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ILO Turin Training Centre, December 11-13, 2007

ILO Turin Training Centre, December 11-13, 2007. Public pay system reforms. The context of reforms. Sort of redistribution but not necessarily increased public sector wage bill Need in some countries (ex. Russia) to increase the wage bill

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ILO Turin Training Centre, December 11-13, 2007

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  1. ILO Turin Training Centre, December 11-13, 2007 Public pay system reforms

  2. The context of reforms • Sort of redistribution but not necessarily increased public sector wage bill • Need in some countries (ex. Russia) to increase the wage bill • First wave of reforms in the 1980s: Denmark, Italy, the Netherlands, New Zealand, Spain, Sweden, the UK and the USA • Second wave in the 1990s: Germany, France, Switzerland, and a few Eastern European countries

  3. The objectives of reforms • Need to recruit and retain their staff particularly among high qualified (/private sector) • Face the end of indexation with decreased inflation • Motivate the staff despite reduced seniority system

  4. The main trends of reforms • 1. Decentralization of pay determination • 2. Change in grading and pay structures • 3. More diversified forms of remuneration especially more related to skills, responsibility and performance

  5. 1. Decentralization • Classification of civil service pay systems based on the degree of autonomy of sectors/departments/agencies of the public sector to adapt their wage scale to the local requirements • But the Ministry of Finance generally controls the wage bill in one way or another • Centralized systems: Germany, France, Spain and Portugal • Decentralized system: the UK • Mixed systems: Italy, the Netherlands, Denmark, Ireland, Finland, Sweden, Canada and the USA

  6. 2. Change in the pay increase decision-making process • The move toward decentralization involves a change in the grading and pay system • But another process is under change i.e. the way pay increases take place and who decides such increase • Who decides? Two main systems: from unilateral decision from the state or through collective bargaining • Generally a mixed system prevails

  7. A combination of the two systems • In France and Germany, decision taken by the state but after consultation whether formal or informal • In the US, pay increases decided by the G and the Congress except for post workers who enjoy collective bargaining (also the principle of equal pay with private sector for similar job) • In the UK also public/private parity through the ‘pay review boards’. Two systems prevail: CB for most departments/agencies and ‘pay review boards’ for some groups of civil servants (armed forces, top salary groups, nurses, doctors, teachers in England and Wales) • The civil service wage bill can be controlled in diff. ways.

  8. 3. Pay systems related to skills, responsibility and performance • Main issue: transform the traditional seniority based system into Performance Related Pay (PRP) • Introduced by law in most OECD countries except Denmark and Finland through CB • But only a few have genuine PRP: Denmark, Finland, Korea, New Zealand, Switzerland and the UK mainly because job contents and career development prospects found to be stronger incentives for public employees than PRP

  9. So why introduce PRP? • Helpful in facilitating change • Develop effective appraisal and goal setting process • Thus helps to clarify tasks • Induces skill developments and flexibility in work performance • Improves employee/managers dialogue • Motivates team work • Found as recruitment incentives

  10. How does PRP work? • At the beginning mainly quantitative appraisal measurements introduced to avoid subjectivity, but found not to work well in the public sector due to the difficulty in measuring productivity • PRP profoundly changed: less formal than 10 years ago and more based on dialogue with line management with an assessment of pre-identified objectives • In the 80/90s PRP applied only to senior management; today all categories are concerned although the bonus remains higher for managers; by contrast in the US bonuses abandoned for non-managerial staff • Shift from individual to more collective bonuses

  11. Advantages and disadvantages of decentralisation • to adapt better wage increases to occupations and sectors • to make managers responsible of HR management • to create more autonomy to link wages to performance • At the same time, it may create too many differentials especially in large countries like Russia where imp. Differences prevail between regions

  12. Advantages and disadvantages of centralization • Ensures solidarity among civil servants • Induces mobility among sectors • Allows coherence in pay policy among occupations and sectors of civil service and reduces inequality • However, less flexibility to adapt to local conditions and to individual/collective performance. Although France has introduced profit-sharing for public employees • Significant ex. of the US: after a period where they adapted and added new wage grades locally they went back to common wage scales to limit wage inequalities • Whatever system, need to avoid disbalanced situations

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