Public Pay Policy and Its Implications for the Budget

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Public Pay Policy and Its Implications for the
Budget

• Jordan Public Expenditure Review
• June 19, 2003
• Amitabha Mukherjee
• Poverty Reduction and Economic Management Unit
• East Asia and Pacific Region, The World Bank

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Public Pay Policy and Its Implications for the
Budget

• Some concepts
• Civil service compensation international
  comparisons
• Public pay policy issues
• Budget formulation, execution, monitoring
• Processes and Instruments

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A. Some Concepts
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Civil Service Role Size

• Based on answers to three basic questions
• What
• role of the state
• How
• organization, or structure of the public
  administration
• By whom
• civil service role, composition size
• (Sample references WDR 1997 WPS 1771/1806
  Kazakhstan Transition of the State Report)

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Civil Service Compensation

• Elements
• Base salary
• Allowances
• Pensions
• Other benefits
• Monetary
• Non-monetary

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Civil Service Compensation

• Concepts
• Wage adequacy
• Average Central Govt. Wage as multiple of per
  capita GDP
• Compression Ratios
• Transparency
• Monetization
• Competitiveness
• Fiscal sustainability
• Relativity

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Civil Service Relating Positions To Compensation

• Job description
• Job evaluation
• Job families
• Grading
• Classification of positions
• Pay policy
• Salary structure/grades/steps

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Budgetary Pay Employment

• Objective
• To achieve a sustainable level of budgetary
  employment consistent with remuneration levels
  sufficient to attract and retain qualified
  personnel

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Budgetary Pay Employment

• Linkage with
• role and functions of the state
• streamlining of central government
• affordability criteria
• fiscal and administrative relations between
  central and local governments
• legal framework for budgetary employment
  (benefits, severance payments, pension, etc)

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B. International Comparisons
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Why are Government Employment and Wages
comparisons tricky?

• Lack of reliable and recent country data
• Differences in
• Methodology and classification
• Concept of the State
• Role and functions of different tiers of govt.
• Treatment of benefits and allowances

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Wages

• Caveats
• Compensation may be understated (e.g.
  bonuses/allowances may not be captured)
• Manufacturing wages in particular, and private
  sector wages in general, are often understated
  for tax and social contribution purposes by
  employers and employees

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Wages

• Average Central Government Wages (yearly, in
  local currency)
• Assessment of the Wage levels in relative terms
• Wage bill as of GDP, OM Exp.
• Private Sector Comparators
• Average Manufacturing Wage
• Average Financial Sector Wage
• Average Private Sector Wage
• Wage Adequacy
• Average Central Govt. Wage as multiple of per
  capita GDP
• Compression Ratios

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Government Wages as percentage of GDP
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Average Govt. Wages as Multiple of per capita GDP
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General Government Employment

• Employment in all government departments
  offices, organizations and other bodies which are
  agencies or instruments of the central or local
  authorities whether accounted for or financed in,
  ordinary or extraordinary budgets or
  extra-budgetary funds. They are not solely
  engaged in administration but also in defense and
  public order, in the promotion of economic growth
  and in the provision of education, health,
  cultural and social services.
• Source International Standard of Industrial
  Classification of All Economic Activities (ISIC),
  Series M No. 4, Rev 3- 1990.

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General Government Employment

• Six categories within General Government
  Employment
• Armed forces
• Civilian central government
• Sub-national government
• Health sector
• Education sector
• Police
• Not included casual/seasonal/temporary employees

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Employment

• Public Sector Employment
• State Owned Enterprises (where available)
• General Government Employment
• Military Employment
• Central Government Employment
• Subnational Level Employment
• Education (primary sec. school teachers)
• Health (Doctors, Nurses, Midwives and Nurses
  Assts.)
• Police (as an experiment)
• Expressed in nominal terms and as of
  population, labor force, total employment

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Employment

• Trends in employment, especially those relating
  to health and education, need to be seen against
• Fiscal situation necessitating measures such as
  taking employment off budget (e.g.
  Armenia/Kazakhstan)
• Progress on reform of intergovernmental finances
  (e.g. Central Europe)
• Data accuracy a key issue in many countries

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Government Employment
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C. Public Pay Policy Issues
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Civil Service Compensation Policy Issues

• Two common issues
• Objective(s) of Pay Policy
• Are objective(s) clear?
• If multiple objectives, are they consistent?
• If not, how to reconcile?
• Pay Determination Mechanism including
• Extent of Independence from Executive
• Extent of Collective Bargaining If Any

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Civil Service Compensation

• Structure of Compensation
• Pay Policies
• Dispute Resolution
• Interaction between budget cycle and pay
  determination cycle

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Collective Bargaining

• Level at which negotiations take place
• Status of collective agreements
• Participants in collective bargaining
• Unionization level
• Matters covered by collective bargaining
• Indexation
• Frequency of collective bargaining

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Structure of Pay

• Basic rates
• Flexibility and relativities
• Pay progression
• Performance pay?
• Regional pay variations
• Extent of Decentralization and Its Effect(s)

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Pay Policies

• Policy objectives and principles
• Public sector pay cost restraint
• Factors in adjusting pay
• Data sources
• Minimum wage issues
• Sector specific issues
• How much flexibility is appropriate????

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Resolving Compensation Disputes

• No strike rules
• Typical conflict areas/themes

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Pay Determination Systems

• Centralized collective bargaining esp. for
  federal/central civil servants
• Exceptions
• New Zealand Individual contracts
• France Negotiation not official. No agreements
  in several years pay was unilaterally set by
  Govt.
• Finland (personal agreements for c. 1000 senior
  CS)
• Germany, Greece CS status and pay set by law.

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D. Link With Budget Formulation, Execution and
Monitoring
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Pay Policy Pressures Impacts

• Fiscal Pressures
• Size of wage bill
• Number of public sector employees
• Public Administration Structures
• Human Resource Management
• Legal Framework
• Sector-specific issues, especially in health,
  education, police, armed forces
• All of these impact poverty reduction, service
  delivery and growth

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Impacts

• Impact of pay and employment policies
• Governance and corruption problems
• Access to services (see slides)
• Under the table payments (see slides)
• Poor quality of civil service
• Inefficiency
• Increases cost of service delivery

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Impacts Example Contracting Out Health Care
Services

• Need for careful design and implementation
• Financing arrangements
• Reporting and monitoring
• Timeliness of reimbursement
• Realism of cost recovery arrangements
• Preventing build-up of arrears
• Increase in bribe levels and frequency
• No change in staffing levels and staffing mix
• Impact on health statistics emergencies

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The Rich Pay More, But the Poor Pay More Dearly
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The Rich Bribe for Speed, The Poor Bribe for
Access
Notes This chart is restricted to those
respondents who made unofficial payments that
they felt were necessary in order to receive
proper
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Processes and Instruments

• Medium Term Expenditure Framework
• MTEF Budget Cycles and Human Resource Planning
• Example from reading
• Linking personnel information and payroll
• Human Resource Management Information System
  (HRMIS)
• Post management
• Wage bill control
• Rightsizing and severance

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Processes and Instruments

• Estimating the fiscal impact of pay and
  employment adjustments
• Modeling tool to explore alternative scenarios
• Mongolia, Philippines, Cambodia, West Bank/Gaza,
  Albania, etc etc
• Challenges
• Personnel data
• Compensation data
• Pensions and social security contributions
• The role and importance of participatory PERs
• Examples Philippines, Indian states
• Reference PEPFMR and follow up
• The AAA project cycle see uploaded
  presentation

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CSR Operational Approaches

• Strengthening the linkages Thailand
• Efficient nucleus Russia (TAMP)
• Internal structural adjustment UK/Japan
• Combination of all three
• New Zealand/Australia
• Kazakhstan

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CSR Operational Approaches

• Personnel management systems
• Addressing capacity constraints
• Simplification of pay and grading structures
• Internal upward feedback from inside
• External feedback for measuring impact
• Feedback from public (households/firms)
• Feedback from civil society and media

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Public Pay Policy and Its Implications for the
Budget

• Some concepts
• Civil service compensation international
  comparisons
• Public pay policy issues
• Budget formulation, execution, monitoring
• Processes and Instruments