Nelson Marconi Laura Carrillo Claudia Helena Cavalieri Remuneration of Senior Managers in The Public Sector – An Analysis of the Latin American Countries Latin American Center for Development Administration, CLAD Nelson Marconi Laura Carrillo Claudia Helena Cavalieri

GOALS COMPARE AND ANALYZE THE WAGES OBTAINED BY TOP OFFICIALS IN THE PUBLIC SECTOR IN LATIN AMERICA DISCUSS THE RULES FOR THE SETTING OF WAGES AND THE FEATURES OF THE WAGE STRUCTURE SUGGEST IMPROVEMENTS FOR PERFECTING THAT STRUCTURE

COUNTRIES INCLUDED IN THE SURVEY Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador Mexico Peru Spain United Kingdom United States Venezuela

METHODOLOGY OF THE ANALYSIS OF WAGE LEVELS COMPARISON AMONG THE RELATIVE WAGES OF EACH COUNTRY’S LEADERS TWO FORMS OF CALCULATION: through the data supplied by the representatives of the governments of the countries themselves through the data of the household surveys of the countries’ statistics institutes

INFORMATION REQUESTED FROM THE COUNTRIES Names of the hierarchy levels Levels of direct, incidental and indirect wages Components of the wage structure Rules for the calculation of those components Indirect (non-monetary) benefits Taxation rules Retirement rules

FEATURES NOTED IN EACH COUNTRY’S WAGE STRUCTURE Excessive number of wage divisions (to make sectorial adjustments possible) Widespread adoption of benefits Absence of wage hierarchy (8 countries, 25% of the situations open to analysis); no problems were exhibited by: BOL, BR, CR, EC, USA and VEN Reduced or negative wage spread Higher wages in the Judiciary (considering benefits, also in the Legislative Branch) Absence of evaluation mechanisms associated with performance

IN RELATION TO DIRECT MONTHLY WAGE WAGE SPREAD IN THE EXECUTIVE BRANCH (in %) IN RELATION TO DIRECT MONTHLY WAGE 300 250 200 150 100 50 -50 ARG BOL BRA CHI COL C RICA ECU SPAIN USA UK MEX DOM R VEN

PERCENTAGE SHARE OF INCIDENTAL AND INDIRECT WAGES IN MINISTERS’ TOTAL WAGES 45 40 35 30 25 20 15 10 5 ARG BOL BRA CHI COL C RICA ECU MEX DOM R VEN incidental indirect

PERCENTAGE SHARE OF INCIDENTAL AND INDIRECT WAGES IN SENATORS’ TOTAL WAGES* 80 70 60 50 40 30 20 10 BOL BRA CHI COL C RICA MEX DOM R * For Costa Rica, congressmen incidental indirect

MONTHLY WAGE – IN DOLLARS FOR THE FIRST HIERARCHY LEVEL BELOW MINISTER 22.500 20.000 17.500 15.000 12.500 10.000 7.500 5.000 2.500 ARG BOL BRA CHI COL C RICA ECU SPAIN USA UK MEX DOM R VEN monthly direct wage total wage (includes incidental and indirect)

THEREFORE, IT IS IMPORTANT TO ANALYZE RELATIVE WAGES WHAT COULD ACCOUNT FOR THE DIFFERENCES AMONG THE WAGES PAID IN THE COUNTRIES? Distortions as a consequence of the conversion into dollars Different levels of productivity, development and cost of living Different degrees of distribution of income Different wage policies adopted for leaders in each country THEREFORE, IT IS IMPORTANT TO ANALYZE RELATIVE WAGES

MEDIAN OF THE RELATIVE WAGES OF GOVERNMENT LEADERS 50 45 40 35 30 25 20 15 10 5 ARG BOL BRA CHI COL C RICA ECU SPAIN USA UK MEX PER DOM R VEN direct monthly wage / median wage in the economy total wage / per capita GDP

INFORMATION IN THE HOUSEHOLD SURVEYSES Personal characteristics: years of education, median age, sex, hours worked Amount of the wages reported by the people interviewed (may include personal perquisites; identification of posts and broader sample) Comparison among data in the overall universe (all workers) and specific universe (only higher ranks) THEY ALLOW CALCULATION OF THE WAGE DIFFERENTIAL AMONG WORKERS, SEPARATING THE IMPACTS OF PERSONAL CHARACTERISTICS

SUMMARY OF THE PERSONAL CHARACTERISTICS OF EMPLOYEES IN THE PUBLIC AND PRIVATE SECTORS OVERALL UNIVERSE (ALL WORKERS) Public servants have more years of education and are older; greater percentage of men in the private sector; number of hours worked is higher among private workers SPECIFIC UNIVERSE (ONLY HIGHER RANKS) Same number of years of education for both sectors; higher median age for public servants; women have a greater chance to hold managerial posts in the private sector; number of hours worked is higher for private managers

WAGE DIFFERENTIALS WITHOUT CONTROL FOR PERSONAL CHARACTERISTICS (IN %)

WAGE DIFFERENTIALS WITH CONTROL FOR PERSONAL CHARACTERISTICS (IN %) (CONTROLS FOR AGE, EDUCATION AND SEX)

ANALYSIS OF THE RESULTS Classification of relative wages linked to the distribution of income (and not to economic development) Countries in which relative wages are high and the public / private differential is negative (Bolivia, Mexico and Ecuador): difference in the sample concentration of income lack of resources, political restrictions, additional benefits the wage policy applied in the private sector is not a parameter

ANALYSIS OF THE RESULTSS Brazil: reasonable relative wage and positive public / private differential other studies state the same Chile: reasonable relative wage and negative public / private differential concentration of income Argentina: low relative wage and positive public / private differential difference among samples and personal benefits precarious situation of the labor market

ANALYSIS OF THE RESULTS Countries in which it wasn’t possible to calculate the wage differential: Peru: high relative wages (only Legislative and Judiciary) Colombia: reasonable relative wages, high participation of benefits Dominican Republic and Costa Rica: medium relative wages, better distributed income United Kingdom, United States and Spain: low relative wages, low concentration of income Venezuela: low relative wages, higher concentration of income

Restrictions of a fiscal or political nature IN GENERAL, THE DIFFERENCES BETWEEN THE WAGES PAID TO LEADERS IN THE PUBLIC AND PRIVATE SECTOR MAY BE EXPLAINED BY: Restrictions of a fiscal or political nature Existence of other benefits and personal preferences Reduced negotiating power (unlikely) Lack of correlation between the wage policy defined for top public officials and that which is established for private managers

FACTORS THAT CONTRIBUTE TO THE DETERMINATION OF THE MEDIAN WAGE OF PUBLIC SERVANTS Availability of fiscal resources Participation in a locality’s income of fiscal resources originating in other governments Asymmetry of information Conditions of the local labor market Evolution of the cost of living Negotiating power: Political pressures of groups close to the decision-taking nucleus Significance of the tasks performed Number of voters and family members in the more numerous and better organized categories

POLICY RECOMMENDATIONS Reduce the number of wage components (one fixed and another associated with the variable income, if the latter exists) Incorporate benefits into wages; greater transparency The existence of more flexible wage rules requires the definition of very clear rules and controls over their application Increase in the wage range

POLICY RECOMMENDATIONS The remuneration of public servants, from an individual point of view, must have a satisfactory correlation with: Powers of the public servants Responsibilities inherent in the post Capabilities required Performance of the public servants

POLICY RECOMMENDATIONS To link the wage to the powers and capabilities, it is necessary to: Reduce the number of wage components (including benefits) in order to make the wage structure comprehensible and transparent Reorganize the wage hierarchy; gradually recompose the wages of leadership ranks Reduce the resistance of society to raises

POLICY RECOMMENDATIONS To link the wage to the powers and capabilities, it is necessary to: Evaluate the need for an adjustment in wages, via: prior study of the relative evaluation of posts, according to powers and required capabilities comparison with the remuneration paid to equivalent posts in the private sector elimination of the other monetary and non-monetary benefits

POLICY RECOMMENDATIONS Implantation of policy involves negotiations and results that may differ from those expected; nevertheless, they may generate greater involvement by the public servants It is essential to have a policy guideline that considers powers, responsibilities, capabilities, performance, remuneration in alternative markets and, cost of living, as well as monetary and non-monetary benefits, in the determination of wages

POLICY RECOMMENDATIONS One component of remuneration must be associated with performance, to adequately reward those who perform best Positive aspects (individual evaluation) Possibility of assigning responsibility Greater stimulation Link between a part of expenditure and results Negative aspects (individual evaluation) Difficulty in establishing objective criteria Wage oscillations inhibit fair evaluation Social and cultural resistance to evaluation

POLICY RECOMMENDATIONS Alternative: application of evaluations to groups or organizations Evaluation is not personalized Teamwork privileged Reinforcement of the role of manages as team leaders Solution of the dichotomy between the need to make rules uniform and to create flexibility to reward different performances: bonus

POLICY RECOMMENDATIONS The organization must have clear, objective and measurable goals It must begin with a pilot project, with simple indicators Management contract Percentage share of the bonus in the remuneration must be small The payment of bonuses must be contingent Evaluation of institutional performance linked to wage, and of individual linked to progression

POLICY RECOMMENDATIONS Wage and bonus raises must obey realistic budgetary programming Elimination of automatic adjustments (e.g., linked to years of service) must be gradual and substituted by other mechanisms linked to evaluation Legal limits must be created for the exaggerated expansion of wages and expenditure on staff Availability of information for the decision-making process Consolidation of the legislation referring to the management of human resources

POLICY RECOMMENDATIONS The practice of competitive wages is essential to guarantee attracting and retaining public servants Nevertheless, to stimulate performance, other measures are also necessary

POLICY RECOMMENDATIONS Positive stimuli to performance Evaluation mechanisms linked to training and progression Involvement of managers in the professional development of subordinates Rewards linked to achievement Discussion of the goals with the team Negative stimuli to performance Possibility of paying against results and dismissing staffers Creation of actually applicable punitive mechanisms

POLICY RECOMMENDATIONS THE ROLE OF THE MANAGERS IS ESSENTIAL IN REACHING THE DESIRED RESULTS; THEY MUST BE TRAINED TO PERFORM AS LEADERS AN APPROPRIATE REMUNERATION POLICY FOR THIS GROUP IS A REQUIREMENT FOR THE SUCCESS OF PUBLIC ORGANIZATIONS

SUMMARY OF THE RESULTS OF THE WAGE DIFFERENTIALS