Salary Increase: Before the harm is done, by Hassan Gimba


The Arbiter

It is no longer news that the federal government is working out modalities for salary increase to workers through a new national minimum wage. A tripartite committee comprising federal/states governments, organised private sector and civil society is having meetings with stakeholders to arrive at an acceptable minimum wage.
There have been many commissions set up even before independence to consider the nation’s pay structure in order to arrive at an enduring one befitting of an income policy.
The major ones were the Hunt Commission (1934), Bridges Committee of Enquiry (1941), the Tudor Davis Commission (1945),  the Harragin Commission (1946), the Miller Commission of 1947, the Gorsuch Commission (1955), the Newns Commission, the Elwood Grading Team (1956) and  the Mbanefo Commission of 1959.
Others were the Morgan Commission (1963), the Adebo Commission (1970 – 1971), the Public Service Review Commission (Udoji Report) (1974), the Cookey Commission (1981), the Fatai Williams Committee (1990), the Commission on the Review of Higher Education in Nigeria (Longe Commission), the 1994 Review Panel on the Civil Service Reforms (Ayida Panel) (1994), the Vision 2010 Committee Report (1997) and the Committee on Harmonization of Remuneration in the Public Service (1998).
The increase in salary by the federal government will not stop there, of course. States must also find ways to increase theirs just as the private sector must toe the line.
Salary increase has many advantages. There will be a considerable increase in monthly cash flow. The recipient has more money coming in, meaning more funds to spend. This will lead to people meeting their financial obligations more comfortably. This increased purchasing power in many hands will galvanise production and improve the overall economy.
Productivity as a consequence will get a boost because the worker who gets a pay rise will be motivated to embrace his work with the seriousness it deserves. Thus there would be more efficiency and effectiveness in the workplace, ultimately leading to increased productivity.
Walmart, an American powerhouse, found itself floundering for years before making a sweeping change to how it pays its employees. As the New York Times reported, “the company’s revenue fell for the first time in its nearly half-century run as a public company in 2015, and sales fell for five straight quarters”.
Customers simply weren’t happy about long lines, messy bathrooms, and MIA staff — and only 16 per cent of stores were meeting customer service goals, the Times story noted.
So, a company known for penny-pinching announced in early 2015 that it was going to start paying its employees more. And it seemed to make a difference. Early results were optimistic, as sales started to rise and the rate of stores hitting their customer service targets shot back to 75 per cent by early 2016.
In April 2015, Dan Price, the owner and CEO of Gravity Payments, made a revolutionary decision by cutting his salary from $1.1 million to $70,000 a year in order to fund a paycheck raise for his employees.
He raised the minimum wage of his workers to $70,000. Surprisingly, profits rose even after that momentous raise. Productivity jumped by 30% to 40% and his profit more than doubled.
And while the aim is to alleviate the sufferings of workers through increasing their purchasing power and enabling them to cope with the high cost of living, the consequences are that many jobs will be lost and very little created. This is because employers will pay higher wages but at the cost of retraction in their labour force. The implication is that a worker may end up doing the work of two or more others.
Considering our unemployment figures, people who have been desperate for jobs will sink further into desperation as more will join them through retrenchment. The purchasing power of more Nigerians would be eroded and, therefore, side effects such as inflation and possible bankruptcy by private companies may increase. States that have been struggling to pay their workers would struggle more. Those with small internally generated revenue will depend more on federal allocations. Infrastructural development will dwindle as recurrent expenditure increases.
In Nigeria, once there is increase in salary, the price of everything goes up and nothing that has gone up ever comes down again going by past experience.
The 1972 Udoji Commission recommended, among others, a Unified Grading and Salary Structure (UGSS) which would embrace all posts in the Civil Service from the lowest to the highest.
At a time when the naira was stronger (about N60 equaled 100 dollars) than the dollar, the commission increased the annual minimum wage from N312 to N720, the equivalent of $1,200. One of the backlashes of the Udoji Commission was the official backdating and subsequent implementation of the recommended increases in wages and salaries (which ranged from 12 to 30 percent). Consequently, it generated an inflationary spiral during the period.
With Nigeria’s population nudging 200 million, how many are civil servants? Maybe not up to 5% of this figure. In 2014 the Association of Senior Civil Servants of Nigeria (ASCSN) described as bloated the figure of 1.2 million workers announced before the House Committee on Health by the Director-General of the Budget Office of the Federation (BOF) as the current staff strength of the Federal Public Service. It said that available records put the right figure at about 870,000. The ASCSN Secretary-General also doubted that N1.8 trillion was being spent annually on public servants as personnel costs.
Assuming the number of government workers in Nigeria is up to 5 million, which is a mighty generous figure, why draw dire consequences on other citizens through the pampering of a negligible number? Governments at all levels provide for only civil servants while others are left to carry their can. When you look at housing policies, health insurance, etc., it is all about the civil servants, yet everybody pays tax.
Rather than increase salary, government should do all it can to strengthen the naira. A very strong naira will see to market forces pushing down the price of commodities, thereby increasing the purchasing power of Nigerians. Udoji’s minimum wage of N720 had more purchasing power than today’s minimum wage of N18,000. Just imagine $1,200 as basic salary today! N1 million as minimum wage will help no one as long as the naira is weak.
But if salaries must be increased – and government will do it anyway because it is a populist one and elections are by the corner – government would do well to explore the idea of price control. While the advantage is that it may lead to lower prices for consumers, the consequence is that it may lead to lower supply and reduction of quality. However, price stability helps in avoiding both inflation and deflation.
Another idea that government must explore is the drastic cut in salaries and allowances of public officers, especially those of elected officials, political appointees and heads of MDAs. (Dan Price’s revolutionary model comes to mind here). These people collect mind boggling salaries and allowances in millions of naira. The saved money can be used to finance the salary increase. This way, the negative consequences will be mitigated.


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