© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Trends in pay systems for public servants across OECD Member countries by Elsa Pilichowski, Administrator, OECD April 2005

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The pay system is a crucial public management tool (1)

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The pay system is a crucial public management tool (2)

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The features of general pay levels in OECD countries l Relatively high pay levels for new entrants, slower pay developments l Relatively lower pay dispersion

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU What counts in establishing overall pay levels? l Overall compensation costs and wage bill compared to economic indicators l The overall attractiveness of the public employer l The role of the public employer vis-à- vis the wider labour market l Specific skills labour shortages l Signalling expectations and rewarding collective behavior

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The basic governance model l Common grading for all posts, where each grade is associated with a pay level or a pay scale with discrete steps l Progression based on seniority, and individual merits and skills only taken into account in selections for promotion to a post in a higher grade.

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The move towards differentiation in HRM l General move towards: Delegation of establishment, compensation levels, post classification, recruitment and dismissals, conditions of employment, and pay l Limited diversification in most countries l Complex effects on incentives and behaviour l Sine qua non conditions: high level of professionalism among senior managers, trust and transparency

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The move towards pay differentiation l Delegation: Introduction of sector or agency specific fixed pay increments to possible full delegation of pay levels l Differentiation: according to tasks and functions and skills availibility on the market l Individualisation: Introduction of pay progression dependent on discretionary assessments of the employee’s skills and performance. Final stage: Devolution of individual pay decisions to the operational units with central control on costs development

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Limited pay individualisation

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The reasons for pay differentiation and delegation l Delegating managerial responsibility l Increased heterogeneity of the workforce l The need to clarify organisational goals l Encouraging innovation l The need to increase investment in training l Realigning pay to the market situation l The move towards more position based systems l Criteria for differentiation: Competition for skills Specific skills merits and performances of each employee Specific requirements of each organisational unit

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU Difficulties and challenges of increased pay differentiation and delegation l Higher transaction costs l Opaque wage signals l Capture by local interests l Maintaining coherence and a whole of government perspective l Difficulties with mobility l Increased competition between ministries and difficulties in reallocating staff

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The conditions for success in pay delegation and differentiation are very restrictive l Very well functioning goal setting approach at both the organisational and individual level l A highly sophisticated central control l A strategy oriented central HRM body l A very professional senior civil service and a healthy political administrative interface l A high level of trust and transparency l Acquiring the skills and competencies for decentralised pay setting

© OECD A joint initiative of the OECD and the European Union, principally financed by the EU The pros and cons of the individualisation of performance pay l Limited direct impact on motivation l Forces a goal setting approach l Difficulties with the management of performance pay l Conditions of success are very restrictive: A well functioning performance management process High level of delegation, transparency, trust, and dialogue between senior management and staff