Performance-Related Pay of Government Employees in Denmark

1. Performance-Related Pay of Government Employees in Denmark OECD Expert Meeting Paris, October 7, 2003

2. Agenda • Background • Design of the new pay system • Implementation • Difficulties

3. The State (1) 160.000 Typical functions: Central administration Defence Police Universities The Counties (14) 130.000 Typical functions: Hospitals High schools The Municipalities (254) 385.000 Typical functions: Primary schools. Care of children, elderly and disabled persons Background- the Danish State

4. Background - milestones Collective Agreement ’97 Collective Agreement ’02 Collective Agreement ’05 1997 2002 2005 • New permanent pay system • Academic employed • Academic employed • Office workers • Agricultural workers • State tradesman • Etc. • Experiments with the new pay system • Office workers • IT-workers • Etc.

5. Background- result contract for managers Result contract Focus on: The objectives for the institution in the period Concrete goals for the institution e.g.. number of controls, quality, HRM-activities, etc. Ministry of Taxation Director Contract Ministry of Taxation Contract between The department of the Ministry of Taxation and The Central Customs and Tax Administration 1’st of January - 31’st of December 2000 Director contract 1. The result of the institution (min. 50%) 2. Strategy and development (min. 10%) 3. Internal management and HRM (min. 10%)

6. Background- the objectives • recruitment and retention • strengthen link • pay setting and objectives and strategies • pay and personnel policy • reflect responsibility and authority, qualification and performance • reasonable and fair

7. 2. Design of the new pay system- Differences between the systems The old pay system Centralised Based on objective elements Long payruns Few possibilities for allowance The new pay system Decentralised Mainly based on subjective elements Short payruns (In principle) no limits for allowance

8. The Ministry of Finance Danish State Employer's Authority The departement e.g. Ministry of Culture The State Institution The different management levels - direct leader of the employees 2. Design of the new pay system- delegation

9. Design of the new pay system- change in pay runs Salary Old payrun Saving New payrun Cost Years

10. Design of the new pay system- The old pay system Pay level II Clark – 174.199 DKK Pay level VI Clark – 185.769 DKK

11. Wage bracket Steps 1 2 3 4 5 6 1 1 2 3 4 5 6 2 6 7 8 9 10 11 3 7 8 9 10 11 12 4 8 9 10 11 12 13 5 9 10 11 12 13 14 6 11 12 13 14 15 7 12 13 14 15 8 13 14 15 16 9 14 15 16 17 ...... 31 40 42 44 32 43 45 33 46 34 47 35 48 36 49 ....... 42 55 Annual pay Location (geographically) Step II III IV V VI 17 199.592 203.859 206.812 211.078 214.030 Design of the new pay system- The old pay system

12. Design of the new pay system- the elements Performance- related pay 20% Superstructure centrally/decentrally/locally agreed allowance Basic pay - basic pay system - interval pay system - minimum basic pay system 80%

13. Design of the new pay system- linking institutional policies and salary The institution Goals for the institution Personnel Policy Salary Policy Annual Performance Interview Goals and assignments for the employee Competence- development The employee Salary

14. Implementation- communication • Dynamic guide • Folders • Education of personnel from HR-units • Conferences • Special information to the top managers • Information on the internet • Courses for managers • Courses on development a local salary policy • General information to the press • Local meetings/workshop etc. Vej

15. Implementation - assessment • Number of employees on the new pay system • Numbers of new agreement based on the new pay system • Different surveys

16. Implementation - Motivation survey • Salary has an effect on motivation and effort. • The most motivating salary elements: • Pay in connection with education and development of qualifications • Transparent criteria for pay • 54% of the employees find that individual salary based on qualification and work effort • has a positive influence on motivation

17. Implementation - Survey – Negative effects

18. Implementation - Survey – Positive effects

19. Difficulties- seen from the central level • Lack of delegation • Lack of knowledge with the line manager • Not enough courage to make discrimination

20. Difficulties- the institutional level • Unclear salary policy • No clear link between goals, personnel policy and salary policy • not enough information

21. Difficulties- seen from union representatives’ side • Not enough money in the new pay system • Resistance against the new pay system among some members • Maybe to much focus on pay

22. Difficulties- prospects • From a traditional pay system to a total reward system based on individual needs ”The new salary systems are a good tool in this context, but recognition and rewards should be interpreted and should be adapted to individual needs.” The Danish State’s personnel and management policy, June 2003