1. 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

2. Public Pay Policy and Its Implications for the Budget Some concepts Some concepts Civil service compensation: international comparisons Civil service compensation: international comparisons Public pay policy issues Public pay policy issues Budget formulation, execution, monitoring: Budget formulation, execution, monitoring: Processes and Instruments Processes and Instruments

3. A. Some Concepts

4. Civil Service Role & Size Based on answers to three basic questions: Based on answers to three basic questions: What What role of the state role of the state How How organization, or structure of the public administration organization, or structure of the public administration By whom By whom civil service – role, composition & size civil service – role, composition & size (Sample references: WDR 1997; WPS 1771/1806; Kazakhstan Transition of the State Report)

5. Civil Service Compensation Elements: Elements: Base salary Base salary Allowances Allowances Pensions Pensions Other benefits Other benefits Monetary Monetary Non-monetary Non-monetary

6. Civil Service Compensation Concepts: Concepts: Wage adequacy Wage adequacy Average Central Govt. Wage as multiple of per capita GDP Average Central Govt. Wage as multiple of per capita GDP Compression Ratios Compression Ratios Transparency Transparency Monetization Monetization Competitiveness Competitiveness Fiscal sustainability Fiscal sustainability Relativity Relativity

7. Civil Service: Relating Positions To Compensation Job description Job description Job evaluation Job evaluation Job families Job families Grading Grading Classification of positions Classification of positions Pay policy Pay policy Salary structure/grades/steps Salary structure/grades/steps

8. Budgetary Pay & Employment Objective To achieve a sustainable level of budgetary employment consistent with remuneration levels sufficient to attract and retain qualified personnel To achieve a sustainable level of budgetary employment consistent with remuneration levels sufficient to attract and retain qualified personnel

9. Budgetary Pay & Employment Linkage with: role and functions of the state role and functions of the state streamlining of central government streamlining of central government affordability criteria affordability criteria fiscal and administrative relations between central and local governments fiscal and administrative relations between central and local governments legal framework for budgetary employment (benefits, severance payments, pension, etc) legal framework for budgetary employment (benefits, severance payments, pension, etc)

10. B. International Comparisons

11. Why are Government Employment and Wages comparisons tricky ? Lack of reliable and recent country data Lack of reliable and recent country data Differences in: Differences in: Methodology and classification Methodology and classification Concept of the State Concept of the State Role and functions of different tiers of govt. Role and functions of different tiers of govt. Treatment of benefits and allowances Treatment of benefits and allowances

12. Wages Caveats: Caveats: Compensation may be understated (e.g. bonuses/allowances may not be captured) 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 Manufacturing wages in particular, and private sector wages in general, are often understated for tax and social contribution purposes by employers and employees

13. Wages Average Central Government Wages (yearly, in local currency) Average Central Government Wages (yearly, in local currency) Assessment of the Wage levels in relative terms Assessment of the Wage levels in relative 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 Wage Average Manufacturing Wage Average Financial Sector Wage Average Financial Sector Wage Average Private Sector Wage Average Private Sector Wage Wage Adequacy Wage Adequacy Average Central Govt. Wage as multiple of per capita GDP Average Central Govt. Wage as multiple of per capita GDP Compression Ratios Compression Ratios

14. Government Wages as percentage of GDP

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

16. 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.” 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.

17. General Government Employment Six categories within General Government Employment: Six categories within General Government Employment: Armed forces Armed forces Civilian central government Civilian central government Sub-national government Sub-national government Health sector Health sector Education sector Education sector Police Police Not included: casual/seasonal/temporary employees Not included: casual/seasonal/temporary employees

18. Employment Public Sector Employment: Public Sector Employment: State Owned Enterprises (where available) State Owned Enterprises (where available) General Government Employment: General Government Employment: Military Employment Military 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 population, labor force, total employment

19. Employment Trends in employment, especially those relating to health and education, need to be seen against: 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) Fiscal situation necessitating measures such as taking employment off budget (e.g. Armenia/Kazakhstan) Progress on reform of intergovernmental finances (e.g. Central Europe) Progress on reform of intergovernmental finances (e.g. Central Europe) Data accuracy a key issue in many countries Data accuracy a key issue in many countries

20. Government Employment

21. C. Public Pay Policy Issues

22. Civil Service Compensation Policy: Issues Two common issues: Objective(s) of Pay Policy Objective(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 Executive Extent of Independence from Executive Extent of Collective Bargaining If Any Extent of Collective Bargaining If Any

23. Civil Service Compensation Structure of Compensation Structure of Compensation Pay Policies Pay Policies Dispute Resolution Dispute Resolution Interaction between budget cycle and pay determination cycle Interaction between budget cycle and pay determination cycle

24. Collective Bargaining Level at which negotiations take place Level at which negotiations take place Status of collective agreements Status of collective agreements Participants in collective bargaining Participants in collective bargaining Unionization level Unionization level Matters covered by collective bargaining Matters covered by collective bargaining Indexation Indexation Frequency of collective bargaining Frequency of collective bargaining

25. Structure of Pay Basic rates Basic rates Flexibility and relativities Flexibility and relativities Pay progression Pay progression Performance pay? Performance pay? Regional pay variations Regional pay variations Extent of Decentralization and Its Effect(s) Extent of Decentralization and Its Effect(s)

26. Pay Policies Policy objectives and principles Policy objectives and principles Public sector pay cost restraint Public sector pay cost restraint Factors in adjusting pay Factors in adjusting pay Data sources Data sources Minimum wage issues Minimum wage issues Sector specific issues Sector specific issues How much flexibility is appropriate????

27. Resolving Compensation Disputes No strike rules No strike rules Typical conflict areas/themes Typical conflict areas/themes

28. Pay Determination Systems Centralized collective bargaining esp. for federal/central civil servants Centralized collective bargaining esp. for federal/central civil servants Exceptions: Exceptions: New Zealand: Individual contracts New Zealand: Individual contracts France: Negotiation not official. No agreements in several years: pay was unilaterally set by Govt. France: Negotiation not official. No agreements in several years: pay was unilaterally set by Govt. Finland: (personal agreements for c. 1000 senior CS) Finland: (personal agreements for c. 1000 senior CS) Germany, Greece: CS status and pay set by law. Germany, Greece: CS status and pay set by law.

29. D. Link With Budget Formulation, Execution and Monitoring

30. Pay Policy: Pressures & Impacts Fiscal Pressures: Fiscal Pressures: Size of wage bill Size of wage bill Number of public sector employees Number of public sector employees Public Administration Structures Public Administration Structures Human Resource Management Human Resource Management Legal Framework Legal Framework Sector-specific issues, especially in health, education, police, armed forces Sector-specific issues, especially in health, education, police, armed forces All of these impact poverty reduction, service delivery and growth

31. Impacts Impact of pay and employment policies: Impact of pay and employment policies: Governance and corruption problems Governance 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 service Poor quality of civil service Inefficiency Inefficiency Increases cost of service delivery Increases cost of service delivery

32. Impacts: Example – Contracting Out Health Care Services Need for careful design and implementation: Need for careful design and implementation: Financing arrangements Financing arrangements Reporting and monitoring Reporting and monitoring Timeliness of reimbursement Timeliness of reimbursement Realism of cost recovery arrangements Realism of cost recovery arrangements Preventing build-up of arrears Preventing build-up of arrears Increase in bribe levels and frequency Increase in bribe levels and frequency No change in staffing levels and staffing mix No change in staffing levels and staffing mix Impact on health statistics – ‘emergencies’ Impact on health statistics – ‘emergencies’

33. The Rich Pay More, But the Poor Pay More Dearly 11% 8% 5% 16% 20% 33% poorest thirdmiddle thirdrichest 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

34. The Rich Bribe for Speed, The Poor Bribe for Access 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 thirdmiddle thirdrichest third Speed Benefits Avoid Problems Gratefulness service. Thus the designation "gratefulness" not not imply an innocuous token of appreciation or tradition.

35. Processes and Instruments Medium Term Expenditure Framework Medium Term Expenditure Framework MTEF & Budget Cycles and Human Resource Planning MTEF & Budget Cycles and Human Resource Planning Example from reading Example from reading Linking personnel information and payroll Linking personnel information and payroll Human Resource Management Information System (HRMIS) Human Resource Management Information System (HRMIS) Post management Post management Wage bill control Wage bill control Rightsizing and severance Rightsizing and severance

36. Processes and Instruments Estimating the fiscal impact of pay and employment adjustments: Estimating the fiscal impact of pay and employment adjustments: Modeling tool to explore alternative scenarios Modeling tool to explore alternative scenarios Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, etc etc Mongolia, Philippines, Cambodia, West Bank/Gaza, Albania, etc etc Challenges: Challenges: Personnel data Personnel data Compensation data Compensation data Pensions and social security contributions Pensions and social security contributions The role and importance of participatory PERs The role and importance of participatory PERs Examples: Philippines, Indian states Examples: Philippines, Indian states Reference: PEPFMR and follow up Reference: PEPFMR and follow up The AAA “project cycle” – see uploaded presentation The AAA “project cycle” – see uploaded presentation

37. CSR: Operational Approaches Strengthening the linkages – Thailand Strengthening the linkages – Thailand ‘ Efficient nucleus ’ – Russia (TAMP) ‘ Efficient nucleus ’ – Russia (TAMP) Internal structural adjustment – UK/Japan Internal structural adjustment – UK/Japan Combination of all three: Combination of all three: New Zealand/Australia New Zealand/Australia Kazakhstan Kazakhstan

38. CSR: Operational Approaches Personnel management systems Personnel management systems Addressing capacity constraints Addressing capacity constraints Simplification of pay and grading structures Simplification of pay and grading structures Internal upward feedback from inside Internal upward feedback from inside External feedback for measuring impact: External feedback for measuring impact: Feedback from public (households/firms) Feedback from public (households/firms) Feedback from civil society and media Feedback from civil society and media

39. Public Pay Policy and Its Implications for the Budget Some concepts Some concepts Civil service compensation: international comparisons Civil service compensation: international comparisons Public pay policy issues Public pay policy issues Budget formulation, execution, monitoring: Budget formulation, execution, monitoring: Processes and Instruments Processes and Instruments