The province is giving raises worth $58 million — an average of $6,905 each — to 8,400 civil service managers chilling in a salary freeze because some now earn less than their staff, the Star has learned.

An internal government memo sent Tuesday highlighted the conundrum, leading to an ironic situation where 1,300 managers have requested demotions to boost their paycheques since the freeze began in 2011.

The brain drain has continued with others leaving for greener pastures in the broader public sector, such as municipal governments, or in private business.

Premier Kathleen Wynne’s cabinet approved the raises, along with benefit improvements, at a meeting earlier this month to stop the wage-freeze fallout from snowballing, said sources familiar with the plan who asked not to be identified.

Deputy premier Deb Matthews defended the thaw, which is sure to cause a political headache for the government. It has repeatedly pleaded poverty in contract talks with unions as it scrambles to eliminate a $7.5-billion deficit by 2018.

“The OPS (Ontario Public Service) has faced retention and recruitment challenges due to the freeze,” Matthews, also president of the Treasury Board, said in a statement warning of a looming leadership crisis.

“With one in five managers being able to retire in the next three years, we need to make sure we are attracting and retaining top talent to fill these roles. Salaries are no longer competitive with the market.”

Matthews said innovative bosses, from deputy ministers to front-line managers, are needed as the government works to “transform” public services, making them more efficient while balancing the budget.

The $58 million for this fiscal year include lump sum “catch-up” payments averaging $4,500 per person, movement of three to five per cent through the salary grid plus pay increases of 1.4 per cent effective Jan. 1.

That money won’t eliminate the gaps in all cases but is designed to plug holes until a longer-term strategy is ready, sources said.

Salaries for civil service managers range from sub-$100,000 to $300,000 or more in the cases of a few deputy ministers.

Don Drummond, a former TD Bank chief economist whose landmark 2012 report on making public services sustainable warned wage freezes could backfire, has agreed to help the government chart a course out of the problem it created.

“There are legitimate concerns about the effect (the freeze) has had on the ability of the OPS to retain individuals in key leadership roles, and this situation is only getting worse,” Drummond said in a statement to the Star.

He will report early next year.

Salaries are 24 to 59 per cent behind wages available outside the civil service, with some managers leaving to make $100,000 more a year, and one-quarter of managers are now making about the same or less than their employees, sources said.

That would increase to one-third of managers within two years if action is not taken.

On the benefits side, while unionized and professional staff in the public service get $1,200 per year for most family members in extended health care coverage, such as for massage therapy, physiotherapy and chiropractors, managers have been limited to $750 and only for themselves, not spouses or children.

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That is being bumped up to $750 for each dependent.

Matthews’ office said the $58 million for the raises this year will be more than offset by $77 million in savings from the freeze, reduced benefits, elimination of termination pay and reduced sickness entitlements.

Aside from managers, the 8,400 people affected include non-unionized staff such as executive assistants and human resources workers handling labour relations.

In contract talks with unions in recent years, the government has tried to reach so-called “net zero” collective agreements, in which any wage increases are offset by lower benefit or other costs.