Wage negotiations are an expected and necessary part of the employment experience. For some, it’s a conversation privately and individually held with their employers, while others rely on Trade and Labour Unions to publicly lobby on behalf of themselves and others in their sector/bargaining group. Wage negotiations require a meeting of the minds as both parties undertake to obtain better wages for employees in line with the current standard of living whilst ensuring that the increases offered are sustainable and viable in the long-term.

In the context of the currently unfolding public sector employees wage negotiations, Prime Minister Dr. Keith Rowley has indicated that they wish to prevent any job losses which surely makes these negotiations all the more difficult.

On May 19^th 2022, President of the P.S.A., Leroy Baptiste, published a letter outlining the Chief Personnel Officer’s Proposal to the following Associations/Unions:

• Trinidad and Tobago Police Service Social and Welfare Association;
• Trinidad and Tobago Fire Services Association;
• Daily Rated Unions;
• Trinidad and Tobago Unified Teachers’ Association;
• Public Services Association; and
• Trinidad and Tobago Prison Service Association

In order to discuss and determine the associated impact of these changes on the average salary in dollars and cents, the following are some of the assumptions made:

1. All calculations are indexed to the December 31^st 2013 salary, set at 100.
2. Any person who qualifies for backpay or salary increases, qualifies for the entire period.
3. Negotiations will be completed and paid in 2022.
4. Adjustments to COLA and other allowances are not factored into the calculations.
5. The salary payment and back pay are made at the end of 2022 and hence the back pay figure will include 2022.

Based on the CPO’s offer, the effective increase over the eight-year negotiation period will be 2.01%.  This means that every $100 of salary income based on 2013 levels will now be $102.01 in 2021. This results in a 0.01%compounding effect – as the 1% increase in 2021 is applied to the 2018 salary level which will already be increased by 1% (i.e. 1% on 1%). The projected backpay will be $7.02 for every $100 dollar of salary a person earned based on their December 31^st 2013 salary. 

Consider this counteroffer:

1. Apply the first 1% on January 1^st 2014
2. Apply the second increase on January 1^st 2019

Unsurprisingly, there is no net change to the 2.01% increase to employees’ 2021 level of income. However, the projected backpay now increases to $13.04 for every $100 dollar of salary a person earned based on their December 31^st 2013 salary.  This represents an increase of 185.75% to the backpay for which employees will be eligible. This counterproposal, therefore will not have a long-term impact on the government’s wage bill but rather will require an immediate one-time payout.

So what does this mean for someone employed in the public sector? How much backpay should they expect? What would be the dollar increase to their salaries when the increase is processed?

• Based on 2013 levels, a government clerk in Salary Range 56 at point F would be earning a salary of $12,949 per month.
• Based on the CPO offer, the clerk’s new salary will be $13,209.27 and they will be entitled to backpay of $10,908.24.

If the CPO were to adjust the offer to make the increases in the beginning year of each negotiating period the new salary figure will be the same whereas the back pay figure will increase to $20,262.60

This compounding effect is a great example of the Time Value of Money (TVM). TVM’s concept is that a sum of money is worth more now, than the same sum will be at a future date due to its earnings potential in the interim. From the example above, we see that the earlier the salary increases are implemented, the higher the amount earned each year and now due as backpay. Similarly, the earlier such funds are invested, the higher the possible return on investment as this same TVM concept has a longer time-period over which to work.

This concept is one you should take heed of when planning your own wage negotiations, when saving up for the deposit on a real estate purchase, when you’re planning out the manner in which a debt is paid, or if you are expecting lumpsum payments. Truly capitalizing on the earnings potential of your money within a set timeframe is where wealth is made – and if you look closely, you will see many opportunities for you to really flex the earning potential of the money you have at hand. Many a potential nest egg has squandered its earnings potential by sitting in a standard savings account for years. With the help of your trusted financial advisor, look analytically at your current finances and look for ways in which you can get your money living up to its full earnings potential.

Unexpected cash flows like backpay can surely go a long way in covering some unanticipated expenses, paying for a small vacation with family, or something even more crucial: investing towards the achievement of other personal short to long term goals.

Like the key stakeholders in this matter, we all wait to hear the PSA’s response to the CPO’s offer and the long term impact on these public sector employees’ salaries, the government’s wage bill and the economic sustainability of whatever decision is made.  Until then, keep reading our articles for more strategies to assist you in flexing the earnings potential of your income and continue growing your wealth.