Master Slide

1
Trends in pay systems for public servants across
OECD Member countries by Elsa
Pilichowski, Administrator, OECD April 2005 
2
The pay system is a crucial public management
tool (1)
3
The pay system is a crucial public management
tool (2)
4
The features of general pay levels in OECD
countries

• Relatively high pay levels for new entrants,
  slower pay developments
• Relatively lower pay dispersion

5
What counts in establishing overall pay levels?

• Overall compensation costs and wage bill compared
  to economic indicators
• The overall attractiveness of the public employer
• The role of the public employer vis-à-vis the
  wider labour market
• Specific skills labour shortages
• Signalling expectations and rewarding collective
  behavior

6
The basic governance model

• Common grading for all posts, where each grade is
  associated with a pay level or a pay scale with
  discrete steps
• Progression based on seniority, and individual
  merits and skills only taken into account in
  selections for promotion to a post in a higher
  grade.

7
The move towards differentiation in HRM

• General move towards
• Delegation of establishment, compensation levels,
  post classification, recruitment and dismissals,
  conditions of employment, and pay
• Limited diversification in most countries
• Complex effects on incentives and behaviour
• Sine qua non conditions high level of
  professionalism among senior managers, trust and
  transparency

8
The move towards pay differentiation

• Delegation Introduction of sector or agency
  specific fixed pay increments to possible full
  delegation of pay levels
• Differentiation according to tasks and functions
  and skills availibility on the market
• Individualisation Introduction of pay
  progression dependent on discretionary
  assessments of the employees skills and
  performance.
• Final stage Devolution of individual pay
  decisions to the operational units with central
  control on costs development

9
Limited pay individualisation
10
The reasons for pay differentiation and delegation

• Delegating managerial responsibility
• Increased heterogeneity of the workforce
• The need to clarify organisational goals
• Encouraging innovation
• The need to increase investment in training
• Realigning pay to the market situation
• The move towards more position based systems
• Criteria for differentiation
• Competition for skills
• Specific skills merits and performances of each
  employee
• Specific requirements of each organisational unit

11
Difficulties and challenges of increased pay
differentiation and delegation

• Higher transaction costs
• Opaque wage signals
• Capture by local interests
• Maintaining coherence and a whole of government
  perspective
• Difficulties with mobility
• Increased competition between ministries and
  difficulties in reallocating staff

12
The conditions for success in pay delegation and
differentiation are very restrictive

• Very well functioning goal setting approach at
  both the organisational and individual level
• A highly sophisticated central control
• A strategy oriented central HRM body
• A very professional senior civil service and a
  healthy political administrative interface
• A high level of trust and transparency
• Acquiring the skills and competencies for
  decentralised pay setting

13
The pros and cons of the individualisation of
performance pay

• Limited direct impact on motivation
• Forces a goal setting approach
• Difficulties with the management of performance
  pay
• Conditions of success are very restrictive
• A well functioning performance management process
• High level of delegation, transparency, trust,
  and dialogue between senior management and staff