CIVIL SERVICE PAY REFORM Francisco Cardona SIGMA Workshop on Remuneration Systems for Civil Servants and Salary Reform Vilnius, 14 December 2006

Policy and Politics of the Reform inserting pay reform within a broad governance reform policy framework (or at least within a HRM reform policy) Politics: pay reform is shaped by politics: It engenders winners and losers in the allocation of public resources Political will, political commitment , leadership vs. political feasibility or politics as the art of the possible

PAY REFORM POLICY Ideologies on pay reform : what is pay for? To pay public servants enough to motivate them to do the jobs that will enable the government to efficiently achieve its strategic objectives, having regard to affordability and equity To ensure that the state will have a bureaucracy of sufficient quality and quantity for it to be able of ensure the governance of the country and the assertion of the state’s authority, having regard to affordability and equity Looking outward: Approximating public sector salaries to those paid in the private sector Looking inward: Internal fairness of the remuneration system (equal pay for equal work; differences should eb based on differences in work, responsibilities and qualifications)

Constructing (limits to) a Government Pay Reform Programme 1 Bring pay reform into line with the government's overall reform objectives Set a target for capping overall pay spending Establish an appropriate compression ratio Strike a balance between pay, other benefits (including pensions) and allowances Consider the historical trajectory of the State and the existing form of politics (or the impact of patronage)

Government Programme 2 Decide which are the reasons fro reforming the pay scheme and consistently determine the bases for pay Emphasis put on: Denotes preference for Drawbacks Market-based pay -Competing with private sector -Attracting and retain staff -Opaque arrangements -Dishonest dealings -Difficult to attain Pay based on grades -Establishing a predictable career structure -Transparency -Equality -Rigidity -Rewards theoretical competences, not actual performance Pay based on Job Content informed by Job Evaluation -Rewarding the objective contents of the job position disregarding the position holder -No job evaluation is objective -In the end, political negotiations will supersede any notion of fairness -Job evaluation is expensive and long Pay Based on Individual Performance (PRP) -Rewarding well only those well-performing individuals -Increasing the power of managers and politicians -Arbitrary evaluations and pay determination -Internal cooperation is doomed -Cumbersome red-tape -Expenditure may skyrocket -Everybody is “satisfactory” -PRP exacerbates nepotism and favouritism Pay based on Group Performance -Team building -Difficulties in applying individual PRP are hoped to be overcome through group PRP Risks of ‘free-riders” -Internal imbalances within the group Weak cooperation with other groups -Same drawbacks as individual PRP

POLITICS: Pay Reform Process1 Involving stakeholders, including Trade Unions Taking external advice Taking internal advice Handle expectations raised by pay commissions Managing the interaction between politics and technical instruments (i.e. reinforcing the political leadership)

Reinforcing political leadership of the exercise also means giving directions on the following issues Whether pay will be treated in isolation, or as an element in a broader HRM/staff motivation initiative or of a still broader governance reform. How much the government can currently afford to pay, and what it aspires to pay in the future Where the money will come from, whether from increased tax revenue, possibly a result of economic growth, or from redirecting existing money, or (in the short term) from donors Whether pay decisions should be decentralised Whether job evaluation should be used Whether performance-related pay should be considered (and introduced?) Whether pay and allowances should be consolidated and monetised, or failing that, what the balance should be between the two What account will be taken of comparisons with the private sector, or with other governments in the region, or with other parts of the national administration What the compression ratio should be Whether there should be a ‘minimum living wage’ Whether some groups (for example, primary teachers or others) will be singled out for special treatment or ‘salary enhancement’ Whether and how salary reform should be somewhat linked to budget forecasting or future budget projections.

CONCLUSIONS Pay reform should be part of a broader governance reform or a least of a wide civil service motivation or HRM reform. Pay reform is not principally a technocratic exercise, but a political endeavour on which the government should constantly keep the political leadership. Political leadership is reinforced if the interaction between political and technical issues is well managed. The pay reform strategy should include the final pay design and objectives. The technical and methodological aspects of the reform need to be understood and used, but they should be put in the context of the politics of the reform.