Dilemmas of Measuring Performance in a G

zyxwvutsrqp
zyxwvutsrq
zyxwvutsr
zyxwvutsrq

Australian Journal of Public Adminisrration
Val. 54 No. 2, June 1995

DILEMMAS OF MEASURING PERFORMANCE IN A GOVERNMENT
TRADING ENTERPRISE: THE STATE BANK OF NEW SOUTH WALES

zy

DAVID
LAMOND’

zyxwvutsrq

Abstract: In 1990,the State Bank of New South Wales
was incorporated as a company, with a view to its
eventual privatisation (which occurred formally on 3 1

December 1994).Key to the privatisation process was
the attainment of improved organisational performance so that the bank would be seen as an attractive
proposition by potential purchasers. Its annual reports
in the period 1990-93 suggested this improvement
had indeed occurred. However, a recent case in the
Industrial Relations Commission of NSW, involving
the bank and the Australian Bank Employees Union,
has highlighted the apparent difficulty of measuring
organisational and employee performance in the
bank. This paper examines performance measurement
in the State Bank of NSW in light of the acccJuntability framework established by the NSW government, and highlights the dilemmas facing it and other
government trading enterprises (GTEs) in the wider
use of their performance data.

On 31 December 1994, the New South
Wales government officially relinquished control of the State Bank of New South Wales
(SBN) to Colonial Mutual Life, after a 185-year
association with the banking business (Blue
1994-95: 21). The sale completed a process

begun in May 1990, when SBN was formally
incorporated as a company - the State
Bank of New South Wales Limited - under
the Companies (New South Wales) Code.
Incorporation as a company’ was welcomed at
the time by the then SBA board chairman as “a
welcome step towards what v e hope will be
eventual privatisation and full private sector
competition”. In the meantime, it was to form
“the basis for assessing the Bank’s performance
in meeting its objectives and being profitable,
efficient and competitive” (SBN 1990: 4).
Subsequent reports of SBN’s performance were

framed against its Statement of Purpose and
Statement of Corporate Intent (SBN 1991; SBN

1992; SBN 1993).
More recently, when SBN’s privatisation
appeared to be imminent, the Industrial

Relations Commission of New South Wales
considered an application by the Australian
Rank Employees’ Union (ABEU) for a salary
increase (IRC 1993). In essence, the ABEU
argued that SBN’s own evidence, as presented in
its annual reports, showed that performance had
indeed improved over the last five years and,
since SBN’s employees had made a contribution
to that improvement, the employees should
share in the gains via a salary increase. SBN’s
evidence in response was that, although there
may have been an improvement in its performance, this was largely due to technological and
other efficiency enhancement factors, so that the
employees’ contribution did not warrant sharing
in the gains (see eg Crawford 1994). Indeed, it
was even suggested that there had been no
increase in employee productivity at all
(Eagleson 1994).
As noted above, the evidence presented
by ABEU to demonstrate the claimed

improvements in organisational and employee
performance was based on publicly available
information such as SBN’s annual reports. SBN,
however, rejected much of the evidence ,)resented by ABEU as “arm’s length” and lacking
“any substantive basis”, since it relied on
“financial reports to identify shifts in various
mathematical ratios, such as profit per FTE [Full
Time Equivalent] employee, staff expenses per
FTE employee, and assets per employee”
(Crawford 1994: 3-4).

*Lecturer in Management. Graduate School of Management, Macquarie University.

DILEMMAS OF MEASURING PERFORMANCE
Implicit in the response of SBN was a view
that the publicly available information was an
insufficient basis upon which to draw inferences
about its performance and that of its employees.
This rejection by SBN of the information which
it had itself made publicly available raises

important questions about how performance in
the bank was measured and how it was, in turn,
held publicly to account for its performance,
given its status as a government trading enterprise (GTE).
This paper examines performance measurement in SBN in light of the accountability
framework established by the NSW government. The paper considers firstly a framework
for managing the performance of GTEs in the
NSW public sector and how any improvements
in performance have been established. It then
goes on to examine the measurement of performance at the SBN and evidence of performance
improvement in SBN and the contribution of
employees to that improved performance. The
results suggest that, in terms of SBNk own
pe$ormance indicators and the narrative of its
senior management, performance has improved
over the last five years and that its employees
had made a substantial contribution. Its response
to the IRC claim by the ABEU that such a view
is illusory is then examined and conclusions are
drawn in light of the government’s accountability framework.

zyxwv
z
263

design of management incentives and regulations which promote efficient performance by
those parts of the public sector that are
principally engaged in trading activities,
including the provision of goods and services to
other parts of the public sector” (NSWG 1988:
1). In discussing the nature of GTEs and the
potential for improving their performance, the
report explores “corporatisation” of the GTEs as
a central strategy for achieving productivity
gains. “Corporatisation” has been variously
defined by its supporters and detractors but, at its
simplest, can be seen as “converting agencies
from statutory authority structure (established
by an Act of Parliament) or a departmental
structure (established by Cabinet) to a company

structure (in conformity with Companies
legislation applying to the private sector)”
(Howard 1993: 13).
The rationale for this conversion is that the
more the agency’s legal structure conforms to
that of a private commercial entity, the more
overall behaviour in the agency, including
employee performance, will approach standards
established by competition in the private sector.
As Secretary of the NSW Treasury, Percy Allan
(1989: 4) described corporatisation as:

zyxwvuts
zyxwv
zyxwvut
zyx

A framework for improving the
performance of GTEs in the NSW public
sector

As part of a broad program of management
reforms in the NSW public sector, the newly
elected government in 19M2 instituted a series
of task forces and steering committees to
investigate and report on management incentives and regulations that would improve the
efficiency of the NSW public sector. Two of the
subsequent reports, which formed the basis of
government policy in the area of GTEs and are
therefore specifically relevant, are A Policy
Framework for Improving the Performance of
Government Trading Enterprises (NSWG 1988)
and the Classification and Control of State
Organisations (NSWG 1989). They are
discussed in turn.
The first document is “concerned with the

establishing an operating environment for
appropriate public sector enterprises which
replicates the internal and external conditions
that successful private enterprises face. The

expected result is an incentive environment
which will promote improvements in economic
efficiency.

In the same speech (p. 5 ) , he reinforced the
government’s view that the “5 principles of
ccrporatisation” - clear objectives, managerial
autonomy, performance evaluation, rewards and
sanctions, and competitive neutrality - must
apply if GTEs are indeed to use resources more
efficiently.
Of these five principles, the three most
pertinent to any subsequent discussion of
organisational and employee performance are
clear objectives, performance monitoring and
rewards and sanctions. Performance objectives
that are set must be clear and unambiguous, must
be rigorously monitored, and must be rewarded
or sanctioned according to results. Indeed, it is
axiomatic to performance-based reward systems

that reluctance to reward good performance or

264

zyxwvutsrq
zyxwv
zyx
LAMOND

apply sanctions if there is non-performance will
greatly undermine their effectiveness.
The program for reform presented in A
Policy Framework for Improving the Performance of Government Trading Enterprises is
considered by its authors (NSWG 1988: iii) to
complement the work of the Task Force on the
Classification of State Organisations. This Task
Force produced the second of the two documents
to be examined.
Classification and Control of State
Organisations (NSWG 1989), as the title

suggests, is a policy statement on the classification and control of state organisations. The
classification is based on the extent to which
government organisations are financially selfsufficient (financial status) and the degree to
which they are competitive (market status).
Given these two dimensions, six types of
government organisations were identified, ranging from “government service” (heavily subsidised monopolistic bodies such as the
Department of Business and Consumer Affairs,
or central agencies such as Treasury) to
“commercial enterprise” (self-sufficient fully
competitive bodies such as the Government
Insurance Office and SBN) (NSWG 1989: 3-4).
Using this classification, the report proceeded to
detail the nature and extent of administrative
process, input, output and accountability
controls which would apply to the different
kinds of organisations, consistent with a view
that government organisations which are heavily
subsidised and monopolistic (government service organisations) should be more tightly
controlled than government bodies which are
funded from sales of their goods or services and
which are in competition with suppliers of
similar or substitute services (commercial enterprises) (NSWG 1989: 3-4).
To this end, the report identified, in its
outline of accountability controls, performance
targets appropriate to a commercial enterprise as
follows:
Performance Agreement (ie Business Plan)
specifying following targets signed between
Board and Minister annually.
I) Rate of return on assets comparable with
that of other industry participants.
11) Other key financial statistics e.g debt/
equity, working capital, etc, compared with
industry norms.

111) Measures of efficiency of resources usage
and market share compared with industry

norms.
Corporate Strategic Plan specifying medium
term mission, objectives, strategies, implementation timetable and performance indicators
submitted to the Minister for approval at the start
of each government’s term (NSWG 1989: 41).
The key accountability mechanism by
which the achievement of these targets and the
overall performance of the commercial enterprise are presented is, as in all other NSW
government agencies, the annual report. The
legislation covering these requirements3 is also
regularly reinforced by Treasury guidelines as to
the style and content of annual reports (see eg
NSW Treasury 1992; NSW Treasury 1993). Put
simply, the legislation requires that an agency’s
annual report present a true and accurate picture
of its position and its performance.
It has been argued, however, that none of
the GTEs can be measured solely in terms of
“market performance”. Discussing the corporatisation process and how its success might be
monitored for particular agencies, Allan (1989:
11) noted that:
Even the most commercial of GTEs are still
subject to much less market-based performance
monitoring than private sector organisations.
Because GTEs are not subject to takeovers or the
risk of bankruptcy, they are exposed to less
scrutiny by the equity and debt markets than
comparable private-sector firms. Hence it is
necessary for government to develop surrogate
monitoring and incentive mechanisms.
He also noted the attendant problems in
developing those surrogate measures:
[a] difficulty is that associated with valuing the
assets of GTEs and the restructuring of their
balance sheets - critical steps in being able to
set meaningful rate-of-return targets, including
return on equity and on total assets. Very
crudely, in the valuation process, the enterprise
tends to seek a low valuation of its assets to
make any rate-of-return target easier to achieve.
Its attitude towards its debuequity ratio depends
on whether it wants to minimise its return to
Treasury or impress the credit rating agencies SO
it can borrow more cheaply (Allan 1989: 17).
Allan’s caveats alert us to the fact that,
while there are many performance measures
employed by the markets in which the GTEs
compete, the measurement of organisational
performance of GTEs needs to go beyond those

zyxw
zyxwvu

DILEMMAS OF MEASURING PERFORMANCE
measures if the complexity of the GTEs’
operating environment (including their ownership) is to be properly taken into account. The
natural corollary of course is that, in the same
way, any measurement of employee performance must reflect those variations from the
strict market indicators if it too is to capture the
nature of the demands placed on the workers in
that context.

Measuring “productivity”in GTEs
There is general agreement that “productivity” has a common meaning referring to some
quantified ratio of “outputs” to “inputs”. For
example, the guidelines for chief executive
officers on enterprise bargaining in the NSW
public sector, issued by the NSW Department of
Industrial Relations, Employment, Training and
Further Education (DIRETFE), define productivity as “the relationship between the cost of
inputs and the quantity and quality of outputs
and outcomes”. At the same time, the guidelines
also provide that “productivity” should include a
focus on organisational outcomes and not just
inputloutput ratios. Indeed, it is argued that
In the public sector (as with private sector
service industries) .. . it may be more appropriate
to place emphasis on the wider concept of
performance. This encompasses productivity . ..
and also includes broader considerations such as
quality, merit, EEO, program effectiveness, etc.
focussing more on outcomes in terms of
organisation’s purposes/goals rather than just
input/outputs (DIRETFE 1993: 50, 53).
Clearly, as far as DIRETFE is concerned,
employer-employee negotiations should not be
“limited by restrictive definitions or arguments
over semantics” (p. 50). Rather, the approach to
the issue should be in terms of a general notion
of performance and to talk about “performance”
rather than “productivity” per se.
To this end, DIRETFE is interested in
seeing that “the focus is on ensuring that
employee benefits are ‘exchanged’ for specific
improvements in organisational performance”.
In this context then, the various attempts at
“measuring productivity” can be construed as a
way of measuring organisational performance,
and:

zyxwv
265

to some extent) by the newkhanged employment arrangements ... or some other employment related factor (DIRETFE 1993: 50, 51).
Notwithstanding the DIRETFE views
regarding a wider notion of performance, the
focus on inputs and outputs as an indicator of
performance was a consistent view of the
government during the period under consideration. In its policy statement on the classification
and control of state organisations (NSWG 1989:
14), the government stated that an organisation’s
“operations are ‘efficient’ if it maximises outputs (goods/services) with given inputs
(resources). This view was shared by the then
Secretary of the Treasury, Percy Allan (1989:
19), in his paper on the NSW corporatisation
experience: “after all, improved efficiencies
means higher productivity which means less
labour unless total production is expanding”.
Generally speaking then, employee performance is understood in the NSW public sector as
a range of outputs (variously defined) expressed
in “per employee” terms. Certainly, in its reports
on the performance of NSW GTEs (see eg
NSWG 1990; NSWG 1991; NSWG 1992;
NSWG 1994), this is the approach taken by the
state government. The first of these reports
defines “output per employee” as an “indicator
of physical output unique to each GTE ... [which
may also include] ... real revenue per employee”
and characterises this measure as a measure of
performance. The report goes on to say that
annual changes in output per employee are a
“key measure of efficient utilisation of labour
resources in the enterprise”. Following are
examples of what are considered to be
appropriate “output per employee” measures:
Electricity Commission: Gigawatt hours of
electricity per
employee
Gigawatt hours of
Electricity Councils:
electricity per
employee
State Rail Authority
City Rail:
Number of passenger
journeys per employee
Freight:
Net tonne kilometres
per employee
State Transit Authority: Number of passenger
journeys per employee
(NSWG 1990: 5,9)

zyxwvuts
zyxwvutsrq

the measures that are relevant are those that

relate to areas of organisational performance
where desired improvements are caused (at least

zy

LAMOND

266

zyx
zyxwvu
zyx
zy

It was in this same report that a series of
employee input/output ratios were identified for
the SBN, as one of the GTEs whose performance
had been scrutinised (NSWG 1990: 54). These
included revenue/employee, assets/employee
and profit/employee. Clearly, these were the
kinds of measures which were being presented
as the basis for gauging productivity/performance in the SBN. The following sections
explore more specifically how organisational
and employee performance has been measured
in the SBN, at least for the purposes of meeting
its accountability requirements.

Measuring performance at the State
Bank of New South Wales
This section examines SBN’s raison d’Ctre,
the various ways in which organisational performance is measured and the ways in which
employee contribution to that performance is
taken into account, primarily by considering the
publicly available data contained in the bank’s
annual reports.
The State Bank of New South Wales was a
GTE that provided community banking, corporate finance and treasury services (NSWG 1990:
53). On 14 May 1990, it was “corporatised”, ie
under the proclamation of the State Bank
(Corporatisation) Act 1989, it became a
company incorporated under the Corporations
Law with effect from 14 May 1990 (SBN 1992:
2). According to SBN’s Statement of Purpose
(SBN 1992: 2), the bank’s principal objective is
“to be a successful business through efficient
operation, maximising the net worth of shareholders’ investment whilst exhibiting a sense
of social responsibility”. Its Statement of
Corporate Intent, elaborated in each of the
annual reports since 1990 (SBN 1990: 2; SBN
1991: 2; SBN 1992: 2; SBN 1993: 2), indicated
that SBN aimed to achieve returns received
by the shareholder groups of the nationally
operating banks (NOBs) in Australia, as
measured by:
a rolling four-year average internal rate of
return before tax (IRR); and
a sustainable return on opening equity
(ROE) (before tax and adjusted for net tax
deferral on balance sheet and exemption
from non-callable deposits).
The former (IRR) was considered to be the
9

primary measure of performance while the latter
(ROE) was considered to be a secondary
measure (SBN 1991: 9).
This approach to its business and to the
measurement of “success” in its business by
SBN is consistent with the government’s general
expectations concerning its GTEs - it looks to
establish an operating environment that replicates the internal and external conditions that
private enterprises face as a way of promoting
improvements in economic efficiency. It also
begins to satisfy two of the five “conditions of
corporatisation” - it sets clear objectives and
identifies the measures by which (in this case
organisational) performance will be evaluated.
At the same time, SBN has consistently
placed its own caveat on the targets it has
established and the success it may or may not
have in achieving those targets. In its first annual
report under the Companies (New South Wales)
Code, it was noted that the targets:

attempt to deal with different shareholder group
behaviour including differences in effective
cashflow tax rates (as derived from sources and
uses of funds) and difference in cash flows to and
(from) the shareholder group (i.e. the net of
dividend and rights issues/scrip dividends/
dividend reinvestment plans). There is a need to
further investigate and monitor the implications
of dividend imputation for the NOBs as their
behaviour changes over time. Adjustments to the
group’s performance targets may well result.
(SBN 1990: 2)

zy

This notation has been repeated in each of
the subsequent annual reports and reference has
been made to the performance comparisons
contained in each of those reports (SBN 1991: 2,
36; SBN 1992: 2, 36; and SBN 1993: 2, 40
respectively), arguing that “rule of thumb”
measures such as ROE “do not portray a very
accurate picture of the true annual return on
owners’ equity” (SBN 1990: 38). It was further
argued that a more precise method of estimating
return on investment is by way of measuring the
internal rate of return (IRR).
The IRR methodology assumes that SBN
and its nationally operating bank competitors
were “bought” for net realisable assets a number
of years ago (generally four) and then sold for
net realisable assets in the last reported financial
year. In the interim, the investor received a
dividend stream, paid for any rights issues or

zyxwv
zyxwvutsr
zy
267

DILEMMAS OF MEASURING PERFORMANCE
dividend reinvestments and accrued a capital
gain. The IRR is derived from these notional
cash flow streams and expressed in percentage
terms (SBN 1990: 38).
The government’s acceptance of this
approach is reflected in the following comment
in its report on the performance of its GTEs:
Traditionally, performance in the banking sector
is analysed using return on equity (ROE)
figures. ... However, due to the differing
ownership and taxation arrangements under
which the State Bank operates, the ROE
measure has a number of shortcomings as a
measure of the performance of the State Bank
relative to its major competitors. The Internal
Rate of Return (IRR) indicator attempts to
overcome these problems to allow a more
accurate comparison of bank performance
(NSWG 1990: 53).

This view has been reiterated in subsequent
reports (NSWG 1992; NSWG 1994). A detailed
analysis of the accuracy or otherwise of the IRR
methodology in gauging organisational performance is beyond the scope of this paper. Rather,
the purpose here is simply to highlight the
acceptance of the IRR indicator by both SBN
and government in place of the ROE or other
indicators as the key organisational performance
measure.
Before examining the IRR comparisons
presented by SBN, it is worth noting (for later
consideration of employee performance) that, on
one side of the balance sheet, in the period 1990
to 1993, the bank reported a profit before
abnormals and tax of between $30.8 and $92.4
million per annum; an increase in total assets of
58%; and an increase in its housing loan
approvals of nearly 250% in dollar value terms
(SBN 1993: 8, 13, 26). Indeed, in regard to
housing loans, the managing director noted in
the 1993 annual report:
Our share of the total of housing loans outstanding nationally has more than doubled since
1987. This reflects significant gains - up to
four times previous levels - in our share of new
housing loans written during the period (SBN
1993: 12).

On the other side of the balance sheet, SBN
reported that expenses as a percentage of assets
decreased by 16% in the same period (SBN
1993: 17).
These figures are presented by SBN as

evidence of performance improvement. The
annual reports do not, however, consider the
deeper issue of their adequacy. For example, one
might well ask whether a pre-tax return of $32.7
million dollars on assets of $19.1 billion in 1993
is an adequate return. This is, of course, a
question of absolute rather than relative
performance and it is noted that the statement of
corporate intent is presented in relative terms,
that is, in comparison with the nationally operating banks (NOBs). On the other hand, it raises
the issue of whether the information like this
presented in the annual reports since conversion
has more to do with the “dressing up” process of
selling the bank than with a balanced evaluation
of the bank’s performance during that period.
Nonetheless, as Table 1 shows, SBN’s IRR
measure is comparable with those of the “big
four” nationally operating banks over the period
for which comparative data is available.

TABLE 1 : INTERNAL RATE OF RETURN
FOR THE STATE BANK AND THE
NATIONALLY OPERATING BANKS
(rank order in brackets)
Year
Bank

ANZ
NAB
SBN
WBC

1990
%

1991
%

26.2(3) 13.7(3)
27.4( I ) 21.4( I )
26.7(2) 12.1(5)

(Westpac) 23.8(5)
CBA
26.1(4)

13.9(2)
12.8(2)

1992
%

1993
%

I .3(5)
10.8(2)
8.4(3)

3.9(4)
15.2(2)
4.2(3)

3.1(4)
12.8(2)

-2.0(5)
15.8(1)

(Derived from ABN 1990: 38; S B N 1991: 36; SBN 1992:
36; SBN 1993: 40).

Table 1 shows that, for example, SBN achieved
an average IRR of 4.2% over the four years to
1993 and was ranked third out of the five banks
which formed the comparison group. As such, it
appears to have achieved its aim of providing
returns consistent with those received by the
shareholder groups of the NOBs in Australia, at
least as measured by a rolling four-year average
internal rate of return before tax. It ranks in the
middle of the group in terms of average ieturns
for the measurement period. The state government’s report on GTE performance also ranks
SBN as No. 3 on the IRR measure and reports
that its total expense to average assets ratio was

268

zyx
zy
zyxwvu
zyxwvut
LAMOND

consistently below that of the NOBs for the
period 1986-87 to 1991-92 (NSWG 1994: 87).
On the basis of the figures presented above,
then SBN Chairman John Lamble summarised
the bank’s post-conversion performance in the
1993 annual report as follows:
It is my pleasure to report that State Bank of

New South Wales Limited strengthened its
position as Australia’s leading regional bank
during the 1992-93 financial year ... The Board
is confident that the Bank has emerged from the
year in sounder and more profitable condition
than at any time in recent years (SBN 93: 8).

None of the annual reports provides information on the IRR of any of the other regional
banks, so it is difficult to judge the veracity
of the chairman’s claim. There is, however,
apparently no doubt in his mind that the performance of SBN as an organisation has improved,
and he is presumably using the same data
presented in the annual report to draw his
conclusions.
Given the chairman’s views, one might
register the generally downward trend in IRR in
Table 1 and the gap in performance between the
top two performers and SBN. Indeed, in SBN’s
evidence to IRC, its financial performance was
described as “still well short of what investors
would regard as a reasonable return on investment”; this evidence pointed to the performance
achieved by the Commonwealth Bank and the
NAB as more acceptable returns (Crawford
1994: 14). Again, the latter observation is
worthy of note in light of the requirements of the
annual reporting legislation for GTEs to present
a true and accurate picture of their position and
its performance.

1993: 18), when he says that the “contributions
of the Directors, Management and stuff
(emphasis added) have put us in a strong
position to generate improved returns for our
shareholders”, suggest that the staff have indeed
played a role in the improved performance of
SBN. The purpose of this section is to determine
whether the available evidence supports that
view, by examination of available indicators of
employee performance.
It would appear that, as early as 1983-84,
SBN was measuring employee performance in
terms of (inter alia) revenue per employee, profit
per employee, and assets managed per employee
(NSWG 1990: 53). Through the same period, it
has been measuring organisational performance
(again inter alia) in terms of market share (of eg
loans, deposits, and financial intermediation),
profit, return on equity, internal rate of return
and return on total assets (NSWG 1990: 53). It is
also worth noting that the 1993 annual report
stated that:
Productivity improvements were reflected in the
reduction in the expense to assets ratio from 2.64
per cent to 2.45 percent and the increase in the
assets per staff member from $2.9 million to
$3.3 million (SBN 93, p17).

In his paper on “corporatisation”, Allan (1989:
19) expressed the concern that one obstacle
could be:

zyxwvut

Measuring employee performance in the
State Bank
Informed by the material which purports
to demonstrate that the performance of SBN
improved in the period 1990-93, evidence of the
contribution of employees to that improved
performance is now considered. It is done by
examining employee performance as measured
by the performance indicators that are identified
by SBN as relevant to employee performance
and the narrative statements by senior management about the performance of employees.
The words of the managing director (SBN

trade union resistance to job shedding. After all,
improved efficiencies means higher productivity
which means less labour unless total production
is expanding.

This would appear to have been an unwarranted
concern, at least on the basis of the figures
presented in Table 2 which show that, while
SBN’s part-time employment increased by 88%
between 1990 and 1993, the full-time numbers
dropped by 29.6% over the same period, for an
overall reduction in staff numbers of 18.5%.
It should be noted that the EFT (equivalent
full-time) figures for employment at SBN are not
contained in the annual reports. Rather, figures
are given in terms of “full-time” and “part-time”
without an indication of the “equivalent fulltime” status of each part-time position. One is
still able to draw some fairly straightforward
conclusions about the staffing levels, based on
the size of the reduction in identified full-time
positions over the last five years.

TABLE 2: NUMBER OF SBN
EMPLOYEES BY YEAR, 1990-93
Year

1990

1991

Employees
Full-time
6455
%change
0.7
Part-time
848
%change
24.3
Total
7303
%change
2.8

5950
-7.8
866
2.1
6816
-6.7

1992

1993

5281

4512
-14.6
1262
3.4
5772
- 1 1.2

~~~~~

~

- 1 1.2

1220
40.9
6501
4.6

~~~~

(Derived from SBN 1990: 26; SBN 1991: 30; SBN 1993:
34.)

The question now is whether SBN was able
to maintain or improve its performance levels in
the face of this “job shedding”. One answer is to
re-examine its performance measures as presented earlier on a “per employee basis”. These
figures, (relating to operating profits; group
assets; and housing loans), are presented in the
following tables.
The figures shown in Table 3 suggest that
the SBN has increased its profit before abnormals and tax on a per employee basis by 2 1 %
over the last four years. Meanwhile, its total
assets per employee have increased by 3 1.3%
and housing loan approvals per employee
increased by 230% in dollar value terms. This
increase on a per employee basis is 70% higher
than the total value increase of the loan
approvals (1 60%).

TABLE 3: SBN OPERATING PROFITS
BEFORE ABNORMALS & TAX (OPAT),
GROUP ASSETS (GA), AND HOUSING
LOAN APPROVALS (HLA) PER
EMPLOYEE, 1990-93.
Year

zyxwv
zy

zyxwvu

DILEMMAS OF MEASURING PERFORMANCE

1990

1991

1992

1993

Measure
OPAT
4.7
GA ($billion) 2.52
HLA ($million) 1 16.0

4.5
2.68
230.2

5.9
2.87
25 1.5

5.7
3.31
38 1.7

(Derived from SBN 1993: 8, 13.26)

As previously noted, without an EFT breakdown
of SBN staff, all staff have been treated as fulltime for the purpose of deriving the performance
figures presented above. It is therefore reasonable to suggest that these figures are a conser-

269

vative estimate of the employee productivity
gains that have accrued to SBN over the last four
years. The clear implication is, however, that, on
the basis of its accepted criteria of labour or
employee productivity, SBN has increased its
employee productivity significantly over the last
four years on a per employee basis. It also
provides a series of unenumerated reports of
performance improvement. In its business
banking area for example, it states:
Significant improvements are already evident:
reduced time in administrative tasks
increased time spent on business development
faster responses to customer enquiries and
loan applications
trebling calls on existing customers
quadrupling calls on prospective customers
doubling loan approvals and settlements (SBN
93: 28)

The following comments from senior
members of SBN’s management highlight
the perceived importance of its employees’
contribution to this improved performance,
according to its senior management. Alan
Whitehead, Head of Business Banking and a
member of the Bank’s Executive Committee,
has high praise for SBN employees under his
control:
Our team of dedicated people in strategic
locations is putting its skills and training to
work.
Our people are dedicated to developing wellinformed and enduring relationships, working
with clients to find the best financial solutions.
It’s a successful formula; interactive, responsive
and responsible (SBN 1992: 24 and SBN 1993:
I5 respectively).

His colleague, David Sandig, Head of Customer
Service and a fellow member of the Bank’s
Executive Committee, said:
The central objective of Customer Service is
to maximise customer benefits and provide
flexible and convenient banking services on an
equitable basis. We have been working hard also
to give all staff the relevant information and
tools with which to build professional skills and
confidence. The emphasis is on skills, empathy,
professionalism and continual improvement
(SBN 1993: 16).

Owen McGregor, Head of Banking Support,
points out:
Many of the changes we have introduced have
emanated from staff suggestions. Our success

270

zyxwvutsrq
zyx
zyxwvut
zyxwvuts
zy
zyxw
zyxwvut

has hinged upon our staff pursuing a philosophy
of constant improvement, the evidence of which
has been the Bank’s ability to handle the growth
in processing volumes with fewer resources, and
at the same time, significantly improve levels of
customer service (SBN 1993: 18).
McGregor’s observation is echoed by Managing
Director John O’Neill in the Managing
Director S Bullerin (O’Neill 1993):
the dedicated productivity groups were very
successful in identifying areas where improvements could be made and staff savings achieved.
As a result we achieved a saving in overall
expenses of $20m. Another excellent achievement.
SBN’s senior executives appear to be in no
doubt that there has been an improvement in
organisation performance over the last four
years and that the bank’s employees have
themselves contributed to that improvement.
However, the response of SBN to the claim by
the ABEU in front of the IRC presents a
different picture.

Measuring performance for industrial
relations purposes
SBN’s evidence in response to ABEU’s
claim for a share in performance gains generally
acknowledged that “SBN’s performance has
improved markedly in recent years” (Crawford
1994: 3). However, it was argued (inter alia)
that this had been “predominantly due to: (a)
strategic change; (b) substitution of technology
for labour; (c) outsourcing of activities; (d) role
restructuring and process engineering, including
the use of support technology, in order that
customer services can be provided more
efficiently; (e) more efficient use of staff time;
and (f) promotion of competitive products”
(Crawford 1994: 4-5). Indeed the implication
was that, if anything, staff were now making
less of a contribution to performance since the
number of activities removed from the branches
“far outnumber those that have been added”
(Crawford 1994: 12).
SBN also sought to demonstrate that
employee productivity had not increased over
the period by constructing two new productivity
indicators (Eagleson 1994: 5-6). The output
measures used were profit before doubtful debts,
abnormals and taxes, and total assets (cf also
Table 3), but the input measure now used was

LAMOND

“total salary costs, adjusted for executive
salaries” (Eagleson 1994: 5 ; the nature of this
adjustment is not detailed). As was the case for
ABEU, all SBN’s data here were drawn from the
its annual reports. The figures presented by SBN
are summarised in Table 4.

TABLE 4: RATIO OF PROFIT BEFORE
DOUBTFUL DEBTS, ABNORMALS AND
TAXES AND TOTAL ASSETS (PDAT)
AND TOTAL ASSETS (TA) TO TOTAL
SALARY COSTS (ADJUSTED FOR
EXECUTIVE SALARIES), 1990-93.
Year

1990

1991

1992

~~

Measure
PDAT
TA

0.68
66

0.76
75

1993

~~

0.78
77

0.74
81

(Adapted from Eagleson 1994: 5-6)

Table 4 shows that, for every dollar spent on
salaries between 1990 and 1993, SBN earned
between $0.68 and $0.78 profit before doubtful
debts, abnormals and taxes and total assets, with
a clear trend yet to emerge. The ratio of total
assets to total salaries showed an increase of
23% from $66 to $8 1 of assets managed for each
dollar spent on salaries, or an average increase of
about 6% per annum. SBN argued that neither
showed a “dramatic improvement” and it was
concluded that “no such increase [in employee
productivity] has occurred” (Eagleson 1994: 6).
The reader is left to judge the merits of the
respective arguments by SBN and the ABEU,
noting that it is likely that each would agree with
the conclusions of the other when the respective
performance measures are used. More important
is the issue of the choice of the measures themselves. Suffice to say that, if SBN had, in its
annual reports, used and presented figures as
representative of its Performance and the performance of its employees, then a reasonable
person would expect this to be the basis for
measuring its performance generally and that the
measures would be able to be used for a multiplicity of purposes. That SBN determined to rely
on newly developed and different measures to
argue against a performance-based claim in the
IRC suggests that it had a specific purpose in
mind when presenting the figures it did in its
annual reports.

DILEMMAS O F MEASURING PERFORMANCE

Conclusion
Based on the information presented, it
would appear reasonable to conclude that, in
terms of its own performance indicators and the
narrative of its senior management, there had
been an improvement in the performance of
SBN since 1990, and that the SBN’s employees
had made a substantial contribution to improvement in that performance. SBN has argued,
however, that the improvements in its performance occurred without any contribution of the
employees and that the figures presented by the
union were merely “arm’s length” and lacking
“any substantive basis” because they relied on
“financial reports to identify shifts in various
mathematical ratios, such as profit per FTE [Full
Time Equivalent] employee, staff expenses per
FTE employee, and assets per employee”
(Crawford 1994: 3-4).

27 1
mance, in accordance with the NSW annual
reports legislation. The results suggest, rather,
that the information presented by SBN was
primarily aimed at representing a picture of a
“profitable, efficient and competitive” entity.
In other words, SBN has been hoisted on its
own pstard. It has, post-conversion, looked to
present itself to its various stakeholders as an
attractive purchase for prospective buyers, by
showing performance “improvements” across a
range of measures. At the same time, it has left
itself open to claims by another key stakeholder
group, its employees, for a share in the “performance dividend”. These findings highlight the
dilemmas facing GTEs which attempt to demonstrate performance improvement when their
performance data are used for other than
“accountability” purposes.
Notwithstanding its response to ABEU in
the recent IRC case, SBN would appear to have
met the letter, if not the spirit, of the law in terms
of its accountability requirements. Its resistance
to the claims of ABEU may have been prompted
by an eye to future rather than past events.
SBN’s performance in light of those future
events will be most interesting to observe.

zy

zy
zyxwvutsr

If it is accepted that ABEU’s conclusion
lacks “any substantive basis”, then it raises the
question as to whether the information that SBN
presented to the NSW parliament, the govemment and the general public gave a true and
accurate picture of its position and its perfor-

NOTES:
I . In this context, the chairman used the term “corporatisation” to mean incorporation as a company (SBN had
previously been incorporated as a statutory corporation), clearly delineating “corporatisation” as an event
rather than a process (ie as a conversion). Given the plethora of definitions which have been attached to the
term, this does, of course, add further confusion to the use of “corporatisation”. To avoid this confusion
the term “conversion” will be used throughout the paper; or, where it is necessary to use the term
“corporatisation”,it will be used to mean incorporation as a company.
2. This was the Greiner Liberal-NationalParty Coalition government.
3. See NSW Annual Reports (Statutory Authorities) Act 1984; NSW Annual Reports (Statutory Authorities)
Regulations 1985.

REFERENCES:
Allan, P 1989. “Corporatisation: The NSW Experience”, Address to the National Accountants in Government
Convention, March.
Blue, T 1994-95.“CML seals State purchase with $362m”, The Weekend Australian, 3 1 December-1 January.
Crawford, M 1994. Afldavir of Michael Crawford before the industrial Relations Commission of New South
Wules, IRC NO 3070 of 1993, unpublished.
DIRETFE (NSW Department of Industrial Relations, Employment, Training and Further Education) 1993.
Enterprise Bargaining in the New South Wales Public Sector, Sydney.
Eagleson, G K 1994. Statement of Professor G K Eagleson before the Industrial Relations Commission of New
South Wales, IRC NO 3070 of 1993, unpublished.
Howard, M 1993. Sratement of Michael Joseph Howard before the Industrial Relations Commission of New
South Wales, IRC NO 789 of 1993, unpublished.
IRC (Industrial Relations Commission of New South Wales) 1993. Case No. IRC No 3070 of 1993.
NSWG (New South Wales Government) 1988. A Policy Framework for Improving the Performance of

zyxwv

Government Trading Enterprises: A Report by the Steering Committee on Government Trading
Enterprises, NSW Government Printing Service, Sydney.

212

zyxwvutsrqp
zy
zyxwvutsrq
zyx
zyxwvutsrq
zyxwvutsrqp
LAMOND

- 1989. Classification and Control ofStare Organisations, Sydney (note that, in this and marly other recent

NSW government reports, the publisher is unstated).
Governmenf Businesses: Microeconomic Reform, Sydney.
Government Businesses: Microeconomic Reform, Sydney.
Government Businesses: Microeconomic Reform, Sydney.
Government Businesses, Sydney.
NSW Annual Reports (Statutory Authorities) Act 1984.
NSW Annual Reports (Statutory Authorities) Regulations 1985.
NSW Treasury 1992. Guidelines for Annual Reporting, (Circular No. G 1992/ 1 3 , Sydney.
- 1993. Guidelines for Annual Reporting (Circular No. 9). Sydney.
O’Neill, J 1993. Managing Director’s Bulletin, 14 October.
SBN (State Bank of New South Wales Ltd) 1988. Annual Report 1988.
- 1989. Annual Report 1989.
- 1990. Annual Report 1990.
- 199 1. Annual Report 1991.
- 1992. Annual Report 1992.
- 1993. Annual Report 1993.

- 1990. Performance of NSW
- 199 1 . Performance of NSW
- 1992. Performance of NSW
- 1994. Performance of NSW