crucial

Worthwhile Canada Blog points to an interesting development in Canada.

Supposedly Bank of Canada has rewarded its senior officers about $458,832 in performance bonuses in 2009. In even normal times it would raise eyebrows and currently we are living in anything but normal times.

Senior officers at the Bank of Canada raked in $458,832 in performance bonuses in 2009, QMI Agency has learned.

But that’s nothing compared to the $8.3 billion the country’s largest private banks dolled out in bonuses in 2009.

According to documents obtained through Access to Information requests by Ottawa researcher Ken Rubin, the Bank of Canada performance pay — given as lump-sums for staff who “exceeds most” or “fully exceed” expectations — was doled out to 33 senior officers at the country’s national bank.

They average just under $14,000 for the 33 recipients.

But even though the amount is small, NDP MP Pat Martin said bonuses for public employees is “offensive” as a matter of principle.

“The Bank of Canada is not a private business. It’s not tied to performance or productivity outcomes,” Martin said. “It’s not a profit-making venture where you can measure a good year from a bad year … What is the merit they are being rewarded for, coming to work on time?”

Just $14000 per person….

Since 2007, the Bank of Canada has paid out just over $1 million in bonuses, averaging just over $12,000 per bonus recipient.

In 2009, 10 officers “fully exceeded” expectations and received the maximum bonus of 12% of their salary, while 23 other officers exceeded “most” expectations and were given a 6% bonus.

Neither the governor nor the deputy governor of the Bank of Canada are eligible.

While Martin argues the system creates divisiveness among public sector workers — labelling some as winners and some as losers — he’s most worried about their effect on productivity.

“It creates backstabbing in the public service, stepping on others to get ahead. It’s counter-productive to any kind of cooperative approach to public service,” he said.

But Kevin Gaudet, the federal director of the Canadian Taxpayers Federation, likes the idea of bonuses in the public sector specifically because he thinks they create a more efficient workforce.

“That motivates them to actually get goals accomplished,” he said.

“If somebody in procurement, for example, could figure out ways to spend less on IT programs, or whatever, they should be compensated appropriately for that.

“Otherwise you don’t have motives to do better.”

The Bank of Canada declined to comment for the story.

Worthwhile blog adds, performance can be measured in public service.

Measuring performance is fuzzy, in other words, even in the private sector, even if you assume the goal is “profits”. So it’s no argument to say that public sector workers are different from private sector workers in this regard. You would need to argue that measuring performance in the public sector is even fuzzier. Maybe it is. But that’s what you need to argue.

The Bank of Canada’s performance can be measured. That measurement will be a bit fuzzy, sure; but then all measurements are fuzzy, in practice.

The first goal of the Bank of Canada is to keep inflation close to the 2% target. Its performance on meeting that goal can be measured. Again, it will be a fuzzy measurement. Core, or total CPI? Averaged over what time period? Did inflation temporarily depart from the target for reasons the Bank could not have foreseen, and/or which it would have been undesirable for it to try to prevent?

A second goal is to preserve stability in the financial system. That’s even fuzzier to measure. But anyone who says that Canada’s financial system has survived the last two years better than most other countries’ is ipso facto measuring it.

And so on.

Again. I’m not coming down one way or the other on this question. I can’t decide. But the argument that you can’t have performance pay in the public sector because the public sector doesn’t try to maximise profits is a bad argument.

If you want a better argument, maybe argue that the public sector is better driven by an ethos of service and honour, and that performance pay might undermine that ethos? I’m not sure if it’s right. But at least it’s not obviously wrong.

Interesting stuff. We keep talking about measuring performance of public sector organisations. How do we do the same for a central bank?

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