1. Seven perennial design challenges
Gary J. Reid
The World Bank
May 4, 2004

2. Seven perennial design challenges
Big-bang reductions vs. institutional reforms aimed at improving priority setting and management
Ensuring adequate planning of the reform effort
Addressing sources of resistance
Sequencing
Targeting reductions
Facilitating re-entry into the labor force for retrenched workers
Making severance attractive and cost-effective

3. Big-bang reductions vs
Big-bang reductions vs. institutional reforms aimed at improving priority setting
Ensuring that policy objectives of the reform are met.
Ensuring adequate establishment and wage bill control ( )
Anticipating all fiscal impacts
Functional reviews ( )

4. Big-bang reductions vs
Big-bang reductions vs. institutional reforms aimed at improving priority setting
Ensuring that policy objectives of the reform are met (cont.)
Reform of the budget process ( )
Reform of Cabinet decision-making processes ( )

5. Big-bang reductions vs
Big-bang reductions vs. institutional reforms aimed at improving priority setting
Ensuring that management objectives of the reform are met.
Human resource management reform
Reform of the budget process
Reform of the Cabinet decision-making process
Monitoring reform execution and impacts

6. Ensuring adequate planning of the reform effort
Knowing all the legal constraints and implications
Voluntary vs. involuntary retrenchments
Conditions that must be satisfied for each
Required steps for each
Fiscal obligations by method of retrenchment
Redress rights
and

7. Ensuring adequate planning of the reform effort
Anticipating all fiscal impacts
Wage bill
Severance costs
Pension costs
Social assistance costs (e.g., unemployment compensation)

8. Addressing sources of resistance
Designing benefits into retrenchment actions
Benefits to managers who make staff cuts
Recognition
Cash flow reliability
Enhanced managerial authority
One-shot budget infusions
Promise of faring better in the normal budgetary process
Benefits to staff who are retrenched
Severance packages
Redress opportunities

9. Addressing sources of resistance
Designing benefits into retrenchment actions (cont.)
Benefits to staff who are not retrenched
More competitive salaries
Better conditions of public service employment
Enhanced intrinsic rewards of public service employment

10. Addressing sources of resistance
Engaging affected staff (e.g., through working with unions) in the design and implementation of downsizing efforts ( )
Monitoring and publicizing progress and impacts ( )

11. Sequencing
Establish effective employment and payroll controls first in order to avoid backsliding (e.g., re-entry). ( )
Effective establishment control
Post authorization
Hiring authorization
Effective salary-setting control
Salary structure, including all components of remuneration
Individual remuneration decisions

12. Sequencing Improve salaries only after most retrenchment is completed
Incentive issues
Cost issues
Make easier employment cuts first
Unfilled vacancies
“Ghosts”

13. Targeting reductions By attrition: Ease of implementation approach
Uniform, across the board cuts: Fairness/political feasibility approach
By inducements: “Buy your reductions” approach
By policy priority: Government priority-setting approach.
By performance: Management approach

14. Targeting reductions
Engaging affected staff in the design and implementation of reduction targeting efforts
Management
Staff (e.g., public sector unions)

15. Facilitating re-entry into the labor force for retrenched workers
Cash settlement (up front vs. stream of payments)
In-kind benefits (health insurance, housing, etc.)
Re-training
Job-search assistance
Helping retrenched staff to set up their own businesses
Engaging affected staff (e.g., through working with unions) in the design and implementation of re-entry assistance programs.

16. Making severance attractive and cost-effective
Credibility of severance promises is important (cash vs. promises)
Prompt payment of severance benefits
Cash vs. in-kind benefits
Engaging affected staff (e.g., through working with unions) in the design and implementation of severance packages.