THE REFORM OF THE REMUNERATION SYSTEM IN LITHUANIAN CIVIL

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					CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                             2006




               THE REFORM OF THE REMUNERATION SYSTEM IN
                       LITHUANIAN CIVIL SERVICE
                        REASONS AND OBJECTIVES




                                    Osvaldas Šarmavičius
       Director of the Civil Service Department under the Ministry of Interior of the
                                    Republic of Lithuania




                            Workshop on Remuneration Systems for Civil Servants and Salary Reform


                                                  Vilnius, 14 December 2006
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                                 2006



Legal regulation of the remuneration system
               1990 – 2000 (1)
     1991 – Government Resolution of the Republic of Lithuania ‘On the Provisional Pilot
     Procedures of Remuneration for Work of Senior officials of the State, State management
     and law enforcement institutions as well as other officials’.
     1995 – Law on the Officials of the Republic of Lithuania:
        •      Remuneration of officials shall consist of the official salary and other payments established
               by law.
        •      Salaries of officials shall be fixed by the law which
        regulates the remuneration of employees of all offices and
        organisations financed out of the state and municipal budgets and
        the attribution of offices to appropriate categories .

     1996 – Republic of Lithuania Law on the Work Salary Bases of Republic of
     Lithuania State and Government Heads, Seimas Members, State and Municipal
     Institution and Organisation Workers:
        •     Salary – pecuniary evaluation of work – service salary (monthly salary), bonuses,
              allowances, benefits.
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                     2006



Legal regulation of the remuneration system
               1990 – 2000 (2)
   1999 – Law on Civil Service:
   • Remuneration of a civil servant shall be comprised of:
   • 1) the basic salary;
   • 2) a seniority bonus; an additional pay.
   • The amount of the basic salary shall be determined in accordance
       with the coefficient of the basic salary. The basic salary coefficient as
       expressed in LTL and cents shall be equal to the amount of the
       minimum monthly salary (MMS) approved by the Government of the
       Republic of Lithuania (from June 1998 – 430 Lt).
   2000 – The Law Amending the Law on Civil Service :
   • Remuneration of a civil servant shall be comprised of:
           1) basic salary or hourly (daily) pay;
           2) bonuses, additional pay.
   •   The positions are divided into 30 job categories.
  CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                        2006


      2002 FEATURES OF THE REMUNERATION
                    REFORM
                                   REMUNERATIO
                                    N CONSISTS




    BASIC SALARY                          BONUS                     ADDITIONAL PAY
(depending on the position level           (Seniority,          (work during holidays and days off,
          and grade)                 Qualification class or    night shifts, detrimental or dangerous,
                                     category, degree, rank)             for additional tasks)




• The amount of the basic salary depends on the job category and is influenced by
  the MMS.
• Jobs are divided into 20 job categories.
   CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                           2006

        LEGAL REGULATION OF THE
     REMUNERATION SYSTEM FOR CIVIL
           SERVANTS 2002-2006
Remuneration of civil servants is regulated by:
1. Law on Civil Service (2002 with later amendments);
2. Republic of Lithuania Government Resolutions ‘On the Increase of Minimum Pay’ (18 July 2003,No. 937;
   March 24, 2004 No. 316; April 4 2005 No. 361; March 27 2006 No. 298 (applied at the moment));
3. Republic of Lithuania Government Resolution of May 20 2002 No. 684 ,’On the Approval of the Unified
   Job Descriptions of the Civil servants with political appointment of the Prime Minister, Office of the
   Government, Ministries, public institutions and institutions under the ministries’;
4. Republic of Lithuania Parliament Resolutions June 27 2002 No. IX-992 ‘On the Approval of the Unified
   Job Descriptions of the Civil servants with political appointment of the Parliament, office of the
   Parliament, the institutions accountable to the Parliament, the Office of the President, the Institutions
   accountable to the President, National Court administration, courts, prosecutor’s offices and municipal
   institutions’;
5. Republic of Lithuania Government Resolution of 3 March 2003 No. 280 ‘On the Approval of the
   calculation methodology of the salary fund of civil servants and employees, which are paid from the
   budget of the Republic of Lithuania, municipal budgets and other state funds’;
6. Republic of Lithuania Government Resolution of January 17 2003 No. 53 ‘On the Approval of Civil
   servants’ salary Calculation rules’ (revoked – rules were applied from January 23 2003 to the Ruling of
   the Constitutional Court on December 18 2004);
7. Republic of Lithuania Constitutional Court Ruling of 13 December 2004 ‘On the Compliance of some
   legal acts regulating the relations of the civil service and the ones related to the Constitution of the
   Republic of Lithuania’.
       CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                                                                          2006


              Number of staff in public administration
                            institutions
                                                                                    Teismų teisėjai. 1%


                                                                Valstybės pareigūnai. 2%
                                                                                             Įstaigų vadovai. 1%
                                                 Valstybės politikai. 1%                                  Politinio (asmeninio)
                                                                                                           pasitikėjimo. 1%
            Darbuotojai pagal darbo
                                                                                                                                  Karjeros valstybės
                 sutartį. 28%
                                                                                                                                  tarnautojai. 28%




     Profesinės karo tarnybos
           kariai. 10%


                                                                               Statutiniai valstybės
                                                                                tarnautojai. 30%




                                                                                                                                    Professional
                      State                      Heads of          Political                                   Statutory civil        military          Contract
State politicians    officials        Judges   institutions       appointees         Career civil servants        servants           personnel         employees

     1700              1000            730        500                500                     23000                 25000               7800             23000
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR      2006




                  PAY FOR WORK - 2004


                  Seniority bonus
                        5%           Additional
    Class bonus                     payments 1%
        5%




                                              Basic salary
                                                  89%
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                  2006



    Advantages of the current remuneration
                    system

•    The concept of remuneration for work is quite clear and flexible.
•    Unified job classification when one common job is provided for several
     possible categories according to the level of education and the
     institution group.
•    Responsibility of management for the proper functioning of the system.
•    The role of civil servants’ assessment commissions is clearly
     established.
•    The role of the Civil Service Department as an observer is established.
•    The link of contract employees to the pay – up to 2003 the pay of
     contract employees and civil servants was established under the same
     rate and the MMS depended on it.
    CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                 2006




       Reaction of the system to challenges (1)
•     From January 22 2003 to December 18 2004 the pay of the civil servants
      was calculated on the basis of index coefficient.

•     The application of the index coefficient was regulated by the Republic of
      Lithuania Government Ruling (January 17, 2003) No. 53 ‘On the Rules of
      calculation the Pay of Civil servants’.

•     According to the Republic of Lithuania Constitutional Court Ruling of
      13 December 2004 ‘On the compliance of some legal acts regulating the
      relations of the civil service and the ones related to the Constitution and
      the laws of the Republic of Lithuania’ the application of the index
      coefficient was recognised to be in violation to the Constitution of the
      Republic of Lithuania and was revoked from January 18 2004.
    CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                  2006




       Reaction of the system to challenges (2)
•    Till September 1 2003 the pay of the civil servants and contract employees
     was established under the same rate and the MMS depended on it.
•    Under the Republic of Lithuania Government Resolution July 18 2003 No.
     937 ‘On the Increase of the Minimum Pay’ the MMS to contract employees
     was increased and that of civil servants was not changed.

•    The Amendments to the Law on Civil Service of July 16 2006 linked the
     basic salary coefficient to the basic salary base value and changed the
     previous MMS.

•    On July 13 2006 the Parliamentary group addressed the Constitutional Court
     on the amount of MMS which was applied to calculate the pay of civil
     servants.

•    Civil Servants’ trade union encourages the civil servants to address courts
     with the demand to recognise the part of the salary, which was not paid from
     2003 due to the applied MMS amount.
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                           2006




Changes on the Lithuanian Labour Market

   number, k
     4000         3602                3524                3469              3393
     3500
     3000
     2500
     2000            1720
                                           1457               1406               1484
     1500
     1000
                          317                  249                224
       500                                                                           102
         0
                  1996                1999                2002               2006

               Gyventojų skaičius, tūkst     Užimtų skaičius, tūkst   Bedarbių skaičius, tūkst.
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                               2006




  Change of factors determining the pay (1)
  Įstaigų, kurios kreipėsi dėl LR Vyriausybės 2002 m. gegužės 20 d. nutarimo No. 684 pakeitimo, skaičius


 30

 25
                                                         24

 20

 15                                  15                  15                                      15
                 12
 10                                  10                                      10

 5                                                                                               5
                                                                             3
 0
            2002 m.             2003 m.            2004 m.             2005 m.             2006 m.


      Įstaigų kreipimųsi skaičius


      Įstaigų skaičius, kurios buvo įtrauktos į LRV 2002-05-20 nutarimu Nr. 684 patvirtintą įstaigų
      sąrašą, arba perkeltos į aukštesnę šio sąrašo grupę
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                                           2006




  Change of factors determining the pay (2)

Valstybės tarnautojų pasiskirstymas pagal einamų pareigų kategorijas 2004-2006 metais

                                    3500
    Valstybės tarnautojų skaičius




                                    3000

                                    2500

                                    2000

                                    1500

                                    1000

                                    500

                                      0
                                           1   2   3   4   5    6   7    8   9 10 11 12 13 14 15 16 17 18 19 20
                                                                        Pareigybės kategorija
                                                               Valstybės tarnautojų skaičius 2004.12.31
                                                               Valstybės tarnautojų skaičius 2005.12.31
                                                               Valstybės tarnautojų skaičius 2006.10.01
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                  2006




 Change of factors determining the pay (3)

   Valstybės tarnautojų, turinčių kvalifikacines klases, procentas nuo bendro valstybės
                                    tarnautojų skaičiaus

                                                                              42,3 %
            %                                                35,2 %
             45                          28,7 %                                 2,6
             40        22,9 %
                                                             1,7             10,6
             35                          1,3
             30                                              7,9
             25        1                 5,9
             20
                      4,2
             15                                          25,6                 29
                      17,7               21,5
             10
              5
              0
                   2003 m.          2004 m.           2005 m.           2006 m. (I-III
                                                                          ketv.)
                             Klasė III            Klasė II            Klasė I
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR            2006




              Change in pay structure


       Amount mln. Lt
                             8,6                  12,7
               600          30,8
                            31,9                  34,4
                                                  45,8
               500
               400
               300          511,9                  466
               200
               100
                 0
                         2004 m.        2006 m. (I-III ketv.)
                                    Years
               Pareiginė alga                   Priedas už klasę
               Priedas už stažą                 Priemokos
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                                                          2006




Comparison of Average monthly salary

                                    3000
  Average monthly salary in Litas




                                    2500

                                    2000

                                    1500

                                    1000

                                     500

                                       0
                                           I   II   III     IV    I    II      III   IV   I     II   III   IV   I    II    III
                                                2003                    2004                     2005               2006
                                                                            Ye ars, quarte rs
                                                          Privataus sektoriaus tarnautojų bruto darbo užmokestis
                                                          Valstybės tarnautojų darbo užmokestis
                                                          Valstybės tarnautojų pareiginė alga
    CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                    2006



      Drawbacks of the current remuneration
                     system
•      Job assessment criteria are abstract and insufficient to establish the
       category precisely.

•      Performance assessment of the civil servant is not directly related to the
       job goals, performance results and pay.

•      The concept of the performance assessment of the civil servant does not
       provide for the reflection on pay in case of poor performance.

•      Lack of clear guidelines and recommendations for civil service
       assessment commissions.

•      From September 1 2003 different MMS levels were established to
       calculate the pay for civil servants and contract employees.
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                                          2006



  Assessment of the administration system in
        the civil service of Lithuania
SIGMA – Support for Improvement in Governance and management
     (Sigma is a joint initiative of the OECD and the European Union, principally financed by the EU)
  2002
    „The remuneration system is established in the Law but the variable part of the
    pay is still too big and too much in terms of scope left for the discretion of the
    management. When drafting secondary legislation such a problem should be
    addressed and the transparency of the remuneration system control should be
    ensured. The pay rise possibilities should be seriously considered“.
  2003
    „It is strongly recommended to implement more objectivity and transparency into
    the pay system, because of the progressive pay increase“.

     FROM THE LITHUNIA’S PRE-ACCESSION MONITORING REPORT
     (published by the EU, November 2003)
     „The remuneration system has also improved, however, the management still
     exercises too many rights in explaining the pay criteria and establishing the
     gradual pay to civil servants “.
    CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                   2006


               Assessment of Administrative System
    Recommendations of the World Bank on the Remuneration
     Reform of the Lithuanian Civil Service, which will be the
    basis for the implementation of performance management
                          February 2004
•      The main problem of the current system are bonuses for qualification
       classes
•      One may conclude that these bonuses were established as a pre-
       accession tool for Lithuania to retain highly-skilled professionals. Such
       bonuses could be a transitional tool measure which should be abolished
       since the pay and category establishment criteria are strengthening.

       2004 World Bank expert recommendation with the aim to improve the
       remuneration system is to link the civil servants’ pay to the performance
       assessment results:
          • To establish a joint ‘pay for work pillar’ by establishing a 15
              level pay sale and provide for a 3% increase in each scale;
          • Bonus for seniority and qualification class should be abolished,
              however, the pay should go up every 3 years by applying a
              higher pay scale.
CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR                    2006




Is the remuneration system motivating today?

 •   The number of new entrants in the civil service is reducing.

 •   The number of applicants in civil service is reducing.

 •   The number of cancelled competitions is increasing, since there are no
     people who want to become civil servants.

 •   The interest of young people in civil service is reducing; the service is
     usually taken up by older people.

 •   The number of people who decide to leave the service on their own
     will is increasing.
  CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR              2006




                 CONCLUSIONS (1)
• In 2002 after reforming the remuneration system, the imbalance of civil
servants’ pay has reduced from 9 to 5,5 times. The basic salary of the
lowest category civil servant has increased up to 1010 Lt. or by 2.2 times,
the highest categories – up to 5590 Lt., or 1,3 times.


• The funding has improved by partially using the methodology of
establishing the pay fund, the uncontrolled part of the pay started
increasing in the best financed institutions.


• The change in pay was determined not by the increase in basic salary
but by the increase in benefits.
 CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR             2006




               CONCLUSIONS (2)
• Social tension became evident in the civil service (the trade unions
  are becoming more active in terms of statutory civil servants, the
  attractiveness and competitiveness of civil service is reducing as
  compared to the private sector).
• On 16 July 2006 the Amendments to the Law on Civil Service were
  adopted, they linked the basic salary coefficient to the basic salary
  base amount, which as proposed by the Government, and having
  assessed the proposals of civil service trade unions, with regard to
  the average annual inflation (when calculating national consumer
  price index) and the impact and change of other average pay
  amounts in public sector, will be approved by the parliament till the
  end of the spring session.
• Such legal regulation is not really a proper one since the change of
  the base amount is linked not only to the relevant economic
  indicators but also to the political will.
 CIVIL SERVICE DEPARTMENT UNDER THE MINISTRY OF INTERIOR             2006




                          Proposals
• With the aim to ensure the even development of pay, there is a need
  to establish the principle of calculating the basic salary base
  amount, which would influence the increase in the basic salary with
  regard to economic indicators. This would ensure a more
  transparent and flexible system of remuneration of civil servants and
  a more attractive civil service. To this end, there is a need to
  modernise the system of remuneration of civil servants.
• The improvement of the pay system first of all requires the change in
  job descriptions and assessment methodology as well as civil
  servants’ performance assessment, when the performance becomes
  pay related.
• For the next 2-3 years to assess the experience of other countries
  and expert recommendations for the improvement of the civil service
  remuneration system of Lithuania and to provide for relevant
  proposals on the reform of this system.