Transcript Session13 - World Bank

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
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
A. Some Concepts
Civil Service Role & Size
Based
on answers to three basic questions:
What
role
of the state
How
organization,
By
or structure of the public administration
whom
civil
service – role, composition & size
(Sample references: WDR 1997; WPS 1771/1806;
Kazakhstan Transition of the State Report)
Civil Service Compensation
Elements:
Base
salary
Allowances
Pensions
Other benefits
Monetary
Non-monetary
Civil Service Compensation
Concepts:
Wage
adequacy
Average
Central Govt. Wage as multiple of per capita GDP
Compression Ratios
Transparency
Monetization
Competitiveness
Fiscal
sustainability
Relativity
Civil Service: Relating
Positions To Compensation
Job
description
Job evaluation
Job families
Grading
Classification of positions
Pay policy
Salary structure/grades/steps
Budgetary Pay & Employment
Objective

To achieve a sustainable level of budgetary
employment consistent with remuneration levels
sufficient to attract and retain qualified
personnel
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)
B. International Comparisons
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

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

Wages


Average Central Government Wages (yearly,
in local currency)
Assessment of the Wage levels in relative
terms



Wage bill as % of GDP, O&M 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
Government Wages as percentage
of GDP
12
10
8
6
4
2
0
Africa
Asia
ECA
LAC
MENA OECD
Central Government Wages and salaries
Overall
Average Govt. Wages as Multiple
of per capita GDP
4.5
4.3
4
3.5
3
2.5
2.5
2.2
2
1.5
2
1.2
1.1
1
0.5
0
Africa
Asia
ECA
LAC
MENA
OECD
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.
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
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
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
Government Employment
10
9
8
7
6
5
4
3
2
1
0
Asia
Central
S ub-National
LAC
Education
Health
OECD
Military
C. Public Pay Policy Issues
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
Civil Service Compensation




Structure of Compensation
Pay Policies
Dispute Resolution
Interaction between budget cycle and pay
determination cycle
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
Structure of Pay






Basic rates
Flexibility and relativities
Pay progression
Performance pay?
Regional pay variations
Extent of Decentralization and Its Effect(s)
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????
Resolving Compensation Disputes


No strike rules
Typical conflict areas/themes
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.

D. Link With Budget
Formulation, Execution and
Monitoring
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
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

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’

The Rich Pay More,
But the Poor Pay More Dearly
median percent of household income paid in bribes (among those that paid)
percent of households that reported paying bribes in the previous 12 months
33%
20%
16%
11%
8%
5%
poorest third
middle third
richest third
The Rich Bribe for Speed,
The Poor Bribe for Access
100%
Speed
75%
77%
Benefits
Avoid Problems
67%
Gratefulness
50%
50%
39%
36%
30%
25%
22%
23%
17%
11%
6%
9%
0%
poorest third
middle third
richest third
Notes: This chart is restricted to those respondents who made unofficial payments that they felt were necessary in order to receive proper
service. Thus the designation "gratefulness" not not imply an innocuous token of appreciation or tradition.
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

Processes and Instruments

Estimating the fiscal impact of pay and employment
adjustments:

Modeling tool to explore alternative scenarios


Challenges:




Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, etc etc
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
CSR: Operational Approaches




Strengthening the linkages – Thailand
‘Efficient nucleus’ – Russia (TAMP)
Internal structural adjustment – UK/Japan
Combination of all three:
New Zealand/Australia
 Kazakhstan

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

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