Jul 19, 2017 - Is there an automatic indexation? What is the mechanism of the official salaries reviewing (centralized,
Civil servants remuneration reform Presentation of the research
Iryna Piontkivska, CES senior economist
[email protected]
Content
1. 2. 3. 4. 5.
Remuneration principles and expenditure management
Macro level: employment and expenditures for labor remuneration Structure of remunerations
The comparison with the private sector Recommendations
Civil servants remuneration reform
19.07.2017
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Remuneration principles and expenditure management
Basic remuneration principles Equal pay for equal work under the same conditions
Differentiation based on qualification, workload and boundaries of responsibility
Comparability with remuneration in the private sector
Regular review of remuneration levels
Transparency and clarity for the general public
Source: World Bank, OECD Civil servants remuneration reform
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Managing expenditures for labor remuneration What are the aims? What should be considered? Remuneration system has to:
Be consistent with the aims of the budget planning
Offer competitive payment conditions
Is there an automatic indexation? What is the mechanism of the official salaries reviewing (centralized, agreement-based)? How are private entrepreneurs used and distributed? Are there any restrictions on total expenditures/employment? Is there any integrated personnel accounting system? Is the audit of personnel and individual payments conducted? Is the remuneration competitive, compared to the similar types of work in the private sector? What is the mechanism of personalization of the remuneration depending on the activity area?
Be flexible
What model of personnel management is used? What are the restrictions against firing or mobility of the employees? What is the degree of decentralization for personnel management?
Encourage efficient resource utilization
What is the mechanism for recruitment (open/close competition, nepotism)? What is the mechanism of career advancement? What is the incentive system for efficient performance (incentive payments, team or individual bonuses)?
Source: IMF, OECD, World Bank Civil servants remuneration reform
19.07.2017
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Secure employment
Centralized management Remuneration depending on the level of the position held
Combines the elements of career-based and competitive models for certain groups of civil servants (such as the elements of competitive model for top management of civil servants and career-based for the rest)
Internal mobility
Competitive
Competitive selection of candidates for entry-level positions
Hybrid
Career-based
The gradual shift from career-based model of personnel management Open competitive selection for all positions Fixed-term contracts Decentralized management
Competitive remuneration Inability to move to another position without competition High flexibility
High loyalty Inflexibility and inertness
Higher transaction costs
Germany, Spain, France, Hungary, Ireland, Portugal, Romania
Denmark, Finland, Estonia, Netherlands, the United Kingdom, Czech Republic, Sweden
Bulgaria, Slovakia, Slovenia, Italy, Latvia, Lithuania, Malta, Poland
Source: OECD, Eurostat Civil servants remuneration reform
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How to make expenses for labor remuneration efficient: lessons of the reforms Budget planning 60% of the countries, where there is NO automatic inflation-indexation of salaries 66% of the countries have restrictions against total expenditures for remuneration, employment or both indicators 64% of the countries have an agreement-based review of the remuneration levels, 34% have a centralized review 40% of the developed countries and 30% of transition countries undertake annual audits of the
Budget deficit is lower
Competitiveness of remuneration 33% of the countries make remuneration comparisons with the private sector on an occasional basis; less than 10% make comparisons annually or more often 35% of the countries have separate salary grids for different categories of employees, 60% of the countries have special bonuses/benefits in order to personalize the remuneration in different sectors The pay gap in the public and private sectors is smaller in the countries with the competitive personnel management model (7,4% versus 20,5% for career-based model)
The best indicators in case of a competitive model
Flexibility and efficiency 65% of the countries have integrated personnel and remuneration accounting systems 80% of the developed countries and 40% of the developing countries use open competitive selection for all positions 45% of the countries have a centralized system of performance awards or bonuses Source: IMF, OECD, World Bank Civil servants remuneration reform
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Macro level: employment and expenditures for labor remuneration
Expenditures on remuneration in the sector of general public administration may exceed 10% of GDP in Ukraine this year 14%
12%
11,5%
10,8%
10,6%
9,4%
10%
EU-2016 10,2%
9,3% CEE-2016 9,6%
8%
6% 4% 2% 0%
2013
2014 Expenditures on remuneration in the sector of general public administration, % GDP
2015
2016 CEE countries -2016 2016
EU - 2016 -2016
Source: IMF, Eurostat, CES calculations Civil servants remuneration reform
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Compared with the EU and CEE, Ukraine is not distinguished by the number of employees in public administration Greece of administration, % of GDP
Expenditures for remuneration at central level
Career model 12% 10%
Portugal Hungary
8%
Ireland
6%
2%
Croatia
UK
Italy Bulgaria Belgium Czech Republic Ukraine Romania Denmark Spain Austria Poland
4%
France Latvia
Slovenia
Estonia
Slovakia Lithuania Finland Netherlands Sweden
Competitive model
Germany 0% 0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
Number of civil servants at central level of administration, % of population Source: Eurostat, Ukrstat, Ministry of finance, CES calculations Civil servants remuneration reform
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Structure of remunerations
Too high proportion of non-basic remuneration components The problem is recognized in the Strategy of Public Administration Reform in Ukraine. If the remuneration system is not reformed, then the ratio between additional payments and official salary will not reach the targeted indicators of 30:70 by 2019
60%
2016
2019
Bonus 35-45%
Bonus 10% Temporary incentives 1020%
Temporary incentives 15% Permanent incentives 10-20%
40%
30%
Permanent incentives 20-30%
70% Official salary 30%
Official salary 40-50%
Source: Public Administration Reform Strategy of Ukraine for 2016-2020, CES assessment Civil servants remuneration reform
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Being shifted towards non-basic components, the structure of remunerations in Public Administration differs from payments in the private sector The actual structure of individual entrepreneur*, % 100% 90%
80% 70% 60% 50%
Vacation bonuses
Money reward for the head of the state authority:
Bonuses, incentives and additional payments
with a management experience in the private sector - minimum UAH 16.8 thousand
40%
with over 20 years of experience in public service - maximum UAH 48.9 thousand
30% 20%
Gross salary
10% 0% Public Administration
Financial Sector
*January-December 2016, data for Kyiv, the share of the informal economy in the financial sector is relatively small compared to other sectors Source: Ukrstat, CES calculations Civil servants remuneration reform
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The structure and differentiation of remunerations Approximate calculation of the average monthly remuneration of an employee of the central bodies of executive power
The State Secretary with the minimum experience of civil service may have a comparable remuneration to the head of an independent division with 17 years of service in the civil service
Position
Average monthly Official salary remuneration, UAH minimum* maximum*
The head of the state authority The head of the division, service The head of an independent administration, service The head of an independent division, service
13 000 9 115 8 670 8 200
16 788 11 770 11 235 10 670
48 898 33 372 31 783 30 104
The head of administration within the structural unit The head of the division within the structural unit The head of the sector within the structural unit Senior specialist of the state authority Leading specialist of the state authority Specialist of the state authority
7 300 6 900 6 400 5 900 4 600 4 200
9 356 8 875 8 274 7 557 5 878 5 280
26 657 25 228 23 442 21 540 16 780 15 234
*Minimum estimated remuneration with minimum incentives and without bonuses; Maximum remuneration with maximum possible sizes of incentives and 30% of bonuses • Source: CES calculations based on the scheme of official salaries in 2017 and existing regulations Civil servants remuneration reform
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Seniority bonus discriminates against young people and experts from beyond civil service Estimated monthly remuneration structure of the head of state authority*, % 100% 90%
bonus
8%
financial assistance (1/12)
22%
80% 70%
seniority bonus
other incentives
45%
60% 50%
40%
bonus for rank 78%
71% of the employees in management positions have length of service of more than 10 years with a bonus of 30%. Out of them, 46% have seniority of more than 15 years with a bonus of 42-50%
20%
30% official salary
20%
27%
10%
0% Minimum
Maximum
• Assuming bonus is 30% of the salary in the case of the maximum amount of remuneration • Source: State Statistics Service of Ukraine, CES calculations Civil servants remuneration reform
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The differentiation of official salaries has to encourage career advancement An average level of compressions of salaries at civil service is 1:7 (max 1:30, min 1:2)
8% 28% center
10%
13%
oblast
22%
16%
district
32%
8% 0,5%
3%
3% 6%
5%
11%
5%
3%
5%
6%
5% 6%
6%
Deputy
Head Deputy Head
Deputy Head
Deputy Head
motivation difference in the remunerations between the adjacent levels of remuneration grid is 15-20% (minimum 5%)
Senior S. Leading S. Specialist
Source: Resolution of the Cabinet of Ministers of Ukraine Civil servants remuneration reform
11% 18% 21%
13% 14% 24%
18% Head of the 24% state 28% authority
21% 25% 22%
, dated 18.01.17, CES calculations 19.07.2017
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Large proportion of payments in December Splitting employees by salary size, % Ukraine
45
Kyiv
50
40
45
35
40
30
35 25,4%
25
46,7%
30
26,4%
25
20
20
15 10%
10
15 10
5
5
0 up to 3500 UAH
from 3500 to 5000 UAH
September, 2016
from 5000 to 10000 UAH
over 10000 UAH
December, 2016
0 up to 3500 UAH from 3500 to 5000 UAH September, 2016
from 5000 to over 10000 UAH 10000 UAH December, 2016
Source: State Statistics Service of Ukraine, CES calculations Civil servants remuneration reform
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Problems of the current remuneration system • Non-transparency of remunerations formation and the use of individual entrepreneur the absence of the integrated personnel accounting system and monitoring of individual monetary incentives does not allow one to analyse and detect malfeasances
• Disproportions within the system of civil service lower levels of hierarchy receive fewer CEB [central executive bodies] and DSA [district state administration])
•
it encourages heads to keep the vacancies unfilled for longer time during the fiscal year
• Lower competitiveness of remuneration of top management in civil service comparing with the private sector
Civil servants remuneration reform
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The comparison with the private sector
In the EU countries, the gap between average salaries in the public and private sectors could be both positive and negative; heads are paid mostly less than those in the private sector Pay gap in the public and private sectors, % (2010) 25%
Heads
60%
Specialists
20%
40%
Lower level (white-collar and blue-collar jobs)
15% 10%
20%
5% 0%
0% -5%
-20%
-10% -40%
-15% -20%
IRE
ESP
PRT
FRA
LIT
LAT
FIN
SWE
SVK
EST
POL
ROM
GER
CZE
BUL
IRE
ESP
PRT
ITA
GER
GRE
POL
FRA
CZE
LAT
BUL
SVK
SWE
EST
HUN
-60%
Source: De Castro F., Salto M. and Steiner H. 2013. The gap between public and private salaries: new evidence for the EU. Economic Papers 508, October 2013 Civil servants remuneration reform
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In Ukraine, the top management has a less competitive level of remuneration compared to the private sector Comparison with the median salary in the private sector, UAH per month before taxation* 26 657
153 000
25 228 23 442 21 540
24 210
16 780
90 000 12 874
76 500
11 602 8 381
48 898 33 372
31 783
36 882
7 454
30 104 0
0 Top management-1
Top management- 2
PS [public sector] maximum
Private Sector median
Top management- 3
Middle management - 4
PS [public sector] minimum
Higher Middle Lower management -5 management- 6 profession al level- 7
PS [public sector] maximum Private Sector median
Middle profession al level - 8
Lower profession al level - 9
PS [public sector] minimum
*data on salaries in the private sector for 2016 Source: Ernst&Young, CES calculations
Civil servants remuneration reform
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Recommendations
Recommendations How could the current remuneration system be improved? Create a system of integrated personnel and payroll accounting Reduce the proportion of additional payments in the structure of remunerations Replace the benefits, which are divisible by salary, to fixed amounts Reduce the maximum size of a seniority bonus from 50% to 30% Introduce clear criteria for incentive payments (performance-related, group/team bonuses)
Enhance competitiveness of remuneration for civil service top management (introduce the elements of competitive model, higher role of the incentives based on the performance results)
Increase the share of the employees hired under contractual conditions (various types of contracts: temporary, permanent, fixed-term)
Conduct a survey among civil servants to identify their goals and motivations Civil servants remuneration reform
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