Management of Severance Payments in Public Sector Bodies
The examination looked at awards made between 2011 and 2013 under a number of public service schemes that provided for a severance payment at the end of a period of employment. It also considered a number of high-value discretionary severance payments made, outside of formal severance schemes.
Severance agreements can include cash amounts, non-cash elements (e.g. added years for pension purposes) or both.
Some schemes of employment include specific provision for severance payments, often reflecting the nature or expected duration of the work. For example, severance arrangements can facilitate public bodies in recruiting for posts to which fixed time periods apply. In those cases, the circumstances under which severance payments are appropriate and the amount of the payments are prescribed in the rules of the scheme.
Based on payments identified during this examination, the estimated value of severance awarded between 2011 and 2013 under six public sector schemes was €17.9 million. Nearly 62% (€11 million) related to non-cash elements in the form of pension enhancements.
The examination found broad compliance with scheme rules in most cases, with the exception of a scheme for chief executives of State bodies. Two State bodies made severance payments, in the form of pension enhancements, between 2011 and 2013 without the required prior approval of the Department of Public Expenditure and Reform. The estimated total value of the severance awarded in those two cases amounted to over €1 million.
Other key findings in relation to the six schemes examined included that
three of the schemes did not set limits on the maximum amounts payable
rules did not adequately cover movements by employees between related schemes
payments were generally not disclosed in financial statements
there were deficiencies in documentary evidence in relation to one scheme.
Outside formal schemes, severance payments may also arise in a number of situations, including cases where the employee’s capacity to perform the role is or has become limited, or where the employment relationship has broken down irreconcilably. In such circumstances, severance payments may represent the most practical and cost-effective way of resolving an unsatisfactory or unworkable situation, and may be in the best interests of both the employer and the employee. A characteristic of such discretionary severance payments is that the amount is over and above what the employee is contractually or statutorily entitled to.
The examination did not assess the circumstances giving rise to individual termination agreements and severance payments, and results are presented at a level of detail that does not identify individuals. The report’s emphasis is on how cases were handled, not on who received what payments.
The examination identified fourteen high-value discretionary severance payments, amounting to nearly €1.5 million, made by public sector bodies between 2011 and 2013. Enhanced pension terms were not granted in those settlements.
Six of the discretionary severance payments, amounting to over €540,000 (including legal costs), were made by the Central Bank. It was found that the Bank had not adopted a standard approach for assessing and determining those cases, or for approval of the severance awards. Those receiving severance payments included an individual that had not yet commenced employment with the Bank, two employees who each had less than two years’ service and a long-term contractor who had never been an employee of the Bank.
Most public bodies do not have autonomy with respect to severance payments. In eight cases reviewed in other public bodies, it was found that external sanction (from either the parent department or the Department of Public Expenditure and Reform) had not been obtained in advance of the severance award. A number of those entities pointed out the absence of central guidance about severance payments.
Confidentiality clauses were a feature in every agreement underpinning the discretionary severance payments examined. A confidentiality clause should not attempt to circumvent a statutory disclosure requirement or to prevent employees from speaking out. Two of the five bodies examined had used confidentiality clauses that did not comply with the good practice standards set out in the report.
The report includes a summary good practice framework for public bodies where severance payments are proposed.
Notes for Editors
The full text of the report is available here
The report was finalised on 23 December 2015 and sent to the Minister for Public Expenditure and Reform on 6 January 2016. The Minister is required to ensure that the report is laid before Dáil Éireann within three months of receiving it.
The Comptroller and Auditor General is an independent constitutional officer with responsibility for the audit of public funds. He reports to Dáil Éireann.