Public Pay Policy and Public Pay Policy and Its Implications for the Its Implications for the

BudgetBudget

Jordan Public Expenditure ReviewJordan Public Expenditure Review

June 19, 2003June 19, 2003

Amitabha MukherjeeAmitabha MukherjeePoverty Reduction and Economic Management UnitPoverty Reduction and Economic Management Unit

East Asia and Pacific Region, The World BankEast Asia and Pacific Region, The World Bank

Public Pay Policy and Public Pay Policy and Its Implications for the Its Implications for the

BudgetBudgetSome conceptsSome conceptsCivil service compensation: Civil service compensation: international comparisonsinternational comparisonsPublic pay policy issuesPublic pay policy issuesBudget formulation, execution, Budget formulation, execution, monitoring:monitoring:

Processes and InstrumentsProcesses and Instruments

A. Some ConceptsA. Some Concepts

Civil Service Role & Civil Service Role & SizeSize

Based on answers to three basic Based on answers to three basic questions:questions:

WhatWhatrole of the staterole of the state

HowHoworganization, or structure of the public organization, or structure of the public administrationadministration

By whomBy whomcivil service – role, composition & sizecivil service – role, composition & size

(Sample references: WDR 1997; WPS 1771/1806; Kazakhstan Transition of

the State Report)

Civil Service Civil Service CompensationCompensation

Elements:Elements:Base salaryBase salaryAllowancesAllowancesPensionsPensionsOther benefitsOther benefits

MonetaryMonetaryNon-monetaryNon-monetary

Civil Service Civil Service CompensationCompensation

Concepts:Concepts:Wage adequacyWage adequacy

Average Central Govt. Wage as multiple of per capita Average Central Govt. Wage as multiple of per capita GDPGDPCompression RatiosCompression Ratios

TransparencyTransparencyMonetizationMonetizationCompetitivenessCompetitivenessFiscal sustainabilityFiscal sustainabilityRelativityRelativity

Civil Service: Relating Civil Service: Relating Positions To Positions To

CompensationCompensationJob descriptionJob descriptionJob evaluationJob evaluationJob familiesJob familiesGradingGradingClassification of positionsClassification of positionsPay policyPay policySalary structure/grades/stepsSalary structure/grades/steps

Budgetary Pay & EmploymentBudgetary Pay & Employment

ObjectiveObjective To achieve a sustainable level of To achieve a sustainable level of

budgetary employment consistent budgetary employment consistent with remuneration levels sufficient with remuneration levels sufficient to attract and retain qualified to attract and retain qualified personnelpersonnel

Budgetary Pay & EmploymentBudgetary Pay & Employment

Linkage with: Linkage with: role and functions of the state role and functions of the state streamlining of central governmentstreamlining of central government affordability criteriaaffordability criteria fiscal and administrative relations fiscal and administrative relations

between central and local governmentsbetween central and local governments legal framework for budgetary legal framework for budgetary

employment (benefits, severance employment (benefits, severance payments, pension, etc)payments, pension, etc)

B. International B. International ComparisonsComparisons

Why are Government Employment Why are Government Employment

and Wages comparisons trickyand Wages comparisons tricky??

Lack of reliable and recent country Lack of reliable and recent country datadata

Differences in:Differences in: Methodology and classificationMethodology and classification Concept of the StateConcept of the State Role and functions of different tiers of Role and functions of different tiers of

govt.govt. Treatment of benefits and allowancesTreatment of benefits and allowances

WagesWages

Caveats:Caveats: Compensation may be understated Compensation may be understated

(e.g. bonuses/allowances may not be (e.g. bonuses/allowances may not be captured)captured)

Manufacturing wages in particular, Manufacturing wages in particular, and private sector wages in general, and private sector wages in general, are often understated for tax and are often understated for tax and social contribution purposes by social contribution purposes by employers and employeesemployers and employees

WagesWages Average Central Government Average Central Government

Wages (yearly, in local currency)Wages (yearly, in local currency) Assessment of the Wage levels in Assessment of the Wage levels in

relative termsrelative terms Wage bill as % of GDP, O&M Exp. Wage bill as % of GDP, O&M Exp. Private Sector Comparators Private Sector Comparators

Average Manufacturing WageAverage Manufacturing Wage Average Financial Sector WageAverage Financial Sector Wage Average Private Sector WageAverage Private Sector Wage

Wage AdequacyWage Adequacy Average Central Govt. Wage as multiple of per capita Average Central Govt. Wage as multiple of per capita

GDPGDP Compression RatiosCompression Ratios

Government Wages as Government Wages as percentage of GDPpercentage of GDP

0

2

4

6

8

10

12

Africa Asia ECA LAC MENA OECD Overall

Central Government Wages and salaries

Average Govt. Wages as Average Govt. Wages as Multiple of per capita Multiple of per capita

GDPGDP4.3

2.5

1.1

2.22

1.2

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Africa Asia ECA LAC MENA OECD

General Government EmploymentGeneral Government Employment

Employment in “all government departments offices, organizations Employment in “all government departments offices, organizations and other bodies which are agencies or instruments of the central or and other bodies which are agencies or instruments of the central or local authorities whether accounted for or financed in, ordinary or local authorities whether accounted for or financed in, ordinary or extraordinary budgets or extra-budgetary funds. They are not solely extraordinary budgets or extra-budgetary funds. They are not solely engaged in administration but also in defense and public order, in engaged in administration but also in defense and public order, in the promotion of economic growth and in the provision of education, the promotion of economic growth and in the provision of education, health, cultural and social services.”health, cultural and social services.”

SourceSource: International Standard of Industrial Classification of All : International Standard of Industrial Classification of All Economic Activities (ISIC), Series M No. 4, Rev 3- 1990. Economic Activities (ISIC), Series M No. 4, Rev 3- 1990.

General Government EmploymentGeneral Government Employment

Six categories within General Government Employment:Six categories within General Government Employment: Armed forcesArmed forces Civilian central governmentCivilian central government Sub-national governmentSub-national government Health sectorHealth sector Education sectorEducation sector PolicePolice

Not included: casual/seasonal/temporary employeesNot included: casual/seasonal/temporary employees

EmploymenEmploymentt

Public Sector Employment: Public Sector Employment: State Owned Enterprises (where available)State Owned Enterprises (where available) General Government Employment: General Government Employment:

Military EmploymentMilitary Employment Central Government Employment Central Government Employment Subnational Level Employment Subnational Level Employment Education (primary & sec. school teachers)Education (primary & sec. school teachers) Health (Doctors, Nurses, Midwives and Nurses Assts.)Health (Doctors, Nurses, Midwives and Nurses Assts.) Police * (as an experiment)Police * (as an experiment)

Expressed in nominal terms and as % of Expressed in nominal terms and as % of population, labor force, total employmentpopulation, labor force, total employment

EmploymenEmploymentt

Trends in employment, especially Trends in employment, especially those relating to health and those relating to health and education, need to be seen against:education, need to be seen against:

Fiscal situation necessitating Fiscal situation necessitating measures such as taking employment measures such as taking employment off budget (e.g. Armenia/Kazakhstan)off budget (e.g. Armenia/Kazakhstan)

Progress on reform of Progress on reform of intergovernmental finances (e.g. intergovernmental finances (e.g. Central Europe) Central Europe)

Data accuracy a key issue in many Data accuracy a key issue in many countriescountries

Government EmploymentGovernment Employment

0

1

2

3

4

5

6

7

8

9

10

Asia LAC OECD

Central Sub-National Education Health Military

C. Public Pay Policy C. Public Pay Policy IssuesIssues

Civil Service Civil Service Compensation Policy: Compensation Policy:

IssuesIssues

Two common issues: Two common issues: Objective(s) of Pay PolicyObjective(s) of Pay Policy

Are objective(s) clear?Are objective(s) clear? If multiple objectives, are they consistent?If multiple objectives, are they consistent? If not, how to reconcile?If not, how to reconcile?

Pay Determination Mechanism including:Pay Determination Mechanism including: Extent of Independence from ExecutiveExtent of Independence from Executive Extent of Collective Bargaining If AnyExtent of Collective Bargaining If Any

Civil Service Civil Service CompensationCompensation

Structure of CompensationStructure of Compensation Pay PoliciesPay Policies Dispute Resolution Dispute Resolution Interaction between budget cycle Interaction between budget cycle

and pay determination cycleand pay determination cycle

Collective BargainingCollective Bargaining

Level at which negotiations take placeLevel at which negotiations take place Status of collective agreementsStatus of collective agreements Participants in collective bargainingParticipants in collective bargaining Unionization levelUnionization level Matters covered by collective Matters covered by collective

bargainingbargaining IndexationIndexation Frequency of collective bargainingFrequency of collective bargaining

Structure of PayStructure of Pay

Basic ratesBasic rates Flexibility and relativitiesFlexibility and relativities Pay progressionPay progression Performance pay?Performance pay? Regional pay variationsRegional pay variations Extent of Decentralization and Its Extent of Decentralization and Its

Effect(s)Effect(s)

Pay PoliciesPay Policies

Policy objectives and principlesPolicy objectives and principles Public sector pay cost restraintPublic sector pay cost restraint Factors in adjusting payFactors in adjusting pay Data sourcesData sources Minimum wage issuesMinimum wage issues Sector specific issuesSector specific issues

How much flexibility is How much flexibility is appropriate????appropriate????

Resolving Compensation Resolving Compensation DisputesDisputes

No strike rulesNo strike rules Typical conflict areas/themesTypical conflict areas/themes

Pay Determination Pay Determination SystemsSystems

Centralized collective bargaining esp. for Centralized collective bargaining esp. for federal/central civil servantsfederal/central civil servants

Exceptions:Exceptions: New Zealand: Individual contractsNew Zealand: Individual contracts France: Negotiation not official. No France: Negotiation not official. No

agreements in several years: pay was agreements in several years: pay was unilaterally set by Govt.unilaterally set by Govt.

Finland: (personal agreements for c. 1000 Finland: (personal agreements for c. 1000 senior CS)senior CS)

Germany, Greece: CS status and pay set by law.Germany, Greece: CS status and pay set by law.

D. Link With Budget D. Link With Budget Formulation, Execution Formulation, Execution

and Monitoringand Monitoring

Pay Policy: Pressures & Pay Policy: Pressures & ImpactsImpacts

Fiscal Pressures:Fiscal Pressures: Size of wage billSize of wage bill Number of public sector employeesNumber of public sector employees

Public Administration StructuresPublic Administration Structures Human Resource ManagementHuman Resource Management Legal FrameworkLegal Framework Sector-specific issues, especially in health, Sector-specific issues, especially in health,

education, police, armed forceseducation, police, armed forces

All of these impact poverty reduction, All of these impact poverty reduction, service delivery and growthservice delivery and growth

ImpactsImpacts

Impact of pay and employment Impact of pay and employment policies:policies: Governance and corruption problemsGovernance and corruption problems

Access to services (see slides)Access to services (see slides) Under the table payments (see slides) Under the table payments (see slides)

Poor quality of civil servicePoor quality of civil service InefficiencyInefficiency Increases cost of service deliveryIncreases cost of service delivery

Impacts: Example – Impacts: Example – Contracting Out Health Contracting Out Health

Care ServicesCare Services Need for careful design and Need for careful design and

implementimplementationation:: Financing arrangementsFinancing arrangements

Reporting and monitoringReporting and monitoring Timeliness of reimbursementTimeliness of reimbursement

Realism of cost recovery arrangementsRealism of cost recovery arrangements PrePreventing venting buildbuild--up of arrearsup of arrears Increase in bribe levels and frequencyIncrease in bribe levels and frequency No change in staffing levels and staffing mixNo change in staffing levels and staffing mix Impact on health statistics – ‘emergencies’Impact on health statistics – ‘emergencies’

The Rich Pay More, The Rich Pay More, But the Poor Pay More But the Poor Pay More

DearlyDearly

11%

8%

5%

16%

20%

33%

poorest third middle third richest third

median percent of household income paid in bribes (among those that paid)

percent of households that reported paying bribes in the previous 12 months

The Rich Bribe for The Rich Bribe for Speed, Speed,

The Poor Bribe for The Poor Bribe for AccessAccess

Notes: This chart is restricted to those respondents who made unofficial payments that they felt were necessary in order to receive proper

50%

67%

77%

22%

6%9%

39%

30%

17%

11%

36%

23%

0%

25%

50%

75%

100%

poorest third middle third richest third

Speed

Benefits

Avoid Problems

Gratefulness

service. Thus the designation "gratefulness" not not imply an innocuous token of appreciation or tradition.

Processes and Processes and InstrumentsInstruments

Medium Term Expenditure FrameworkMedium Term Expenditure Framework MTEF & Budget Cycles and Human MTEF & Budget Cycles and Human

Resource PlanningResource Planning Example from readingExample from reading

Linking personnel information and Linking personnel information and payrollpayroll Human Resource Management Information Human Resource Management Information

System (HRMIS)System (HRMIS) Post managementPost management Wage bill controlWage bill control Rightsizing and severanceRightsizing and severance

Processes and Processes and InstrumentsInstruments

Estimating the fiscal impact of pay and Estimating the fiscal impact of pay and employment adjustments:employment adjustments: Modeling tool to explore alternative scenariosModeling tool to explore alternative scenarios

Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, etc etcetc etc

Challenges:Challenges: Personnel dataPersonnel data Compensation dataCompensation data Pensions and social security contributionsPensions and social security contributions

The role and importance of participatory PERsThe role and importance of participatory PERs Examples: Philippines, Indian statesExamples: Philippines, Indian states

Reference: PEPFMR and follow upReference: PEPFMR and follow up The AAA “project cycle” – see uploaded presentationThe AAA “project cycle” – see uploaded presentation

CSR: Operational Approaches CSR: Operational Approaches

Strengthening the linkages – ThailandStrengthening the linkages – Thailand ‘‘Efficient nucleus’ – Russia (TAMP)Efficient nucleus’ – Russia (TAMP) Internal structural adjustment – Internal structural adjustment –

UK/JapanUK/Japan Combination of all three:Combination of all three:

New Zealand/AustraliaNew Zealand/Australia KazakhstanKazakhstan

CSR: Operational ApproachesCSR: Operational Approaches

Personnel management systemsPersonnel management systems Addressing capacity constraintsAddressing capacity constraints Simplification of pay and grading Simplification of pay and grading

structuresstructures Internal upward feedback from insideInternal upward feedback from inside External feedback for measuring External feedback for measuring

impact:impact: Feedback from public (households/firms)Feedback from public (households/firms) Feedback from civil society and mediaFeedback from civil society and media

Public Pay Policy and Public Pay Policy and Its Implications for the Its Implications for the

BudgetBudgetSome conceptsSome conceptsCivil service compensation: Civil service compensation: international comparisonsinternational comparisonsPublic pay policy issuesPublic pay policy issuesBudget formulation, execution, Budget formulation, execution, monitoring:monitoring:

Processes and InstrumentsProcesses and Instruments