ILO Turin Training Centre, December 11-13, 2007 Public pay system reforms

The context of reforms Sort of redistribution but not necessarily increased public sector wage bill Need in some countries (ex. Russia) to increase the wage bill First wave of reforms in the 1980s: Denmark, Italy, the Netherlands, New Zealand, Spain, Sweden, the UK and the USA Second wave in the 1990s: Germany, France, Switzerland, and a few Eastern European countries

The objectives of reforms Need to recruit and retain their staff particularly among high qualified (/private sector) Face the end of indexation with decreased inflation Motivate the staff despite reduced seniority system

The main trends of reforms 1. Decentralization of pay determination 2. Change in grading and pay structures 3. More diversified forms of remuneration especially more related to skills, responsibility and performance

1. Decentralization Classification of civil service pay systems based on the degree of autonomy of sectors/departments/agencies of the public sector to adapt their wage scale to the local requirements But the Ministry of Finance generally controls the wage bill in one way or another Centralized systems: Germany, France, Spain and Portugal Decentralized system: the UK Mixed systems: Italy, the Netherlands, Denmark, Ireland, Finland, Sweden, Canada and the USA

2. Change in the pay increase decision-making process The move toward decentralization involves a change in the grading and pay system But another process is under change i.e. the way pay increases take place and who decides such increase Who decides? Two main systems: from unilateral decision from the state or through collective bargaining Generally a mixed system prevails

A combination of the two systems In France and Germany, decision taken by the state but after consultation whether formal or informal In the US, pay increases decided by the G and the Congress except for post workers who enjoy collective bargaining (also the principle of equal pay with private sector for similar job) In the UK also public/private parity through the ‘pay review boards’. Two systems prevail: CB for most departments/agencies and ‘pay review boards’ for some groups of civil servants (armed forces, top salary groups, nurses, doctors, teachers in England and Wales) The civil service wage bill can be controlled in diff. ways.

3. Pay systems related to skills, responsibility and performance Main issue: transform the traditional seniority based system into Performance Related Pay (PRP) Introduced by law in most OECD countries except Denmark and Finland through CB But only a few have genuine PRP: Denmark, Finland, Korea, New Zealand, Switzerland and the UK mainly because job contents and career development prospects found to be stronger incentives for public employees than PRP

So why introduce PRP? Helpful in facilitating change Develop effective appraisal and goal setting process Thus helps to clarify tasks Induces skill developments and flexibility in work performance Improves employee/managers dialogue Motivates team work Found as recruitment incentives

How does PRP work? At the beginning mainly quantitative appraisal measurements introduced to avoid subjectivity, but found not to work well in the public sector due to the difficulty in measuring productivity PRP profoundly changed: less formal than 10 years ago and more based on dialogue with line management with an assessment of pre-identified objectives In the 80/90s PRP applied only to senior management; today all categories are concerned although the bonus remains higher for managers; by contrast in the US bonuses abandoned for non-managerial staff Shift from individual to more collective bonuses

Advantages and disadvantages of decentralisation to adapt better wage increases to occupations and sectors to make managers responsible of HR management to create more autonomy to link wages to performance At the same time, it may create too many differentials especially in large countries like Russia where imp. Differences prevail between regions

Advantages and disadvantages of centralization Ensures solidarity among civil servants Induces mobility among sectors Allows coherence in pay policy among occupations and sectors of civil service and reduces inequality However, less flexibility to adapt to local conditions and to individual/collective performance. Although France has introduced profit-sharing for public employees Significant ex. of the US: after a period where they adapted and added new wage grades locally they went back to common wage scales to limit wage inequalities Whatever system, need to avoid disbalanced situations