Report No. 47755-RO Romania Public Sector Pay Practices Overall Public Sector Trends and Detailed Analysis of Local Government Contract Employees March 12, 2009 Poverty Reduction and Economic Management Unit Europe and Central Asia Region Document of the World Bank ACKNOWLEDGEMENTS This study was undertaken by the World Bank inclose collaborationwith the Romanian Ministry o f Labor, Social Solidarity and Family. The World Bank gratefully acknowledges the assistance o f Mr.Florin Stamate, Director o f the Department o f Remuneration Policies, as well as Ion Gibescu, head o f service inthe same department. The main field work and analysis for the report were led by Radu Comsa, an independent consultant based in Bucharest, with supervision and guidance provided by Bernard Myers, Senior Public Sector Management Specialist at the World Bank. Peer reviewers for this report have been Tony Verheijen and Gary Reid o f the World Bank. Useful comments have also been provided Catalin Pauna, Ron Hood, Ron Myers, Ivailo Izvorski, and Benoit Blarel. Data collection was conducted in December 2007 via a survey questionnaire sent to local governments. A total of 166 local governments responded to the survey, including 122 communes, 20 towns, 18 cities, and 6 counties. The World Bank and the MinistryofLabor express their appreciationfor this collaboration. The draft report was reviewed by the Ministry o f Labor prior to its publication, and no comments were given. CONTENTS EXECUTIVE SUMMARY ............................................................................................................ i INTRODUCTION ......................................................................................................................... 1 CHAPTER1:OVERVIEW OFPUBLICSECTORPAYAND EMPLOYMENT ..................2 Size and Compositionof Public Sector Employment in 2007 ................................................. 2 The ComponentsofPublic Sector Remuneration .................................................................... 6 Trends in Public EmploymentandPersonnelExpenditure(2005-08) .................................. 10 MainIssues andRecommendations.. ..................................................................................... 14 CHAPTER2: REMUNERATION OFLOCALGOVERNMENTCONTRACT EMPLOYEES .............................................................................................................................. 15 Overview................................................................................................................................ 15 Survey Methodology ............................................................................................................. 15 Local Government Representationwithin the Sample .......................................................... Structureof Positions inthe Sample...................................................................................... 16 16 RemunerationStructure ofContract Employees ................................................................... InternalEquity Concerns in PayPractices............................................................................. 21 ............................................................................... 30 29 MainIssuesand Recommendations....................................................................................... Similaritieswith Civil Service Practices 31 CHAPTER3: COMPARATIVE ANALYSISOFPAYPOLICIES INTHE PUBLIC SECTOR ....................................................................................................................................... 33 Overview................................................................................................................................ 33 Methodology.......................................................................................................................... 33 ComparisonofPay PoliciesacrossMainCategoriesofEmployees inthe Public Sector.....35 MainIssuesandRecommendations....................................................................................... 38 CHAPTER4: CONCLUSIONSAND RECOMMENDATIONS ............................................ 40 A N NEX E S ............................................................................................................................... 42 Annex 1:Macroeconomic DataandPublic Sector PersonnelExpenditure(2005-07) ..........43 Annex 2: MainCategoriesof Public Sector Personnel-Positions and Wage Expenditure..46 ............................... Annex 4: Principlesof EuropeanPayPractices..................................................................... Annex 3: MainRegulations on PublicSector PersonnelRemuneration 48 61 FIGURES Figure 1:PercentageofOccupiedPositions Out of TotalAuthorized.2008 .................................. 2 Figure3: PersonnelExpenditureas % of GDP .............................................................................. Figure2: MainCategoriesof Personnelin Public Sector................................................................ 3 Figure4: PersonnelExpenditureby MainPayingBudgets............................................................. 4 Figure5: AuthorizedPositionsby PayingBudgets......................................................................... 5 6 Figure6: Compositionof Civil Servantsand Contract EmployeesTotal Wage Expenditures, CentralGovernment, 2007 ............................................................................................................. 9 Figure7: CompositionofMilitary Total Wage Expenditures, 2007 ............................................... 9 Total Wage Expenditures,2007 ................................................................................................... Figure8: CompositionofPublic Safety (Police, Gendarmery, Firefighters,Judiciary,Intelligence) 10 Figure9: Compositionof Civil Servants and ContractEmployeesTotal Wage Expenditures, Local Government, 2007 ............................................................................................................... 10 Figure 10: CompositionofPre-universityEducationTotal Wage Expenditures, CentralGov.... 10 Figure 11: Evolution of Authorized Position. 2005-08 ................................................................. 11 Figure 12: Evolution of Total Personnel Expenditures as % of GDP, 2005-07 ............................ Figure 13:Number o f Local Governments-Nationwide and Sample Figure 14: Structure of Execution Positions inthe Sample by Tier of Local Government ...........16 ........................................... 13 Figure 15: Structure o fManagement Positions inthe Sample by Tier of Local Government ..... 19 18 Figure 16: Functional Structure of Execution Positions ................................................................ 19 Figure 17: Percentageof Positions inthe Sample at the Top of Base Salary Range ..................... 22 Figure 18: Composition of Total Pay for Execution Positions -Highschool ................................ ................................ 23 Figure20: Composition of Total Pay for Management Positions -Highschool .......................... Figure 19: Composition of Total Pay for Execution Positions -University 24 24 Figure21: Composition of Total Pay for Management Positions -University ........................... Figure22: Beneficiariesof Pay Components Out of All Authorized Execution Positions Figure23: Beneficiariesof Pay Components Out o fAll Authorized Management Positions ......26 ...........25 Figure 24: Pay Comparison Across Tiers of Local Government Execution Positions ..................26 Figure 25: Pay ComparisonAcross Tiers of Local Government Management Positions .............27 Figure 26: Total Pay DispersionAcross Main High School Requirement Positions .................... 28 Figure 27: Total Pay DispersionAcross Main University Requirement Execution Positions ......29 Figure28: Total Pay DispersionAcross Main Management Positions ......................................... 30 30 University Education (Type IA) ................................................................................................... Figure29: Differences inMaximum Base Salaries for HighestGrade Positions Requiring 36 Figure30: Dispersionof MinimumBase Salaries for Lowest Grade Positions Requiring University Education (Type IB) ................................................................................................... 36 Figure 3 1: Dispersion of Maximum Base Salaries for HighestGrade Positions Requiring High School Education (Type IIA) ....................................................................................................... 37 Figure 32: Dispersion of MinimumBase Salaries for Lowest Grade Positions Requiring High School Education (Type IIB) ........................................................................................................ 37 TABLES Table 1: Shareo f Budgetary Cost per Category of Personnel. 2007 ............................................... ......6 5 Table 3: Public Sector Employment by Main Categories o f Personnel, 2005-2008 ....................... Table 2: Composition of Personnel Expenditure Across Main Categories of Personnel, 2007 8 Table 5: Total Number of Authorized Positions, 2005-08 ............................................................ Table 4: Data on Positions in the Special Sector Approved by State Budget, 2005-2008 ..............9 Table 7: Personnel Expenditure Increases inMain Categories of Personnel, 2005-07 .................12 Table 6: Annual Base Salary Increasesin Main Categories o f Personnel..................................... 11 Table 8: Number of Authorized Positions inthe Sample by Education Requirements .................1317 Table 9: Number of Authorized Positions inthe Sample by Type of Employer Local Government ....................................................................................................................................................... 18 Table 10: Most Frequent Positions inthe Sample by Function ..................................................... 20 Table 11: Average Pay inthe Sample by Type of Employer, Local Government and Job Responsibilities.............................................................................................................................. 27 Table 12: Compression Rates Across Main Categories of Positions by EducationRequirements28 Table 13: Positions Selectedfor Base Salary Comparisons .......................................................... Table 14: Pay Span for Main Types of Selected Positions............................................................ 34 Table A 1.1. Macroeconomic Data ................................................................................................ 35 Table Al.2: Personnel Expenditure in Public Sector, 2005-07 ..................................................... 43 43 44 Table Al.4: Personnel Expenditure per Authorized Position, 2007 .............................................. Table A1.3: Personnel Expenditure by Main Categories of Personnel, 2005-07 .......................... ................................... 45 Table A2.2: Data on Positions inthe Special Sector Approved by State Budget.......................... Table A2.1: Public Sector Employment by Main Categories of Personnel 46 47 EXECUTIVESUMMARY While averagepublic sectorpay in Romania has increased significantly in the pastfew years, its impact on the public sector's ability to attract and retain high-skilled individuals is less clear. Aggregate spendingon personnel cost increased by 73 percent from 2005 to 2007, while GDP only grew by 40 percent during the same period. The increase in spending i s due inpart to an increase in the number o f authorized positions - especially in local government and among the so-called special sector (e.g., police, gendarmerie, fire fighting). But some employee groups have also benefited from very large increases in their average salary. From December 2004 through December 2008, the government has authorized adjustments to base salary that amount to as much as 86 percent on a cumulative basis - almost three times the rate o f inflation. Lack of competitiveness between public sector and private sector salaries has been the main justification for the rapid acceleration. However, the underlying structure o f compensation has not changed at all, thus the government may have missed an excellent opportunity to addressfundamental structural issues that undermine the quality of the public administration as a whole. This perhaps underscores the inherent difficulties, notably the political economy challenges, o f reforming public pay systems in most countries. Yet, understanding the political economy reasons behind the present status quo o f public pay systems in Romania-while beyond the scope o f this study-is likely to be key to unlocking the much needed reform process. Compensation policies vary across employment categories-influenced by the . respective trade union negotiations-but some commonfeatures are evident: Base salary is a disproportionately small part o f overall compensation, varying anywhere from 68 percent for teachers to 42 percent for military and 45 percent for public safety employees (this excludes the amounts that are paid by the employer for social contributions). In most European countries base salary i s at least 80 percent o f total pay. Very diverse allowances are described in employment statutes, with some given to almost all employees to top-up base salaries and others reserved for a very small subset o f workers (e.g., police officers who use codes). Some forms o f . remuneration are in the form o f in-kindbenefits, and not explicitly authorized in the law. Years o f service are compensated up to 25 percent o f base salary, without regard to actual performance or job responsibilities. In addition, movement within grades i s based on the number o f years worked. As a result of suchpractices, the relationship betweenpay andjob responsibility is very weak. Positions that would appear to have similar requirements and duties can have widely different levels o f pay. For local government contract employees, for example, there are librarians with high school qualification making 4 times more than others with similar qualification. Among contract employee positions that require university qualification, the gaps were even larger-with a ratio o f 8.4 between the lowest and highestpaid "clerks." Genuine differences induties orjob complexity would account for 1 some difference, but not o f the magnitude observed inour sample. These wide variances inpay were reminiscent o fthe findings from the 2006 Hay study onthe civil service. Moreover, current compensation strategies and career ladders make the public sector highly unattractivefor those considering the public sector for employment. Although EU accession has increased demand for workers with new and different skill sets, the remuneration policies make it very difficult to acquire or retain the best workers. This i s not purely an issue o f private sector wage pressures. On the contrary, expenditure policies are structured such that the benefits o f public sector accrue mostly to those with long tenures. Those new to the public sector not only start in the lowest pay grade, but they also do not qualify for allowances that are a major component o f total pay. This marks a significant contrast with other developed countries. Elsewhere, job responsibilities are the major determinant o f initial grade placement, and seniority i s only compensated withinthe framework o f a specificjob grade. The government's insistence on across-the-board pay increases fail to take into account differentials that may exist in the labor market among key subsets of public sector employees. Fiscal surpluses (as evidenced inrecent years) provide an opportunity to address inequities that may exist across different occupational families or job functions. Incontrast, ad hoc negotiation with individual trade unions-in the absence o f a coherent and comprehensive strategy for the public sector as a whole-only entrenches the inequities. Governments in other developed countries use job evaluation methodologies to benchmark jobs across occupational categories, and they take advantage o f market surveys to more accurately identify which sub-groups o f public sector positions are least competitive. Over time, pay structures are realigned to be more consistent with the market conditions and actualjob content. This study raises questions about the relative pay equity between health workers, police, civil servants,teachers,and contract employees. However, inthe absenceo f data on average total pay for each worker, or any kindo f information on relativejob content it i s impossible to draw definitive conclusions. Our review o f the official base salaries, however, suggests that there are potential inequities because jobs with comparable educational requirements and grading have substantial differences inpay. Given the role o f allowances play for some groups, compiling data on actual pay practices would be a useful next step. In addition, the government requires a better understanding o f local market conditions and the key competitors for each o f thesejob categories. Finally, the government suffers from a lack of adequate information systems and reportingpolicies with which to analyze thefiscal cost and impact on equity of various policy options. For example, the Ministry o f Finance is not able to isolate the total cost o f employing contract workers versus civil servants; instead they are grouped together. Likewise, data on actual pay for different positions in pre-university education are unavailable from any central government source. Planning o f future pay policies strategies would be enhanced by a more centralized and detailed reporting process that can permit costing o f prospective policy options and monitoring o f compliance with existing policy. While this report deals only with the technical or analytical aspects of the pay structure, the political economy issues that perpetuate the current system also need to be understood and addressed. These could include the political power o f individual trade unions, the fragmented nature o f collective bargaining, and the general demands of an aging public sector work force. Therefore, technical approaches must be accompanied by an active engagement with key stakeholders and a strategy for managing change over time. Countries with similar legacies have addressed pay reform inrecent years and may offer some lessons. One key success factor i s that reforms need to be comprehensive in scope and not piecemeal, although different components might be phased in gradually over time. From a technicalperspective,four steps the government should consider over the near . term tostrengthen thepublic sector's capacity to attract and motivateskilled staff are: Conduct a job evaluationfor a small set of benchmarkjobs that span different occupational categories. Use this to develop a single comprehensive grading system for all jobs and to establish the relative job responsibilities. Review the criteria for movement across grades to reduce unnecessary rigidities such as years o f service requirements. Reduce the impact of allowances - especially seniority allowance - on total . compensation. Use the proceeds to enhance base salaries and the differentials between grades so that rewards for taking on additional responsibility are greater. Develop a labor market survey to compare compensation for different sub- categories o f positions with the relevant private sector comparators. Develop a medium term pay reform strategy to target future salary increases toward skills that are hardest to recruit and retain inthe public sector. ... 111 INTRODUCTION The purpose o f this study was to assist the Ministry of Labor, Social Solidarity and Family (MOL)to analyze the current public sector pay practices and to provide recommendations that could be used to strengthen public sector compensation strategy in the future. Itwas intendedas a complement to the study prepared in2006 on civil service pay policy. That study, commissioned by the National Agency o f Civil Servants (NACS) and conducted by the Hay Group Inc., highlighteda number o f weaknesses inthe current civil service pay system-including a lack o f external competitiveness for skilled positions, large discrepancies in internal equity at all levels, and a lack o f consistency with typical EUpay practices. It also supplements the note preparedinMay 2007 by the World Bank on pay practices in select Europeancountries. This study was originally intended to focus on all categories o f public sector employees that were not part o f the civil service statute. However, because o f problems the MOLfaced in obtaining the central government data on several groups, the decision was made to limit the study to local government contract employees. Within that group it includes execution and management jobs, high and low-skilled positions, andjobs found in local governments of all sizes. The group is covered by its own employment statute and so the findings on pay from this group are not necessarily generalizable to others covered by different statutes. On the other hand, the study confirms that some o f the problems and weaknesses found among the civil service can also be found among contract employees. The study also confirmed that the highly disaggregated information management and reporting processes are a hindrance to policy analysis and planning. Although the individual employment statutes do detail what allowances each category o f jobs i s entitled to receive, the government lacks a picture of how this manifests itself in practice on external competitiveness, on internal equity, or on the capacity o f governments to attract and motivate skilled professionals. This study i s a first, limited attempt to address some o f these issues for non-civil servants. In the future additional data should be obtained to integrate into the analysis major categories o f personnel such as pre-university education, health, and some parts o f the special sector. Moreover, a few benchmark jobs could be identified in each o f the major job categories, and these could be evaluated as to their relevant job content or weight. This would be one building block in addressing internal equity issues. Inthe end, addressing the government's ability to attract and retain skilled people concerns not merely overall pay levels, but the nature and structure o f pay policies across positions. The study i s organized into four main sections: 1) Size and Composition o f Public Sector Employment 2) Remuneration o f Local Government Contract Employees 3) Comparative Analysis o f Pay Policies inthe Public Sector 4) Conclusions and Recommendations. 1 CHAPTER 1:OVERVIEW OF PUBLICSECTOR PAY AND EMPLOYMENT Size and Compositionof PublicSector Employmentin2007 1. The Romanian public sector-including both central and local governments- employed approximately 1.333 million people in 2007, accountingfor about 30percent of total national employment. Of this figure about 1.112 million are employed in non- health related functions at a cost o f 26.2 billion lei or 6.5 percent o f GDP. Spending on personnel costs' represent about 19.2 percent o f total public spending. The full magnitude o f Romanian personnel spending is difficult to estimate, however, because health workers are paid through transfers to public health units from the national health insurance fund (NHIF),2 and because pensions o f military/security personnel are funded directly as a budget line item. 2. The number of authorized positions is moderately higher than the actual employment, but it makes little difference for budgetpurposes.At the beginning o f 2007 the total number o f authorized positions in the Romanian public sector was 1,453,617, based on the monthly reports each main credit officer was requiredto file to the Ministry o f Economy and Finance (see Figure 1). Out o f the total number o f positions, 90 percent were occupied overall, though a much smaller number o f vacancies existed in education. The 10 percent of idle positions may be regarded as significant, but it has become a regularpractice inRomanianpublic sector. Figure 1: Percentage of Occupied Positions Out of Total Authorized, 2008 1,600,000 105% 1,400,000 1,353,180 100% 1,200,000 1,000,000 95% 800,000 88% * 90% 600,000 90% 85% 400,000 336,783 272,687 336,688 202,154 200,000 80% 0 1 75% central government local government preuniversity health total public education employment 0occupiedpositions +-%ofoccupied 1Total personnelcosts are defined to include wages and salaries, allowances, in-kindbenefits (food and clothing), and social contributions (e.g., paymentsto pension, health, and labor finds). 'Inthe NIFbudget, the personnelcosts are subsumedwith the category for goods and services. 2 3. The budgeting o f personnel expenditure takes into account all authorized positions; hence, the idle ones serve multiple purposes. First, they make for a buffer against variations o f personnel during the year. All central government bodies' job lists are approved by the State budget law, therefore, changes are extremely difficult and institutions make sure they have enough reserves. Second, the savings stemming from the idle positions are used for the bonus fund,3 which is an important part o f total pay. Thirdly, idle positions are used to cover unforeseen personnel needs at the central government level; if a new agency is set up at least some o f its positions come from redistribution o f existing idle positions inthe other agencies and ministries. 4. Teachers are the single biggest occupational category, with employment in the security and public safety function not far behind. Employment in pre-university education accounts 23 percent o f authorizedpositions (see Figure 2). This i s followed by contract employees (19 percent) and the special sector (19 per~ent).~ Within the special sector, roughly 25 percent are policemen (including border police), 23 percent soldiers, 11 percent gendarmes and fire fighters, 5 percent judiciary and the rest intelligence and administrative personnel. Among the remaining categories o f employees are health personnel (15 percent), civil servants (10 percent) and university personnel5 (5 percent). Inall, these five maincategories make for about 90 percent o fpublic sector employment. As a rule, the rest of the personnel employed by public bodies6 fit either into the civil servant or contract employee categories. However, data limitations prevent us from having a more accurate distribution along these lines; they also prevent having a functional or sectoral distribution o f the civil servants and contract employee categories. I Figure 2: Main Categories of Personnel in Public Sector special civil servants - / \ civil servants - employees - contract local gov.; 5% local gov; 3Up to 10% of the total wage bill for civil servants and policemen, 5% for the military and 2% for contract employees and health. For methodological purposes, the Ministry of Economy and Finance approaches policemen, military, gendarmes, fire fighters, judiciary and intelligence services together as special sector, as opposed to civil servants, contract employees, teachingand healthpersonnel. 5The authorizedpositions for the university education refer only to the ones subsidizedby the state budget. However, universities may hire and pay more personnelout of their own revenues. 6Central and local agencies at least partly subsidized by the state or local budgets, own financed bodies, pension, health and labor funds' management bodies. 3 5. Out of the 6.5 percent of GDP devoted to personnel costs, the biggest contributor is the special sector with 2,4 percent of GDP.' The military accounts for a quarter o f that amount while the rest i s shared by policemen, gendarmes, firefighters and judiciary. Civil servants and contract employees together comprise 2.0 percent o f GDP' (see Figure 3). Pre-university teachers and other school staff account for 1.7 percent o f GDP. As noted above, the cost o f health personnel i s not included due to the funding mechanism. In addition, salaries of university professors are not included since they are not reported inthe state budget execution. Figure 3: PersonnelExpenditure as percent of GDP civil servants preuniversity and contract education; 1.7% civil servants police, and contract gendarmerie, employees - firefighters, local gov.; judiciary; 1.9% 1.1% 6. Some categories contribute a higher share of budgetary cost than their employment levels would suggest (see Table 1). For example, civil servants and contract employees comprise about 41 percent o f the total (non-health) authorized positions, but they account for only about 30 percent o f the cost. In contrast, the special sector contributes about 31 percent o f cost with only 25 percent o f the positions. Some differences in per employee cost may be explained by relative differences in the complexity or responsibility o f the positions in that sector. On the other hand, it may reflect genuine differences in the rates at which government has chosen to pay the different categories of positions. Without a comprehensive job ranking across categories o f positions it is difficult to say. The value relates to all personnelexpenditure, including wages, in-kind benefits and social contributions. The budgets classification does not allow for the separation of expenditure between civil servants and contract employees; hence, interms of expenditure,they are analyzedtogether. 4 Table 1: Share of Budgetary Cost per Category of Personnel, 2007 Personnel yo in Expenditure Total per Monthly Monthly Total Wage and In- Category of Personnel Public Personnel Per Capita kind Benefits Spending Authorized position Expenditure Expenditure Civil servants & contract employees - centralgovernment 13% 30,193 2,516 2,O 19 Military 9% 34,707 2,892 2,502 Policemen,gendarmes, firefighters,judiciary 28% 46,073 3,839 3,546 Civil servants & contract employees - localgovernment . 17% 14,052 1,171 921 Pre-universityeducation 26% 19,699 1,642 1,277 7. The cost of public sector employment is split almost equally between state and local budgets, although a larger number of positions are at the local level (see Figure 4). The state budget shoulders half o f all personnel expenditure, whereas the local budgetspay for 42 percent, including pre-university education.' Interms o f employment levels, the situation i s switched-55 percent o f the positions are financed by local budgets and 32 percent financed by the state budget." The main category o f personnel on local budgets is pre-university education employees, whereas for the state budget it i s the special sector. The differences in weights for financing are mainly explained by the higherper person levels o fpay for special sector employees as compared to teachers. Figure 4: Personnel Expenditure by Main Paying Budgets 30.0 120.0% 26.2 100.0% 80.0% 60.0% 40.0% 20.0% state budget central gov. local budgets local gov. - - 0.0% public sector personnel and preuniversity educ. spending 0personnelspending2007(bnRON) - --e%ofallpublicsectorpersonnelspending 9 InRomania localbudgets pay the bill for pre-university education; to this end, they receive conditional transfers from the state budget. lo The remaining balance not financed by either state or localbudgets includes subordinated agencies that are either own financed or at least partly subsidized. It can also include pension, health and labor funds' managementagencies. 5 Figure 5: Authorized Positions by Paying Budgets 1,200,000 -- 1,000,000 -- 800,000 -- -- 60% -- 40% -- 20% state budget local budgets total employment 0authorizedpositions +% of total authorized positions The Components of Public Sector Remuneration 8. Public sector personnel costs are comprised of three main budget components: Wage expenditure - base salaries, allowances" and bonuses,12 and other wage expenditure (per diems, payouts to contractors, housing and transport compensation etc); In-kind benefits -food allowance, clothing, employee housing, transport; Social contributions- paid by the employer to the pension fund, health fund, and labor fund. Table 2: Composition of Personnel Expenditure Across Main Categories of Personnel, 2007 Civil Servants Civil Servants and Contract and Contract Pre- Police, Item of Expenditure Employees - Employees - University Gendarmes, Military Central Local Education Firefighters Government Government Personnel Judiciary Personnelexpenditure 100% 100% 100% 100% 100% Wage expenditure 80% 78% 78% 69% 67% Base salaries 43% 47% 50% 29% 26% Allowances (fixed part)13 9% 8% 12% 4% 8Yo Other allowances and bonuses (variable part) 13% 17% 11% 32% 29% other wage expenditure 14% 7% 4% 4% 5yo In-kind benefits 0.6% 0.1% 0.1% 15% 24% Social contributions 20% 21% 22% 8Yo 9% " Throughout this paper the term "allowances" refers to permanent benefits directly related to the employees' regular work. 12Throughout this paper the term "bonuses" refers to non-permanent benefits received by employees as a resultof work performanceor other non-regular circumstances. 13 Allowances such seniority pay and management allowance, when added to the base salary, are consideredpart ofthe "fixed" pay. 6 9. Although wages are by far the most important category of personnel expenditure, the actual weight varies between civilian employment and the special sector. Wages o f the former make up 80 percent o f total remuneration, with the rest allocated to social contributions. In the special sector, however, wages` weight drops to 67 percent and social contributions to 8 percent. In turn, in-kind benefits account for more than 15 percent of remuneration for police/gendarmes and 24 percent for military, mostly on food and clothing allowances. These benefits are typical for the special sector and are intendedto compensate for harsh working conditions and requirements. The other differences stem from the privileged situation o f the special sector employers regarding the pension and labor funds. Infact, they do not pay such contribution^;'^ special sector pensions are entirely shouldered by the state budget instead. As far as the labor fund i s concerned, l5 there i s no such need because the different special sector statutes preclude layoffs. Therefore, the only special sector employees paying pension and labor contributions are the contract based military; the latter have been lately employed as soldiers, gendarmes and firefighters to replace the former conscripts. 10. More importantly, within the wage expenditurei6allowancesplay a diverse but substantial role (see Annex 1). First, the base salaries o f civilian employees (civil servants, contract employees and teachers) account for at least two thirds of all wage expenditure; for the special sector they are less than 45 percent. Second, the weight o f specific allowances which are part of the fixed salary17 is even more diverse; for civil servants and contract employees it ranges between 11 percent and 14 percent o f total wage expenditure, with the onus on seniority; in the case o f teachers the value raises to 17 percent as a result o f privileged seniority reward (see Annex 3); however, for the special sector it has a much lower value (5 percent for police, gendarmes, firefighters and judiciary) because seniority i s rewarded within the base salary. Third, the variable part o f the salaries" is also heterogeneous. About 22 percent of civil servants and contract employees wage expenditure i s related to such benefits; the most important o f them i s the bonus fund. Inthe case o f teachers the value drops to 15 percent given the smaller weight of the bonus fund. The variable bonuses and allowances o f the special sector, however, are a far cry from those of civilian employees' rising to almost half o f total wage expenditure; the various working conditions allowances are the bulkiest such benefits whereas the bonus fund comes second; a wide array o f other benefits make for the rest o f the expenditure. l4 Except for the contract-based soldiers (firefighters, gendarmes or soldiers). Also, policemen make a 5% pension contribution to the state budget but not to the National Social Insurance Fund; the employer does not make any such contribution. l5Anyhow, in such cases they redundant employees receive compensations from the state budget. l6 In the analysis in the following paragraph we have taken out the "other wage expenditure" from the denominator becauseactually it cannot be considered wage remuneration. 17 The fixed salary is made of the base salary and practically universal allowances to which all employees are theoretically entitled, namely merit salary, management allowance and seniority allowance. Whenever awarded, the first two benefits join the base salary in the determination o f other allowances and bonuses. The variable part is made o f allowances and bonuses awarded to personnel in specific conditions or due to work performance. The list of such allowances and bonuses is explained in annex 3 for each category of personnel. 7 Table 3: Public Sector Employment by MainCategories of Personnel,2005-08 Category/ YO Increase Employer (authorized) 2005 (authorized) 2006 (authorized) 2007 (authorized) 2008 (occupied) 2o08 Occupied 2008- 2008 2005 Central government 304,512 335,352 359,218 381,188 336,783 88% 25% Special sector (military, police, gendarmerie, fire 199,117 221,425 244,154 263,325 N/A N/A 32% fighters, justice, intelligence) Civil servants 65,314 70,232 N/A 78,153 N/A N/A 20% Contract employees 37,981 41,595 N/A 37,535 N/A N/A -1% Civil servants 55,417 58,282 N/A 78,002 N/A NIA 41% Contract employees 202,262 227,784 N/A 240,289 N/A N/A 19% Pre-university education 339,688 339,688 339,688 339,688 336,688 99% 0% Central agencies subsidized 36,539 46,873 47,003 46,697 40,850 87% 28% Local agencies subsidized 39,600 49,470 47,798 54,198 44,356 82% 37% Health 193,933 202,090 215,875 224,458 202,154 90% 16% University education 79,941 68,203 68,203 68,203 66,321 97% -15% Central agencies own revenues 21,737 29,824 29,819 31,050 26,862 87% 43% Local agencies own revenues 31,334 20,399 19,404 19,907 15,220 76% -36% Pension fund management 5,792 4,181 4,181 4,737 4,423 93% -18% Labor fund management 3,464 3,545 3,505 3,152 3,057 97% -9% Health fund management 3,697 4,028 4,028 4,028 3,779 94% 9% Total public employment 1,3 17,916 1,405,609 1,453,617 1,495,597 1,353,180 90% 13% % oftotal workforce 28.9% 30.1% 30.5% 8 Table 4: Data on Positions in the Special Sector Approved by State Budget, 2005-08 Employer 2005 2006 2007 2008 Ministry of Justice 13,949 14,381 14,288 14,288 Special statute iudiciary - 4,663 4,732 4,738 4,743 Civil servants 550 726 755 752 Contract employees -judiciary 7,534 7,788 7,919 7,917 Contract employees - ordinary 963 891 848 848 Others 239 244 28 28 Ministry of Interior & Administrative Reform 108,507 131,809 150,123 159,564 Public authorities 2,603 2,748 2351 2,95 1 Civil servants 2,021 I 2,156 I 2,181 2,250 Contract emdovees oDerational - 80 I 350 I 427 1I 428 I Contractemployees-administrative I 216 I 216 215 I 245 I Others 286 I 26 1I 28 I 28 I Special statute I 69,484 I 74,358 1 75,869 I 76,006 I Others 710 I 690 I 754 I 780 I Contract employees specialist - I 6,157 I 7,133 I 7,338 I 7,661 I Education (mecialist schools) 1.576 1,606 I 1,764 1.764 I Others I II 10 I 1,084 II 1,084 I Ministry of Defense 86,687 I 85,566 89,894 89,894 Armv II 63.562 62.319 II 69.088 1I 69.872 Figure 6: Composition of Civil Servants and Contract Employees Total Wage Expenditures Central Government, 2007 other allowances and ase salaries; 66% Figure 7: Composition of Military Total Wage aExpenditures, 2007 other allowances and bonuses (variable part); 46% `(fixed part); 12% 9 Figure 8: Compositionof Public Safety (Police, Gendarmery, Firefighters,Judiciary, Intelligence) Total Wage Expenditures,2007 other allowances and bonuses (variable part): 50% 5% Figure9: Compositionof Civil Servantsand Contract Employees Total Wage Expenditures Local Government, 2007 other ase salaries; 66% 11Yo Figure 10: Compositionof Pre-universityEducation Total Wage Expenditures CentralGovernment, 2007 other allowances and bonuses 4 ase salaries: 68% Trends inPublicEmploymentand PersonnelExpenditure(2005-08) 11. The aggregate trends in public sector employment masks important differences occurring within categories. The total authorized positions have risen by 13 percent over the last four years. However, central government and local government employment grew by 25 percent each. Positions in health grew by 16 percent, while those in pre- university education remained flat. 10 Figure 11: Evolution of Authorized Positions, 2005-08 ~ I+localaovernrnent 1 257679 1 301956 I 314895 I 318291 1 --tpreuniversityeducation 339688 339688 339688 339688 +health 193933 202090 215875 224458 12. One of the most important trends over thefour-year period has been the growth in local government civil service positions (41 percent). Local government increases were driven by perceived staffing requirements in local public services and a delegation o f decision-making authority (see Table 5). Until 2004 the number of authorized positions in local governments had been capped by Government Ordinance. Today job lists are approved by decision o f local (or county) councils according to their needs. Since the removal o f the cap, local governments have hired personnel especially in social services and in city halls to meet existing needs. Steady growth in revenues (channeled through the revenue sharing formula between central and local government) have given local governments resources to make this possible. However, over the long-term increases in staffing levels should be matched by either an expansion in services or an improvement in public service quality. There i s currently no mechanism with which to assess whether that is taking place. Table 5: Total Number of Authorized Positions, 2005-08 13. Two other important sources of employmentgrowth were the special sector and the central government civil service. The special sector witnessed growth in large part because o f the elimination o f the conscription system in emergency services. Moreover, European Union accession required more people to be hired in border police and gendarmerie. In all, the number o f positions for the Ministry o f Interior and Administrative Reform grew by more than 50.000. Similarly, the growth in civil servant numbers was influenced by EU accession, which required setting up new agencies, o f 11 which the most important i s the Agency for Payments and Interventions in Agriculturelg (over 4500 new positions). Given the rapid economic growth during this period, there was also no pressure to make off-setting reductions in other central government functions. 14. I n parallel to the increase of total authorized positions, there have been very large increases in pay since 2004. In Romania, pay components and practices are established by specific pieces o f legislation regulating the various categories o f personnel (see Annex 3). However, base salaries are usually upgraded each year by government ordinances; the raise in base salary would in turn translate into an augmentation allowances and bonuses alike. By December 2008 teachers, policemen and health employees will have received almost double their pay as compared to December 2004; contract employees and civil servants come next. The most generous year was by far 2007, when base salaries increased by at least 19 percent across the board, while inflation stood at 6.8 percent. In fact, the pay rises awarded over the last years have well exceeded inflation by up to three times, inthe case o f teachers. Table 6: Annual Base Salary Increases in Main Categories of Personnel I I Annual Rate of Increase I Cumulative Increase I 15. As a result of all the above-mentioned developments, personnel expenditure in the public sector has risen at a faster pace than total public spending or GDP. In all, personnel e ~ p e n d i t u r eas~a~ percentage o f GDP went up from 5.3 percent in2004 to 6.5 percent in2007-a 23 percent increase. The costliest category became the special sector, which grew from 1.3 percent to 2.4 percent-surpassing pre-university education, which remained almost constant (1.7 percent). 19Central payment unit for the EUCommonAgricultural Policy. 2oEstimate, based on the legislationpassedby the government in 2007 and early 2008. 21Estimate, based on the legislationpassedby the government in 2007 and early 2008. 22NationalBank of Romaniaestimate. 23Dataonhealthanduniversity education not available. 12 Figure 12: Evolution of Total PersonnelExpenditure as YOof GDP, 2005-07 10.0% 1.O% 0.1% 2005 2006 2007 -tstatebudgetcivilian(civilservants - 0.8% 0.8% 0.9% and contract enployees) -state budget - military 0.5% 0.6% 0.6% -A- state budget police,gendarmere - 0.8% 1.6% 1.8% fire fighters, judiciary, intelligence x local budgets - civilian(civil 0.9% 1.O% 1.1% servants and contract enployees) +preuniverstyeducation 1.7% 1.9% 1.7% +total Public sector' 16. During 2005 and 2007the increases in personnel expenditures were highestfor the state budget (civilian and special sector personnel included), followed by local budgets. Both rates o f growth exceeded those of GDP and total public spending. As expected, the rate of growth for police, gendarmes, fire fighters andjudiciary was highest incorrelation withthe increases innumber o fpositions andpay. Table 7: Personnel Expenditure Increases in Main Categories of Personnel, 2005-07 Central government 30% 102% Civil servants and contract employees 30% 53% Military 17% 78% Police, gendarmerie, fire fighters, judiciary, intelligence 34% 215% Local government - civil servants and contract employees 30% 77% Pre-university education 2% 35% GDP 18% 40% Totalpublic sector spending 21% 59% 24Data on health personnel expenditure and university education not available. 13 Main Issues andRecommendations 17. Romanian economy has grown considerably over the last five years. As a consequence, public spending as a percentage o f GDP has risen from almost 30 percent in2005 to 34 percent in2007. Against this backdrop, employment and pay inthe public sector expanded even faster. Some level o f increase was warranted, as public services needed more staff to meet existing requirements, and employee pay had lagged significantly behind the private sector. 18. As main priority for the future, the government has to ensure that the latest generosity translates into efficiency. From this point o f view we need to emphasize a set of weaknesses which need to be overcome inthe medium term: .. Performance assessment criteria and practices have not changed to ensure that employees deliver more and better; There are significant pay inequalities betweenthe main categories o f personnel; in . addition, salaries are annually upgraded based on trade unions bargaining power instead o f objective criteria; Pay practices have not changed at all as compared to early 2000 to cope with the recent windfall inremuneration; hence, work performance andjob complexity are still poorly rewarded; 9 Pay is utterly non-transparent in the majority o f categories; allowances and bonuses make for too big a stake intotal remuneration; the list o f allowances and bonuses i s long and diverse across main categories o f personnel. 19. Finally at this stage, we strongly advise the government to improve current employment and pay monitoring practices. First, reports from the main credit officers concerning employment should be broken down into categories o f personnel to allow close monitoring o f developing trends. Second, the reporting on pay should also be broken down on main categories o f personnel; in addition, the budget classification's line items on allowances and bonuses should be more detailed. Third, pay monitoring should comprise health and university personnel, which at the moment are unaccountable to both punditsandpublic. 14 CHAPTER2: REMUNERATIONOF LOCAL GOVERNMENT CONTRACT EMPLOYEES Overview 20. Most local government contract employees occupy "execution" positions requiring only a high school education, though a subset hold university-required positions, with functions not far different from those of civil servants. Compensation for local government contract employees consists of base salary and an assortment of allowances. For university-level management positions these allowances comprise more than half the total compensation-compared with an average of 10-20 percent for public servants in most European countries. As a result, actual compensation varies substantially from one positionto the next despite their having similar job responsibilities and education. For example, the span between the lowest and highest paid in some positions can be 7 to 8 times. Perpetuating such pay practices undermines performance over the long-term and keeps the Romanianpublic administration out-of-sync with others inEurope. Survey Methodology 21. As agreed with the Ministry of Labor, data was collected from local governments to provide a snapshot of pay practices for their contract employees as of October 2007. A total of 166 local governments responded to the questionnaire sent via the Ministry of Interior and Administrative Reform in December 2007. The questionnaire requested data for each type of contract employee position in the job list of local governments. The positions were structured based on education, grade and job responsibilities in order to distinguish the legal thresholds of base salaries. The main fields of the questionnaire included: - Numberofauthorizedemployeesforeachtypeofposition(e.g. adviser,gradeI) - Fixedpartofthesalary, whichincludesbasesalaryandthree supplements(merit salary, seniority allowance and management allowance25) and the number of beqeficiaries for each supplement - Variable partofthesalary, comprisingallotherallowancesandbonusesandtheir beneficiaries. 22. Data was received, sanitized, and structuredinto a comprehensive database inthe first months of 2008. 25 One o f the major drawbacks o f the questionnaire was the reliance on fixed salary reporting instead o f base salaries. The former is open to interpretation by human resource clerks and the collected data was at points inaccurate. Instead, the latter is much easier to understand and we recommend it to be included as such in hture surveys. 15 Local GovernmentRepresentationwithin the Sample 23. Romania had 3,216 local government units as o f July 1, 2007, of which 3,175 are considered first tier (communes, towns and cities) and 41 second tier (counties). For the purposes o f this analysis the six Bucharest districts were taken separately into account because they function as employers in their own right.26This would bring the total number o f employer local governments to 3,222. Out o f the 166 to respond to the questionnaire there were 122 communes, 20 towns, 18 cities and 6 counties. Their weight at national level i s the following: Figure 13: Number of Local Governments-Nationwide and Sample I looool 2855 e14*6%t 16.5% 14,0% 12,0% 109 10,0% 8,0% 6,0% 4,0% 2,0% O,O% cornmune town city (incl. 6 BUC. county council districts) 0noofIg(s)nationwide--e%Igsinthesample 24. The representation o f the specific categories o f local governments is not uniform, with 16 percent o f cities and only 4 percent o f communes having responded. However, because the overall pay policies for contract employees are set nationally, one can have a highdegree of confidence that findings from the sample on specific positions are relevant to all local governments inRomania. Structureof Positionsinthe Sample 25. In Romania the list of contract employee positions is established by law. Currently, the legislation allows contract employees in a wide variety of fields, both in central and local governments. The rule i s that contract employees may be used for activities outside the remit o f other personnel statutes (civil service, education, health, police, gendarmerie, army, intelligence, judiciary, diplomacy). Hence, contract employees dominate areas such as social assistance, culture, research, sport bodies, cadastre and land registration. In addition, important numbers o f contract employees are 26Dejure Bucharest districts are neither local government units nor legal persons. Defacto, they act as such. 16 working inministries, city halls and other central and local agencies; their responsibilities may be both operational and administrative. 26. At the moment there are about 150 individual positions included inthe legislation in force. Most of them have 2 to 5 grades, beginners excluded; a minority comprises single grade positions. 27. The execution positions are divided into four categories based on the education requirements: (a) up to high school (12 years o f primary and secondary education; some administrative staff positions have only primary school requirementsor none at all) (b) extendedhighschool (one year specializationafter highschool graduation) (c) college (up to 3 years after highschool) (d) university (master o f arts). 28. The vast majority o f employees fill either high school or university requirement positions (categories 1 and 4). Hence the analysis will focus on these two categories. The low management positions may be filled by all categories o f graduates; however, middle and top management may only be filled by university graduates. There are nine levels o f common management positions; the lowest i s chief o f team o f workers, whereas the highest i s general director and chief state inspector. 29. Figures and tables on the types o f local contract positions and their functions are for illustrating the composition o f the sample; they are not an accurate representation of the universe since the survey is not weighted and urban areas are deliberately over- sampled. The total number of contract employee authorized positions in our sample was close to 21.OOO, of which 96 percent execution positions and 4 percent management. The highpercentage o f execution positions is explained by the wide variety o fjobs in social assistance and local government administrative tasks (see below). 30. Out o f all execution positions, 85 percent required at most high school studies and 12 percent at least university studies. The ratio i s reversed in the management positions: 16 percent required at most high school whereas 84 percent university studies. 3 1. Ofthe total highschool positions, the majority are related to social assistance and local government administrative tasks. The university required positions are mostly in local governments' operational tasks and cultural institutions. Table 8: Number of Authorized Positions in the Sample by Education Requirements Total Number of Education Execution Management Number Of Total Number of Authorized Positions Authorized Positions Authorized Positions Highschool 16,766 144 16,910 University 2,298 756 3,055 Total 19,806 900 20,707 17 32. As far as the breakdown on local government units is concerned, most positions are in the cities (54 percent execution, 66 percent management), followed by county councils (3 1 percent execution, 27 percent management) and communes (12 percent execution, 4 percent management). Table 9: Number of Authorized Positions in the Sample by Type of Employer Local Government Local Government Total Number of Total Number of Total Number of Unit Execution Authorized Management Positions Authorized Positions Authorized Positions Commune 2,389 37 2,426 Town 625 26 651 City (incl. 6 Bucharestdistricts) 10,454 592 11,046 County council 5,940 239 6,179 Total 19.408 894 20,3022' 33. In practice the number of execution positions is not directly correlated with the population o f local government units in the sample, but rather with their responsibilities. Both cities and county councils have to fund major social assistance and cultural institutions which are labor intensive; therefore, they employ large numbers o f contract employees. Inaddition, their administrative apparatus i s more expansive to cope with the array o f problems that occur inpublic service delivery. I Figure 14: Structure of Execution Positionsin the Sample - by Tier of Local Government 12.000 60,0% 10.454 53.9% 10.000 50,0% n'b-'o 8.000 / I 40,0% ^^-", 6.000 30,0% 4.000 / I I 20,0% 2.000 1O,O% I 1 - 1 I 0.0% commune town city county council 10noofauth.positions +-% in total sample I 34. The high percentages of management positions in cities and county councils are explained by the numerous subordinated departments and agencies. Each theatre, museum, library and orchestra has its own management positions; social services likewise. Anyhow, the number o f management positions in any public body cannot exceed 15 percent o f all authorized positions. 27The 405 position difference from the total number of positions by education(see previous table) is due to reports wherein local governments are unidentifiable. 18 Figure 15: Structure of Management Positions in the Sample by Tier of Local Government 700 70,0% 600 60,OYo 500 50,0% 400 40,0% 300 30,0% 200 20,0% 100 1O,O% O,O% commune town city county council 10 no of auth positionst YOin total sampld 35. Out o f the 21,000 positions in the sample, 40 percent were in the social assistance2' and 8 percent in culture. Local governments' administrative staff accounted for 36 percent while the operational staff for 13 percent. As noted earlier, the actual figures in the population will vary from this because o f over-sampling in the cities and counties. Figure 16: Functional Structure of Execution Positions other 3% local government social assistance 40% 36% local culture government 8% operationalstaff 13% 36. Social services are the biggest employer at the County Council levels. City employment is also significantly dependent on social assistance. O f the three main positions in this field, the most numerous is on cities' payroll29(i.e., personal assistance for disabled), whereas the other two are on county councils' (i.e., social worker in the Among the 40% that are social assistance, 14% are for personalassistants for disabledpersons. Many of these (perhaps up to 90%) are in fact family membersof the disabled, and therefore, not a conventional public sector job. 29Also intowns and communes. 19 residential institutions and personal assistance o f abandoned children-maternal assistant). 37. In culture, the most numerous positions are in public libraries, theatres and orchestras. Usually these are on the payroll o f cities and county councils. Bucharest i s far ahead o f all other local governments from this point o f view, with 25 cultural institutions under subordinationand over 1,100 specialized positions. 38. Local government contract employee operational positions are dominated by clerks, advisers and inspectors. In theory they should perform tasks outside the remit o f civil servants, namely those which do not involve the public authority prerogatives. In practice, most o f the contract employees in this category are performing similar jobs to the civil servants; however, the contract status may be preferred because they are free to carry out other remuneratedjobs.30 39. The administrative tasks o f all local governments and their agencies3' are reserved for contract employees. Half o f this category's positions in the sample are dedicated to workers in the various local services (property maintenance, water and sewage, road maintenance, parks, cemeteries, refuse collection etc). Security employees come second, followed by doormen and drivers. Overall the positions' structure in this area i s more diverse than the other three. Table 10: Most Frequent Positions in the Sample by Function List of Main Positionsby Weight in Total Authorized Positions YOin Total Social Assistance 40.0% Social worker 10.9% Personalassistant of disabled 14.4% Personalassistant of abandoned children 4.9% Culture 8.3% Librarian 1.8% Director 1.7% Museum worker 1.O% Local government operational staff 12.7% Adviser (including legal advisers) 2.0% Inspector 1.8% Clerk 8.1% Local government administrative staff 36.2% Doorman 2.3% Worker 18.6% Driver 1.5% Security worker 9.2% 30Romanianlegislation forbids civil servants to perform other paidjobs, exceptteaching and training. 3'Also incentral government and its agencies. 20 RemunerationStructureof ContractEmployees 40. Contract employees' pay i s made o f base salary, merit salary (if entitled), management allowance (if entitled), seniority allowance, other allowances and bonuses. All pay components are related to the base salary. When paid, the merit salary and the management allowance are included inthe base salary before determiningthe value o f all other allowances and bonuses. 41. At the moment, base salaries for all contract employee positions are annually established by Government Ordinance. These pieces o f legislation apply to all public sector employers funded at least partially from the state or local budgets. The agencies funded from own revenues may establish different salaries based on negotiations with trade unions andprovided they do not receive any subsidies. 42. Some o f the allowances and bonuses are common throughout the public sector, ....... while others apply to particular sectors or institutions; inthe first category one could list: seniority allowance overtime nightshifts bonuses from the bonus fund32 annual bonus (or the 13`h month salary) PhD allowance holiday bonus 43. The second category o f allowances and bonuses i s paid for specific sectors (e.g. culture) or if the job is performed in particular conditions (isolation, radiations, danger, etc)-see Annex 3 for a detailed presentation. Because o f the wide variety o f these pay components, any detailed data collection or analysis is very difficult. As a consequence unless a certain benefit i s specifically required inthe reporting forms, local governments may not send information about it at all. 44. For methodological purposes the main pay components taken into account in this research are structured as follows: base salary merit salary management allowance seniority allowance (In Romanian human resource practice, these four components make up the `?xed salary or "appointment salary '7; " 8 working conditions allowances (most public employers pay such an allowance in different forms and for different conditions) bonuses (from the bonus fund) other allowances other bonuses (The later componentsmake up the so-called "variablepay'I). 32The bonus fund for contract employees may account for 2% ofthe total wage expenditure. 21 45. Most o f the contract employees' base salaries are set within a range specified in the legislation for each grade (except beginners). Advancement in the range is made on the basis of performance assessment and seniority. The promotion to a superior grade i s made by contest or exam, provided the performance assessment and seniority requirements are met and a vacant position is available. 46. Inpractice given the rather low wages as compared to private sector, employers have allowed most employees to reach the top end o f base salary range in each grade. The findings inthe sample confirm this assessment: Figure 17: Percentage of Positionsin the Sample at the Top of Base Salary Range 85.0% 80.0% 80.3% 75.0% 70.0% 65.0% 60.0% Highschool university total 47. The flip side o f this situation i s that employees may have been stuck at the top end for years with no prospect for promotion. Hence discontent may be ripe, and employers have been prompted to pay a variety o f allowances and bonuses. Sometimes the legality o f these benefits i s questionable, Le., they are not explicitly permitted by contract employee remuneration legislation and therefore, should not be awarded. Inthis category one can list the on-call allowance (up to 25 percent o f base salary), food allowance (fixed amount) and clothes allowance (fixed amount) for some city halls' and County Councils' employees. Actually, these benefits replicate the pay practices inthe Ministryo f Interior and Administrative Reform. All such benefits are approvedby local councils' decisions as a result o f trade union agreement^.^^ 48. The analysis o f the total pay structure distinguishes positions according to education requirements, on one hand, and job responsibilities, on the other. The 33Insome cases prefectshave challengedthese decisions to the administrativecourts; occasionally though, the courts have endorsed the local governments' decisions which has emboldened others to pass similar decisions. 22 denominator o f .the calculations i s the estimated occupied positions out of the total authorizedpositions.34 49. As of October 2007, the base salary of high school execution contract employees3' makes for 79 percent of their total pay.36The second pay component i s the seniority allowance, 14 percent. The fixed salary totals 93 percent, which i s high compared to civil service standards. Although diverse benefits are paid to these employees, they only account for 7 percent o f total pay on average (for details on the various benefits see Annex 3). Figure 18: Composition of Total Pay for Execution Positions-High school other bonuses allowances other bonuses 50. The base salary for university execution contract employees37is somewhat lower, 76 percent; likewise, the seniority allowance weights 12 percent. Fixed salary for university contract employees totals 88 percent. The array o f allowances and bonuses in October 2007 summedup to 12 percent. 34The questionnaire failed to require such information from local governments. Hence, the number of actual occupied positions was approximated with the number of seniority allowance beneficiaries. The marginof error is maximum5%. "Contractemployeesarethosefillingthepositionswithhighschooleducationrequirements. 36This chapter analysis does not take into account one-offbenefits such as per-diems or overtime. We only considered permanent benefits or those related to work performance. This is a limitation from the wage expendituresthat can be distinguishedinthe budget classifications (see chapter 1). 37Le. contract employeesfilling positionswith universityeducationrequirementsat least. 23 Figure 19: Composition of Total Pay for ExecutionPositions-University bonuses other allowanceSother bonuses conditions allowances. 3.0% seniority allowance-' 11.7% merit salary 0.8% 51. The pay composition o f management positions i s considerably different from execution ones. The base salary o f high school management contract employees is 60 percent o f total pay; second and third components are the seniority allowance3* and management allowance, with 15 percent and 11 percent respectively. The fixed salary totals 88 percent. The differences in benefits' weight from the execution positions' pay composition i s explained by the role o f the management allowance. The latter i s taken into consideration alongside the base salary and merit salary in the determination of all other allowances andbonuses. De facto, it i s considered part o f the base salary. Figure 20: Composition of Total Pay for Management Positions High school - other working b0nuses allowances conditions 3.0% 15.3% other bonuses 52. Pay composition o f university contract employee management positions varies significantly from the execution ones. The main reason i s the weight o f the management allowances. Most such positions are at the high end o f the hierarchy, and the allowances 38For management positions, seniority allowance and the other allowances are determined against the sum of base salary, merit salary (if awarded) andthe management allowance. Hence, all other allowances have a bigger weight in relation to total pay. For details on how seniority i s divided and the other allowances contractemployeesare eligible to see Annex 3. 24 reach at least 30 percent o f base salary (up to 55 percent). Subsequently all allowances and bonuses are determined taking into account the management allowance alongside base salary. In October 2007, the base salary o f university management contract employees weighted half o f total pay. Second was the management allowance, with 18 percent; in comparison to the "high school" positions the weight o f this allowance was bigger. Third was the seniority allowance, with 17 percent. The fixed salary totaled 88 percent, as inthe case o f "high school" positions. Figure 21: Composition of Total Pay for Management Positions- University other allowances other bonuses I 18% 4% 53. The composition o f pay components' beneficiaries reveals, as expected, that almost all execution employees receive the seniority allowance; out o f the total positions about 5-10 percent are idle. Beginners do not receive the seniority allowance. It i s also worth noting that 80 percent o f all execution contract employees receive at least one benefit o f the variable part o f the salary; the remaining 20 percent do not receive anything besides the fixed salary.39 The high percentage o f working conditions allowance beneficiaries is due to the various forms o f this benefit across specific sectors (e.g., dangerous working conditions, stress/ special working conditions, toxic working conditions etc-for further details see Annex 3). 39Hence, quite a few beginner employees are rewardedonly base salary. 25 Figure 22: Beneficiaries of Pay Components Out of All Authorized Execution Positions 1oo,oQ/o 90 0% 80,0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% I merit salary seniority working bonuses other other bonuses allowance conditions allowances allowance highschool. university 54. The structure o f pay component beneficiaries for management positions differs significantly from the execution ones in several aspects: ... as expected the management allowance i s received by almost all positions (the remaining are idle); the percentage o f merit salary beneficiaries is muchhigher; and the percentage o f allowances' and bonuses' beneficiaries is significantly higher. 55. All these aspects reveal the effort o f public employers to improve the pay of management positions. Figure 23: Beneficiaries of Pay Components Out of All Authorized Management Positions QO,O% 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% O,O% merit salary management seniority working bonuses other other allowance allowance conditions allowances bonuses allowance highschool university 26 56. Because the number and value o f allowances and bonuses i s higher for management positions than for execution in relative and nominal terms respectively, one would expect the fixed salary and total pay for management positions to be higher too. Indeed, the average base salary and total pay is double for management positions than execution ones. Table 11: Average Pay in the Sample by Type of Employer, Local Government and Job Responsibilities 57. The comparison o f average pay across types o f local governments reveals the highest pay for the execution employees in cities, followed by those o f county councils. As expected the lowest pay is in communes. The difference between city and commune employee average pay i s 38 percent. Only cities and county councils are above the national local government average. The main reasons for this situation are job education requirements and availability o f bonuses and allowances; urban governments tend to have more university requirement positions and more funds to pay a variety o f allowances and bonuses. Figure 24: Pay Comparison Across Tiers of Local Government - Execution Positions 1.200 !-I? 1 000 800 600 400 200 I commune town city county council total average fixed salary average total pay 1 58. The tally changes at the top inthe case o f management positions. County Council managers are the best paid contract employees o f all local governments. They receive 10 percent more than those inthe cities and 35 percent more than those incommunes. 27 Figure 25: Pay Comparison Across Tier of Local Government - Management Positions 2 500 2,267 2 000 1500 1 000 500 commune town city county council total rn averagefixed salary average total pay 59. The compression ratio-which i s the ratio betweenthe best and least paidjobs- gives an indicator of the level of incentives provided for career progression. The overall compression ratio of the contract employee positions in the sample is 13; which is broadly similar to that of civil servants',40although the latter does not have low skilled positions such as workers, guards and drivers. The best paid position is an execution one-a play director in a theatreY4lwhereas the least paid is also execution-beginner librarian/ typewriter/ clerk.42As expected the span within the main categories of the analysis is also significant. Within "high school" execution positions, the span 5.5, whilst within the "university" it tops 12. The management positions seem more cohesive, the "high scliool" category ratio is 5.5, whereas for the "university" it reaches 6. All the values are inferior to the ones determinedby Hay Group for the civil servants in2006. Table 12: Compression Rates Across Main Categories of Positionsby Education Requirements Education Execution Management Maximum Minimum Maximum Minimum High school 2,558 468 3,817 698 University 6,158 49443 6,112 1,007 Compressionrate high school 5.5 5.5 Compressionrate university 12.5 6.1 Compression rate overall 13.2 8.8 40 The comprehensiveprivate/ public survey inthe Romaniancivil service carriedout by Hay Group in the first quarter of 2006 for the National Agency of Civil Servants. The ratio calculated for civil servants was 14. 4' This position is not an outlier; there are at least two other positions with similar pay. One of them is another play director and the other is a city manager. The explanation for this high pay levelrests with the allowances and bonuses awarded, which account for more than half of total (see Annex 3 to grasp the multitude of benefitscultural institutions'employees are entitledto). 42 As previous, this not an outlier either; there are numerous such positions. Apart from the base salary, beginners are not entitled to any other fixed salary allowance; the employer may not award other allowanceseither; hence the low pay. 43 The legalbase salary for university education beginners in cultural institutions; in the reported situations, the employeeshave notreceivedany other pay benefits. 28 InternalEquity ConcernsinPay Practices 60. One last major issue to analyze i s the dispersion o f total pay among similar types o f positions. To this end we selected three sets o f representative positions (because of data constraints we included all grades attached to each specific position). Then we determined the maximum to minimum ratio and a dispersion indicator which showed how widely values were dispersed from the average value. The results showed important discrepancies inpay across the board for similar positions. They resemble the findings o f Hay Group on civil servants, and represent on the most important deficiencies in the current pay system. 61, The dispersion across positions with high school education requirements is significant. The highest maximum to minimum ratio i s found on clerks (5.2), workers (4.5), librarians (4.3) and security staff (4.1); these are some o fthe most frequent contract employee positions (together they make for about 20 percent o f the sample). The number o f grades for these positions varies from 2 (clerks) to 5 (worker). However, the span in their base salaries i s less than 2; consequently, differences inpay stem from seniority and other benefits. By the same token, the dispersion indicator tends to show high values for the above mentioned positions, which reveals a considerable variety o f pay. The findings are inkeeping with the Hay Group report on civil servants. Figure 26: Total Pay DispersionAcross Main High School RequirementPositions h5.2 1383: -24% --::?" v,,,o .33 social personal nurse librarian clerk security doorman driver worker worker assistant worker of disabled I--c maxl mim- stdevlaverage 62. Pay span and dispersion within university requirement execution positions i s even higher. The highest maximum to minimum ratio i s found on clerks (8.4), play directors (7.6) and advisershnspectors in local government offices (6.2). Librarians and museum workers also reveal high ratios. Pay span o f base salaries for these positions varies between 2 and 3; therefore the compression ratios are mainly due to allowances and bonuses. The dispersion indicator shows high values for play directors and clerks, which point to a variety o f pay practices and polarization across local governments for rather similar jobs. Again, the results resemble the Hay Group findings, but the values are somewhat lower. 29 Figure 27: Total Pay Dispersion Across Main University Requirement Execution Positions Q , O 8,O 7,O 6,O 5,O 4,O 3,O 2,o 1,o social worker librarian director museum adviser inspector clerk worker +maxlmin *-.stdev/averag 63. The values relating to management positions also reveal big differences inpay for similar responsibilities. However, the results are lower than execution positions since these positions are single grade. Directors and chiefs of office have the biggest gap between best and least paid jobs. The dispersion indicator, on the other hand, is higher among chief of team of workers, revealing more polarization from the average. I Figure 28: Total Pay Dispersion Across Main Management Positions chief of formation chief of office director (incl. deputy) chief accountant -emadmiR-cstdev/averag Similarities with Civil Service Practices 64. The 2006 Hay Group study on the civil service revealedpractices that are similar to those among local government contract employees. First, the civil service positions are also compensatedthrough a mix of base salaries and allowances, where allowances are a very significant share of the salary for some positions, ranging from 33 percent to 48 percent on average. Some of the allowances are for taking on special duties or for special working conditions; others appear to reflect qualifications of the position. Secondly, the internal equity among positions was very poor. Hay grouped positions with others of similar levels of responsibility and found that the spread between the lowest and highest paid were sometimes 9 times, or for one type of municipal deputy director, the pay span 30 was 14 times. On the flip side, they saw that positions with very different levels o f responsibility had similar rates o f pay. Hay concluded that "the pay practice does not comply with the pay policy as declared ingovernment ordinances." 65. They Hay study went on to confirm that pay for civil service positions i s generally not competitive with the private sector. Using their database o f national and foreign firms, the analysis showed that the gap between civil service salaries and the private sector widened the more senior the position. 66. A research note prepared by the World Bank in 2007 described European pay practices and provided examples o f pay scales used in a few selected countries. A short extract on European pay principles i s found in Annex 4. In general, bonuses and allowances are relied on much less inother countries. MainIssues andRecommendations 67. The most significant weakness in the pay practices for contract employees is the poor linkage between the pay one receives and their job responsibility. Although all potential benefits are enshrined in the legislation in force, contract employee pay practices in local governments are very diverse. Positions with similar levels o f qualifications and similar titles have widely different levels o f pay. Differences injob content and performance would account for some differences in pay, but it i s very usual when one finds positions where some people make 6, 7, or even 8 times what others make ina similar position. 68. Second, the remuneration system i s structured so that lengtho f employment inthe public sector i s a bigger determinant o f pay thanjob responsibility. Seniority allowances can go as high as 25 percent o f base salary, and this is in addition to career progression that places heavy emphasis on years worked. As a result, the pay package that i s very unattractive to new employees and their prospects for pay progression are extremely limitedinthe mediumterm. 69. Third, the wide variety of allowances and bonuses undermine transparency and contribute to the major discrepancies in pay across positions with similar qualifications. For management positions with university qualifications for example, the base salary i s only 49 percent o f total pay. Management allowances contribute to big differences inpay compared to execution positions with similar qualifications, though this may not always be justified based on actual job content or expertise required. In addition, there are a number o f allowances (especially for working conditions) that have different names and weights although they compensate equivalent working conditions. Some benefits that paid are not even authorized inthe law. 70. Fourth, basic information needed to develop an effective public sector pay system and or even to assess the implementation of the current one are essentially missing. The government does not monitor in detail the pay and employment44practices o f either local 44 Though the Ministry of Finance monitors overall personnel expenditure, as well as authorized, occupied and vacant positions, their report does not distinguishbetweenthe various components of pay or between statutes and grades. 31 or central public bodies. Hence, the government is not aware of specific developments andmisses opportunities to improvethe systemor to offset shortcomings. 71.. Our main recommendationsover the medium term include: a comprehensive review of all allowances and bonuses which would result either in standardization or inclusion into base salaries; only a handful of such benefits . should be maintained to compensate for working conditions and reward performance; make sure that no other benefits can be paidby employers the pay curve should be reviewed upwards for early age positions so as to attract more young people to the system. The role that seniority plays in career . advancement should be relaxed, with more emphasis given to actual job performance. Review performance assessment procedures to ensure objectivity. rewards for seniority should come through advancement inthe salary range rather than through an additional allowance that is not linked to job responsibility. The current seniority allowance should be gradually phased out, with savings being . used to make base salary ranges wider and the impact of promotions (from one grade to the next) more meaningful. Review the relative total pay for management and execution positions to ensure that execution positions that may require equally high-levels of expertise (e.g., senior advisors and other technical experts) are not unfairly disadvantaged. 32 CHAPTER3: COMPARATIVE ANALYSIS OF PAY POLICIESIN THE PUBLIC SECTOR Overview 72. Base salary pay varies significantly across the different public sector employment groups, but local government contract employees tend to be consistently the lowest paid of all. This is the case even when one compares positions with similar educational requirements and at similar places in the career ladder. Among positions requiring university degrees, those working in health, pre-university education, and security tend to be the highest paid. Among positions requiring only high school education, those employed in pre-university education remain relatively well-paid, followed by those in security. Without knowing the allowances paid to each position, it is hard to say whether these relative differences would hold (some sectors like security use allowances extensively). However, this preliminary analysis does raise questions about the relative pay equity across the public sector, especially the relative rates o f pay for contract employees and some civil servants. Methodology 73. To assess how well public sector pay as whole complies with the principle o f "equal pay for equal work," we used the base salaries laid down in the legislation (as o f 1'` o f April 2008) for each o f the major employment groups. Although base salaries do not provide a comprehensive picture o f pay practices, they are the best proxy one could employ to distinguish the main features o f pay policies in the public sector. One should note that each o f the categories o f personnel analyzed below has a set o f complementing allowances and bonuses which finally alter the compression rates45.Predictably, given the lists and weights o f other pay benefits, the compression rates o f total pay are significantly higher than those presented below for base salary. (For a detailed summary of allowances and bonuses see Annex 3.) 74. We selected 15 relevant positions from five categories o f personnel, namely civil servants, contract employees, policemen, teachers and health employees. The positions are relevant for their frequency in the system. Positions were selected from two main categories o f education requirements; then for each position we chose two grades: the highest and the lowest (beginners excluded). The two grades are relevant for every career path; the former includes employees with most experience and presumably best knowledge in the system, whereas the latter i s the entry gate for young people who should ensure continuity over the longterm. 75. The comparison across the different statutes is not completely relevant without a job evaluation process. However, the selected positions partly offset this drawback given their positions inthe career path (most experienced andfreshgraduates). 45 Given that highest base salary categories also get most allowances and bonuses the hierarchies remain unchanged. 33 76. The table below presents the selected positions, their education requirements, grades and base salaries determined according to the legislation in force. All selected position rades come with pay ranges; some o f them have specific pay steps (e.g., civil servants, $6 teachers47)while the others simply lay down minimumand maximumvalues. Table 13: Positions Selected for Base Salary Comparisons social assistant 46 Three pay steps for each grade. Advancement is achieved by performance assessment, seniority and exams combined. 41Upto 10pay steps. Advancementis achievedmainly by seniority. 48University educationrequirement andhighestgrade. 49Centralgovernment. '''*Universityeducationrequirement "oca^government. and lowest grade. Highschool educationrequirementand highestgrade. 53Highschool educationrequirementand lowest grade. 34 Statute Code Education Name Grade M i n RON Max RON Civil servants IIB h clerk- 1.g. assistant 580 624 Policemen IIB h agent (regular) 810 93 1 Teachers IIB h schoolmaster (incl (regular) I kindergarten) 903 1,305 Comparisonof Pay Policiesacross Main Categoriesof Employeesin the Public Sector 77. As shown in Table 14, the pay span between minimum and maximum base salaries within the four classes o f grades i s significant; it increases along with education requirements and seniority. The 3.62 ratio for the highest grade positions in all categories o f personnel reveals the pervasive discrepancies across the entire public sector; basically, positions similarly placed in the career path o f each main category o f personnel receive considerably different pay. This i s the consequence o f many years of isolated policy adjustments and lack o f cohesion in the overall pay policy. Actually, sector pay policy decisions have been made mostly under pressure from trade unions; there has not been any consistent attempt from the government to approach the issue comprehensively over the last 10 years. As a result, civil servants and contract employees have shown discontent at the consistently higher salaries inthe special sector and recent pay increases inhealthandeducation. 78. The dispersion indicator which measures the spreading of the values within a certain set from the average shows similar results across all grades, implying that the ratios between the various positions remain constant throughout. Table 14: Pay Span for Main Types of Selected Positions Code Min Max Max/ Min Average Dispersion IA 608 2,204 3.62 1,510 33% IB 554 1,593 2.88 953 30% IIA 630 1,570 2.49 946 28% IIB 560 1,305 2.33 755 29% 79. Within each o fthe grade levels, one gets a better understanding ofthe pay span by comparing across occupation groups. The pay span o f the maximum base salaries for type IA positions (i.e., the most experienced employees in the system) reaches 1.76; the police officer i s best paid, whereas the local government contract employee the worst paid. The relationship between university education civil servants and contract employees i s of particular importance given the similarities o f their job responsibilities. In central government, experienced civil servants get an 18 percent higher base salary than the experienced contract employees. The difference increases to 21 percent in the local governments. It i s meant to compensate the civil servants' theoretically more important resp~nsibilities,~~their severe conflict o f interest regime and slower career progression. 54The use of public authority power. 35 Figure 29: Differences in Maximum Base Salaries for Highest Grade Positions Requiring University Education (Type IA) 2,500 police officer ClVll servant. c g teacher 2,000 civil servant- 1.g. 1,500 1,000 500 80. The pay span across minimum base salaries for university required positions (class IB) i s 2.1, considerably higher than above. The best paid i s the young doctor and the worst is the young play director; the contract employees come second to last. Two rather cohesive groups are formed: upwards the health, police and education employee; downwards the contract employees, the play director and the local government civil servant. The ratio between the civil servants and contract employees i s higher than above; the young central government civil servant receives 50 percent more than the contract employee; inlocal government the difference drops to 23 percent. Figure 29: Dispersion of Minimum Base Salaries for Lowest Grade Positions Requiring University Education (Type IB) 1,400 1,200 1,000 800 600 400 200 36 81. Inthe case o fhighschool education positions, the most experienced schoolmaster has a 60 percent higher salary than a local government contract employee (Le., worker). This time only one cohesive group can be distinguished, made o f the civil servant inthe deconcentrated services and the contract employees, all receiving less than 1000RON as base salary. The reason for the schoolmaster's distance from the others may be the longer pay career for each grade (10 pay steps for over 40 years o f seniority); hence the top base salaries exceed those of policemen and nurses who retire much sooner. Figure 30: Dispersion of Maximum Base Salaries for Highest Grade Positions Requiring High School Education (Type IIA) 1 800 1,600 1,400 1,200 civil servant- c g deconcentrated 1,000 800 600 400 200 82. Pay span among the young high school education employees i s 1.6; the best paid i s again the schoolmaster and the worst i s the contract worker. This time the main group i s placed downwards and includes the contract employees, the civil servant and the nurse. Figure 31: Dispersion of Minimum Base Salaries for Lowest Grade Positions Requiring High School Education (Type IIB) 1,000 900 800 700 600 500 400 300 200 100 37 MainIssues andRecommendations 83. The analysis o f base salaries across similar grades in the main categories o f personnel in Romania's public sector reveals a series o f weaknesses which may impact the efficiency and effectiveness o f the public services over the medium and long term. The main issues which came through were the following: 9 Romanian public sector employees do not receive "equal pay for equal work". The current pay policy does not show correlation across categories o f personnel; base salaries for similar positions in the career path differ significantly; in addition, the related ratios are not meaningful. The lack o f correlation is the result o f isolated pay policy decisions made under trade union or inward pressure over time.55The government has not embarked to any comprehensive pay review at the . public sector level over the last ten years. Consequently, pay discrepancies are pervasive and discontent among the worst paid categories i s growing. The lack o f equity inthe system i s exposed by the separation o f the categories o f personnel according to their base salaries; policemen, health and education employees consistently get higher salaries than civil servants and contract employees. Within the two groups base salaries are somewhat close; the differences betweenthem are significant. 9 Pay i s not attractive for young graduates. First, public sector salaries for young employees are much lower than the ones inprivate sector or abroad.56Second, the span between minimum and maximum base salaries for specific positions across all their related grades varies from 1.557to 3.1. Hence young employees may feel somehow discriminated from the experienced ones. 9 Civil servants and contract employees in local governments are significantly worse paid than those in central government. The implied reasons are job complexity and macroeconomic balance. However, local governments have many reasons to attract highly qualified personnel58given the need the improve service quality and to develop strategies and investment projects. Their ability to do so i s seriously hindered by the current discrimination between central and local government base salaries. Rich local governments should be allowed to pay similar salaries as the central government. 84. There are several steps that the government could take toward developing a pay reform strategy: First, it could begin categorizing the types o f allowances and to work out a phased approach to dealing with each. Some would be merged into base salary immediately, some redefined or renamed and kept as an allowance, some could be ''Police, health and especially education trade unions obviously have more leverage than civil servants and contract employees. 56See the conclusions o fthe "Comprehensive Privatepublic Survey in the Romanian Civil Service," carried out by Hay Group inthe first quarter o f 2006 for the National Agency of Civil Servants. "Thespanisusuallybelow2forhighschooleducationpositions. "Forinstancethenumberoffullyqualifiedarchitectsworkinginthe3222employerlocalgovernmentsis less than 100. The other employees who fill the positions o f chief architect are either construction engineers of Architecture College graduates. 38 reduced gradually over time, and others eliminated altogether. Safeguards would be put inplace so that no employee would see hisher salary decline as a result of the changes. Secondly, the government could initiate a program for merging the various positions into a single grade scale. This could be done through evaluations of a sub-group of benchmark jobs to assure that the job content and complexity are recognized equally across occupational families. Third, the government should estimate the available resources over the medium term to support future pay increases. Those resources could then be targeted to those positions that have previously been under-valued in the pay system. The size of that budget will then determine the pace at which structural reforms could be implemented. Support for reform will be enhanced if resources enable a large share of people to see their pay rise, despite the structural changes. Instead of ad hoc negotiations with unions each year, pay policy would be guided by a multi-year framework or guideline developed inadvance. 39 CHAPTER4: CONCLUSIONSAND RECOMMENDATIONS 85. Reforming public sector pay systems i s inherently challenging because it affects so many distinct stakeholders, and in different ways. The political economy issues that affect the setting o f pay policies can be more important and more difficult to resolve than the technical issues. This report provides only an analytical foundation for understanding problems in the current system, and how to align that system more closely to common European pay practices. Infact, many o f the findings from this report are not new to the government but have been discussed inprevious studies and intechnical assistance. 86. However, this report i s a "work in progress" because it does not attempt to address whv institutional changes have been so hard to make in Romania. There are underlying political economy issues that have been obstacles to initiating reform of the pay system, and it i s important that these be understood and addressed inthe formulation o f any strategy. In countries confronting similar challenges, the reforms are part o f a comprehensive strategy and are phased in over several years. Lessons from others inthe region-and how they manage stakeholder concerns-can be useful. But it is equally important that one evaluate the Romanian context and the factors that prevent a more strategic approach to pay policy decisions. 87. Improvement in the long-term quality o f the public administration in Romania i s dependent on many factors, but reform o f the pay system i s an important one. Higher levels o f budget resources will not necessarily resolve the challenges faced by the public administration. In fact, spending on public sector pay has risen dramatically since 2004, but the overall system of remuneration and career advancement for public servants has not changed much. Annual pay increases are still negotiated ad hoc with individual trade unions and reflected in across-the-board increases in base salaries. Careers scales still place heavy emphasis on time-in-grade and the accumulation o f allowances. The incentives neededto attract skilled workers and motivate performance remain weak. 88. Some of the main challenges reflected in the pay practices for local government contract employees are: Transparency and perception o f equity are eroded by heavy reliance upon allowances and bonuses to determine total pay. The pay dispersion for similar types o f positions i s much greater than could be explainable by genuine differences in responsibility or pay grade. Allowances should be scaled back and base salary given a higher share o f overall pay. Incentives for attracting new staff from outside the public service are extremely poor. Time-in-grade requirements create rigidities in the salary structure that keep new staff in lower pay grades and severely limit pay enhancement opportunities. Greater flexibility i s needed incareer advancement criteria. The incentives for performance are undermined by the weight given to the seniority allowance and its poor linkage to job responsibility. As a result, those with less responsibility can make much higher salaries merely by virtue o f their number of years in the public sector. Differences in pay should be driven foremost by differences in responsibility. Steps within grades should be a 40 sufficient tool to reward seniority, and base salary differentials between grades should be expanded so that promotion matters more, Seniority allowance should be scaled back over time and eventually eliminated. The savings can be used to expand base salary ranges and decompress base salaries. 89. Quality o f public administration could be enhanced by a better alignment between job responsibilities and pay-throughout the public sector. In other words, the relative differences in pay within the public sector can be as important as the comparisons with private sector averages. Likewise, a more accurate assessment o f job weight or relative complexity can also be important to resolving pay problems. Inthis study, data on civil servants, teachers, health workers, and police were only available in terms o f base salaries. However, that information was sufficient to confirm that positions with similar educational requirements have very different levels o f pay depending on which statute they are covered under. This could result in relative over-spending for some positions, and relative under-spending on others. To address this, the government should consider: . A review o f thejob content for selected positions would help to confirm whether there are well-founded reasons to explain the significant differences. Other . positions can then be benchmarked against those that have been evaluated formally for job content. If the differences cannot be explained by job responsibility, the government should assess whether labor market conditions would justify continuing the current pay echelon. In other words, if some occupational families or job . functions face greater competition with the private sector they may merit beingon a higher scale. Armed with information about the relative job weights and any distinctive labor market conditions, the government should then develop a medium term strategy to reposition selected jobs within an overall public sector pay structure. This could imply that some categories of positions benefit from faster rates o f increase inthe . future than others. The collective bargaining process with unions should be refined to accommodate the system-wideadjustments. As with local government contract employees, the government should reconsider the role of allowances intotal compensation for all other public sector personnel - with the aim o f reducing allowances that are not directly tied to job responsibilities (e.g., seniority allowance). Career advancement criteria should also be reassessed to assure that they do not unduly weight seniority over performance. 90. Finally, the government should develop a long-term strategy for improving information management and reporting on public sector pay practices. Although there i s a large legislative base for Romanian pay policies, the actual implementation of the policy can have unintended consequences across job families. To develop a more strategic approach to pay formulation, including the costing o f various policy alternatives, the government should make a priority to consolidate data on public sector pay and establish appropriate monitoring procedures. 41 ANNEXES 42 A n n e x 1: Macroeconomic Data and Public Sector Personnel Expenditure (2005-07) Statistics Romania 2005 2006 2007 GDP (RON) 288,000,000,000 341,000,000,000 404,000,000,000 No of total national employment 4,559,000 4,667,300 4,770,000 Population 21,680,974 21,565,119 21,537,563 GDP per capita (RON) 13,284 15,669 18,758 Public mendingas a% of GDP - 29.8% 33.0% 33.8% Total public spending(general consolidatedbudget) (RON) 85,720,800,000 112,626,3 14,696 136,556,539,507 Average exchange rate 1 1 I RONEURO 3.6234 3.5245 3.3373 Average exchange rate RONNSD 2.9137 2.8090 2.4383 Table A1.2: Personnel Expenditure in Public Sector, 2005-2007 43 Table A1.3: PersonnelExpenditureby MainCategories ofPersonnel, 2005-2007 Statebudget civilian (civil servants - and contract employees) 2005 2006 2007 Wage expenditure n.a. 1,085,080,013 1,430,992,399 Base salaries n.a. 657,983,813 776,688,73 1 Allowances (fixed part) n.a. 124,530,932 159,722,496 Other allowancesand bonuses (variable part) n.a. 254,969,665 241,892,721 In-kindbenefits n.a. 528,275,109 568,177,018 Social contributions n.a. 189,075,978 217,734,627 44 ISocial contributions I 1,181,810,978 I 1,513,148,665 I 1,484,192,794 I Personnel yopublic in expenditure Monthly total Monthly total wage and in- Category of personnel personnel Per per capita kind benefits spending authorized position expenditure expenditure Civil servants& contract employees - central government 13% 30,193 2,5 16 2,019 Military 9% 34,707 . 2,892 2,502 Policemen, gendarmes, firefighters, judiciary 28% 46,073 3,839 3,546 Civil servants& contract employees - localgovernment 17% 14,052 1,171 921 Preuniversity education 26% 19,699 1,642 1,277 ''Determined basedon budget execution andtotal authorizedpositions. 45 Annex 2: Main Categoriesof Public Sector Personnel-PositionsandWage Expenditure Table A2.1: Public Sector Employmentby Main Categories of Personnel YO ~~ Category/ Increase employer 2005 2006 2007 2008 2008* occupied 2008- 2008 2005 Central government 304,5 12 335,352 359,218 381,188 336,783 88% 25% Special sector (military, police, gendarmerie, fire 199,117 221,425 244,154 263,325 NIA N/A 32% fighters, justice, intelligence) Civil servants 65 314 70 232 NIA 78 153 N/A N/A 20% 46 Table A2.2: Data on Positions in the Special Sector Approved by State Budget, 2005-08 Employer 2005 2006 2007 2008 Ministry of justice 13,949 14,381 14,288 14,288 Special statute -judiciary 4,663 4,732 4,738 4,743 Civil servants 550 726 755 752 Contract employees -judiciary 7,534 7,788 7,919 7,917 Contract employees - ordinary 963 891 848 848 Others 239 244 28 28 Ministry of interior and administrative reform 108,507 131,809 150,123 159,564 public authorities 2,603 2,748 2,85 1 2,95 1 civil servants 2.021 2.156 2.181 2.250 contract employees - 1 I I 1 oDerational 80 350 427 428 contract employees - administrative 216 216 215 245 others 286 26 28 28 public safety 104,328 127,445 144,424 153,765 special statute 69,484 74,358 75,869 76,006 policemen (including border police) 68,774 73,668 75,115 75,226 others 710 690 754 780 contract employees - specialist 6,157 7,133 7,338 7,661 fire fighters 28,686 45,963 60,988 69,969 education(specialist schools) 1,576 1,606 1,764 1,764 others 10 1,084 1,084 Ministry of defense 86,687 85,566 89,894 89,894 amy 63,562 62,3 19 69,088 69,872 47 Annex 3: MainRegulationson PublicSector PersonnelRemuneration The various categories o f personnel in Romania's public sector are regulated by specific pieces o f legislations. The latter describe the wage benefits which can be paid interms o f weight or value, entitled personnel and paying conditions. Legally, no other wage benefits may be paid unless laid down inthe legislation inforce. The description o f pay components across categories o f personnel reveals similar characteristics and specific benefits. The similar characteristics relate to the existence o f base salary, the merit salary, management allowance and seniority allowance. These benefits are paid to all public employees. Other similar features include the bonus funds, the overtime allowance andPhD allowance. On the differential side, specific categories such as police, military and health enjoy a wide array of allowances and bonuses to complement for the unsatisfying base salaries. These benefits are sometimes paid to all or almost all employees. Anyhow, for these categories inparticular, it i s clear that the weight o f such benefits inthe total pay i s very important. This annex reveals the lack of a correlated approach at the public sector level as regards the components o fthe variable partofwages. 1. Teachingpersonnelinpreuniversityeducation Legislation inforce: Law no 128/1997 on the statute o f teaching personnel Description: Five different positions structured into four grades, including beginner. The positions and their education requirement are specific to kindergarten, primary school and secondary school. The grades are divided in up to 10 pay levels (beginner excluded), as opposed to 5 for civil servants and contract employees. The pay levels are structured according to seniority. The base salary is coefficient based. Each position is assigned a series of fixed coefficients, i.e. the pay levels. Procedures for update: the value o f the coefficient i s set each year by G.O. Who pays: local governments. 48 Wage Component Weight I Amount Conditions / Comments Base salary Coefficient according to The coefficient is fixed. position, grade and seniority. Meritgrade 20% of BS6' The allowance is consideredas part ofthe BS andthus taken into accountwhen determining other allowances weighted againstthe BS. Has to be approvedby the minister after a bottom up evaluation procedure. Awarded for 4 years. Only 10% ofthe positions within a county may benefit. Meritsalary 15% of BS. The allowance is consideredas part ofthe BSandthus taken into account when determiningother allowances weighted - againstthekS. Managementallowance 15%-35%ofthe Establishedby the County Inspectorate maximum BS for the (deconcentratedservice) basedon the teacher's correspondent school size, complexity and managerial position. performance.May be revised annually. Seniority allowance 5% - 25% of BS. After 30,35 and 40 years of seniority an extra 4% of the previous base salary is awarded. Rural allowance 5% - 80% O f BS The % is establishedby local governments inconsultationwith tradeunions Stability allowance 15% of BS. The allowance i s part ofthe BS and thus taken into accountwhen determining other allowances weighted against the BS. The beneficiaries are teachers with at least 10 years of continuous work in the system. PhD bonus 15% of BS. Stress allowance 3% of BS. The allowance i s consideredas part of the BS andthus taken into account when determining other allowances weighted against the BS. Awarded to each teacher on passingeach level of seniority. Basically, the allowance is a 3% increase ofthe base salary, including the allowancedetermined for the previous seniority level. Allowance for personnel in 15% ofBS The allowance i s consideredas part ofthe special education units and BS andthustaken into accountwhen residential servicesfor children determining other allowances weighted against the BS. Class coordination allowance 10%of BS. The allowance is consideredas part ofthe BS and thus taken into account when determining other allowances weighted against the BS. The beneficiaries are teachers who are responsible/coordinatorsof a specific class D f pupils. 49 Wage Component Weight / Amount Conditions / Comments Annual bonus 100%on last monthBS All employees are entitled. Teachertrainingallowance 10% 25% of BS. - Forteachers involved intraining activities. Other bonuses Foodallowance. Accordingto nationalagreementwith trade unions (collectivework contract). 2. Police and border police Legislation inforce: Law no 360/2002 on the statute o f policeman; G.06'. no 38/2003 on the remuneration and other entitlements o fpolicemen. Description: Policemen are considered civil servants with special statute; hence they are regulated by specific legislation. There are 22 main different positions structured into classes and categories; there are two classes based on education (officers and agents), whereas the categories relate to the responsibilities o f the positions (dignitaries, high civil servants, leading civil servants and execution). Apart from his position, each policeman has a specific grade, according to education and experience. Seniority i s acknowledged by up to seven specific levels (every three years). The base salary is made o f several components: position salary, grade salary, seniority allowance, merit salary, management allowance and on-call allowance62.The base salary i s supplementedby a wide range o f bonuses and allowances. The position and grade salaries are set based on coefficients. The rest o f the remuneration components are relatedto the base salary or position salary. Procedures for update: the value o f the coefficient i s set each year by G.O. Policemen do not make contributions to the pension and employment funds and neither do the employers. Instead policemen make a 5% contribution to the state budget for pensionbenefits; policemen retirement benefits are paid from the state budget. Who pays: central government. 6' Government Ordinance 62 InRomanianthe name is ,,permanent missionallowance". 50 IWage Component Weight I Amount Conditions/ Comments Coefficient according to Most positions may range from Position salary education, type o f finction and minimumto maximum complexity. coefficient. Grade salary Coefficient based, according to Fixed coefficient. Much smaller grade. than the hnction salary. 6% o fthe position salary, grade Upto seven levels, one every Seniority allowance ("gradafie") salary, merit salary and three years. Ineffect, each management allowance. policeman gets 2% for every years o f seniority. Meritsalary 20% ofthe position salary Upto 30% o fthe positions are eligible. Management allowance 10% - 50% o f the position salary 25% o f the position salary, grade On-call allowance salary, seniority allowance, merit salary and management All policemen are entitled. allowance Fidelityallowance 25% o fbase salary All personnel inthe public safety and national securitv institutions Confidentiality allowance 15% 20% - Policemen who use codes. Overtime 75% and 100%o f base salary hour 100% of the base salary, 25% of Move bonus base salary for each member o f the family Isolation allowance Upto 20% ofbasesalary Commencement bonus 100% of base salary Graduates o f police educations joining the forces Protection/ intelligence/ intervention allowance Upto 30% ofbase salary Policemen inunits assigned to Corruption combating allowance 30% o fbase salary fight corruption within the police system. Danger allowance 16% - 50% of base salary Bonus find 10% of monthly wage expenditures Annual bonus Last month base salary All policemen entitled PhD allowance 15% o f base salary Special work/ extraordinary resultsallowance Upto 50% ofbase salary Up to 5% of all positions Night work bonus Minimum 15% Dangerous working conditions e.g. radio magnetic waves. allowance 10% o f base salary Subject to Ministry o f Labor authorization. Incentive for the personnel inthe 25% increase of coefficients for All personnel in the central central amaratus o fthe ministrv Dositionand erade amaratus units 51 3. Military personnelin the army, gendarmerie,intelligenceandjudiciary Legislation in force: Law no 804995 on the statute o f military personnel; Law no 138/1999 on the remuneration and other entitlements o f military personnel in public military institutions, public safety and national security, as well as the civilian personnel inthese institutions. Description: the legislation i s applicable to the personnel o f the Ministry o f Defense, Ministry of Interior and Administrative Reform (i.e. gendarmes and firefighters), intelligence services and Ministry o f Justice. There are different types o f positions determined against grades and education requirements. Apart from his position, each soldier has a specific grade, according to education and experience. Seniority i s acknowledged by up to seven specific levels (every three years). The base pay is made of several components: position pay, grade pay, seniority allowance, merit pay, command allowance and on-call allowance. The base pay is supplemented by a wide range o f bonuses and allowances. The position and grade pays are set based on coefficients. The rest of the remuneration components are relatedto the base pay or position pay. Procedures for update: the value o fthe coefficient is set each year by G.O. Military personnel do not make contributions to the pension and employment funds, except contract based soldiers/ gendarmes/ firefighters. The militaries' retirement benefits are paid from the state budget. All civilian personnel in the military institutions carrying out similar tasks as soldiers may benefit from the same bonuses and allowances as the latter. Personnel working inthe air forces receive specific bonuses determined against the flying time. Personnel working in the navy receive specific bonuses determined against the duration o f their missions off base. Personnel working in the army corps o f engineers receive specific bonuses determined against their fulfillment o f the work plan. Who pays: central government. IWage Component IWeight I Amount IConditionsI Comments I Coefficient accordingto Position pay education,type of hnction and Most positions may range from complexity. minimum coefficient, tomaximum Grade pay Coefficient based, accordingto Fixed coefficient. Much smaller than grade. the hnctionpay. Seniority allowance 6% of the position pay, grade Upto seven levels, one every three ("gradatie") pay, merit pay and management allowance. years. 52 Wage Component Weight f Amount Conditions / Comments Meritpay 20% ofthe positionpay Up to 30% ofthe positionsare eligible. Managementallowance 10% 50% ofthe positionpay - 25% ofthe positionpay, grade On-callallowance pay, seniority allowance, merit All military are entitled. pay andmanagementallowance Confidentiality allowance 15% 20% o f basepay Soldiers who use codes. Overtimeallowance 5% - -25% of base pay 100% ofthe base pay, 25% of I Move bonus base pay for each member ofthe family Graduates of militarv education Commencementbonus 100% ofbase pay joining the military. Contract soldiers after their first 3 4. Contract employees Legislation in force: G.E.0.63no 24/2000 on the establishment o f base salaries for contract employees inpublic sector. Description: base salaries are nominated for a wide range o f positions across different sectors: general administration, customs, research, civilian air force and navy, culture, social assistance, churches, sport bodies, agriculture, cadastre, archives. In addition, common administrative positions are included (drivers, secretary, typewriter, warehouse administrator, building administrator, guard, fireman, worker etc). For all base salaries a minimumandmaximumis provided. The value is determined across fields o fwork based on sector coefficients. Within the same field o f work, hierarchies are established according to education requirements and job complexity. Job complexity i s reflected in grades; the number o f grades varies across sectors and categories o f education from 2 to 5. Employees advance in grade and base salary on the basis o f seniority and performance assessment. Each employee receives a seniority allowance structured into 5 levels o f seniority. 63GovernmentEmergency Ordinance 53 The base salary is coefficient based, but expressed inRON. The allowances and bonuses may be divided into two categories: universal and sector specific. All contract employees are entitled to the universal ones (e.g. seniority, dangerous working conditions, merit, management, bonuses). Inaddition, specific sectors benefit from particular allowances and bonuses (see below). The former is included into the common legislation for the remuneration o f contract employees. The latter i s included into sector specific legislation (e.g. law on museums, law on child protection system). Procedures for update: the values o f the base salaries are set each year by G.O. Who pays: employer institutions. Wage Component Weight I Amount ConditionsI Comments Values in RON are set within the Minimum and maximum law. thresholds for eachposition.The I actual value is determinedon the r recruitmentassessment. Merit salary 15% ofBS II 1 upto 15% ofcontractemployees pdsitions.Awarded for the whole I duration of a year. Managementallowance 10% - 55% of BS IIAccording to the complexityof Seniority allowance I of seniori Dangerousworking conditions to electromagneticradiations. Bonus find 2% of payroll (only wage IIThe beneficiaries are established expenditureincluded) - by the credit officers (heads of institutions), 0vertime 75%, 100% o fthe hourly base salary Night shift 25% ofthe hourly base salary All civil employees are entitled. Annual bonus 100% on last month BS All employeesare entitled. Local government bonus find 5% ofpayroll, providedrecurrent (for Christmas) 1revenues64cover all personnel I I expenditures Confidentialityallowance Up to 15% ofBS I Personnelwithin the Government central apparatusand other 7 centralgovernment bodies. Holidaybonus Sum ofthe daily BS, seniority All employees. allowance and management allowance. 64 The budget classificationclassifies as recurrent all fiscal and non-fiscalrevenues, except capital. Hence, it includes state budgettransfers, too. This makes it very easy for any local governmentto meet the conditions for this bonus find. 54 Specific allowances and bonuses for particular categories of personnel YOof BS Legal Base Beneficiaries 15%, 7%-17%, Law no. 33412002, Law no. librarians, social 10% 3 1112003,Law no. 59312004 services workers 2. stress1specialworking lo%, 5%, Law no. 33412002, G.D. librarians, social conditions 15%, 25% 281/1994, G.O. 1012008 services workers, civil aviation, mountain rescue, local police 3. preventive financial 25%, 15%, 1Law no. 8412003, G.O. 1Ispecializedpersonnelin control (ex-ante audit)/ 20% 11912003 ail institutions ex-post audit 4. job complexity 25% Order MFP nr.52212003, G.O. personnelcarrying 11911999 preventive financial control tasks 5. job difficulty 30%-50% Law no. nr.10/2001; G.D. legal advisers involved fi nr.49812003; OUG innationalizedproperty nr.20912005; Law no. restitution 26312006 night shift 15% G.D. 281/1993 social services workers doing shifts 25% Court decisions, Order MA1 employees of Ministry 496/2003 of Interior and Administrative Reform, employees in local governments 8. mobility 10% I Trade union agreement, Law - I1Legal advisers - no. 51412003 9. stability 5%-15% Law no. 3 1112003, Law no. museum employees 1212006 with more than 10 years seniority 10. computer (dangerous 15% Trade union agreement, G.D. local governments work) 28111993 11. health and work 500 lei local government decision, local governments security trade union agreement 12. anti-pandemic or other 50% IIG.O. 1012008 1 employees of the diseases campaigns Minis& ofAgriculture involved inprevention and fighting such situations; some local governments have also wrongfully paid such bonuses 13. work inshifts 15% G.D. 281/1993 employees of a specific county government carrying out secretariat work food allowance 11, 14 trade union agreement local governments RONIday Easter and Christmas 300 RON trade union agreement local governments bonus uniform 670,300 RON trade union agreement local governments 55 Nr.crt. Allowance / Bonus Yo of BS Legal Base Beneficiaries 17. toxic working 7%, 15% local government decision, local governments, conditions trade union agreement, Law museums no. nr.311/2003 18. national importance 25% G.D. 281/1993 sport bodies, cultural activities institutions o f national importance of located I inBucharest 19. IProject Implementation Law no. 49012004, G.E.O. no. All civil servants 1/2006 working inProject Implementation Units carrying out project funded by European Union or other IFIs 5. Civil servants Legislation in force: Law no. 188/1999 on the statute o f civil servants; annual G.O.(s) establishing base salaries and other wage components. Description: all civil servant positions have fixed base salaries; these are differentiated across education requirements, grades and administration level. Inthe latter respect, base salaries are structured onto four main levels: - Ownapparatusofthegovernment, presidency andparliament; sevenotherpublic institutions incentral administration andjudiciary - Ministriesandothercentralgovernmentbodies; cityhallofBucharest - Prefectures, deconcentratedservicesandcountycouncils - Localgovernmentsandsubordinatedinstitutions. Civil service i s structured into threes main classes according to education. First class is, in turn, structures into three categories (high civil servants, leading, execution). Each execution position i s structured into three grades (beginner excluded), whereas each grade i s divided into three pay steps. The base salary is expressed inRON. Civil servants' base salaries are about 20% higher thanthose o f contract employees. Each employee receives a seniority allowance structured into 5 levels o f seniority. The allowances and bonuses are broadly similar to the universal ones o f contract employees. However, civil servants working in particular institutions may receive specific allowances stated in the legislation regulating the respective fields of work or institutions. Procedures for update: the values o f the base salaries are set each year by G.O. Who pays: employer institutions. 56 Wage Component Weight I Amount Conditions / Comments Base salary Values inRON are set within the Fixedvalues. Eachgradehas law. three pay steps. Merit salary 15% of BS Up to 20% of civil servant positionswithin the institution. Awarded for the whole duration of avear. Managementallowance 15% - 55% O f BS According to the complexityof the managementposition. Varies across sectors on similar positions. Seniorityallowance 5% - 25% O f BS Five levels startingfrom 3 years of seniority. Personnelininstitutionssubject to electromagnetic radiations. All civil servants are entitled. The beneficiariesare established expenditure included) by the credit officers(heads of I institutions). Overtime 75%, 100%ofthe hourly base salary Night shift 25% of the hourly base salary All civil servantsare entitled. Annual bonus 100%on last month BS All employees are entitled. Holiday bonus Sum of the daily BS, seniority All employees. allowance and management allowance. Specialbonus fund 5% of payroll out of savings from Employeesselectedby credit wage expenditure officers. Local government bonus fund 5% of payroll, providedrecurrent (for Christmas) revenueP cover all personnel expenditures Confidentialityallowance Up to 15% of BS Personnelwithin the Government centralapparatus, the presidency and five other central government bodies. 65 The budget classificationclassifies as recurrent all fiscal and non-fiscalrevenues, except capital.Hence, it includesstate budget transfers, too. This makes it very easy for any localgovernmentto meet the conditions for this bonus fund. 57 Specificallowancesandbonusesfor civilservantsin particularinstitutions Nr.crt. Allowance/ Bonus Yo of BS Beneficiaries - 1. preventivefinancial 25%, 15%, specializedpersonnelinall institutions control(ex-ante audit)/ 20% ex-post audit 2. Public manager 55% Civil servants with public managerstatute (200-300 employees) 3. ProjectImplementation 75% All civil servants working in ProjectImplementation Unit Units carryingout project funded by EuropeanUnion or other IFIs 4. Mobility 20%, 25% Local governments I I 5. Border 20% Customs services 6. On-call 25% Employees of the Ministry of Interiorand Administrative Reform, includingPrefectures; subsequently, many local governments have awardedsuch allowances 7. Foreignlanguages 10% Ministry of ExternalAffairs 8. Specialworking 5%, lo%, 15% CompetitionCouncil, DanubeDeltaAdministration, conditions Social (Pension) FundAdministration, Customs services 9. Isolation 40%, 50%, Danube Delta Administration, EnvironmentGuard, 60% public finance deconcentratedservices 10. Job difficulty 25%-40% legaladvisers involved innationalizedproperty restitution 11. Stress 16% Social (Pension) FundAdministration, Public Health Authorities(county level) 12. Stability 3% 10% - Customs services,National Statistics Institute 13. Treasury 10% Employees of public finance deconcentratedservices 6. Healthpersonnel Legislation in force: G.E.O. no 115/2004 on the remuneration and other entitlements o f contract employees inpublic health units. Description: positions are structured according to job responsibilities (specialist, research, auxiliary, administrative), education requirements and grades. For each grade pay i s laid down between minimum and maximum values. Pay progression i s allowed once a year based on work performance assessment. Procedure for update: by G.O. 58 Who pays: hospitals and the other public health units. Their revenues come from the health fund, own revenues, state budget. Wage Component Weight I Amount ConditionsI Comments Base salary Values inRONare set within the Eachgrade has a pay range law. within minimum and maximum values. Base salariesof employeesinforensic medicine andpathologic anatomy are 100% higherthanthe standardlaid down by the law. Base salariesof members of hospitals' management committees are different from the execution positions, i.e. higher. Merit salary 15%of BS Up to 20% of civil servant positionswithin the institution. Awarded for the whole duration of a year. Managementallowance 15% 55% ofBS - Accordingto the complexity of the managementposition.Varies across sectors on similar positions. Seniorityallowance 5% 25% of BS - Five levelsstartingfrom 3 years of seniority. Dangerousworking conditionsI Upto 15%ofBS Stress allowance Up to 15%of BS For activity intense working environments. Dangerousworking conditions I1 Up to 25% of BS Dangerous working conditions I11 50% 100%of BS - Dangerous working conditions IV Up to 30% of BS dividedinto three thresholds Isolationallowance Up to 60% of BS Public Health. PhDallowance 15%of BS All personnelis entitled. Bonus hnd 2% ofpayroll (only wage The beneficiaries are established expenditure included) by the credit officers(heads of institutions). OvertimeI 75%, 100%ofthe hourly base All personnelis entitled. salary OvertimeI1 25% - 50%of base salary in The beneficiaries are doctors who working days work beyondtheir normto ensure 50% 100%inweek-endand - over the clock medicalassistance legalholidays inthe public healthunits. Night shift 25% ofthe hourly base salary All personnelis entitled. Annual bonus 100%yearly average monthly All employees are entitled. 59 Wage Component Weight I Amount Conditions/ Comments Foodvouchers Upto 20 food vouchers Move bonus 100%ofmonthly wage Employeesmovedto units outsidetheir hometowns/ cities. Graduates workingin another 100%of BS.200% of BS for Awarded after the first year of communitythantheir hometown isolatedcommunities. work. Stabilitybonus The value is establishedby All personnel inthe health government decision system. Awarded inthe 2ndand 4" auarters. N.B.: 1) Base salaries of doctors working in hospitals may be increased or diminished by up to 50% based on their achievement of performance indicators. The decisions are made quarterly by the hospitals' management committee basedon criteriapassed by Government decision. 2) Base salaries of doctors working in hospitals or hospitaldivisionswhich have own revenues may be increasedby up to 100% providedthe extraexpenditure is coveredby the own revenues. The increase is quarterly. 3) General practitioners' are negotiated with the Health Fund but may not be lower than base salaries of doctors in county emergency hospitals. 60 Annex 4: Principlesof EuropeanPay Practices66 Although there are variations in actual application across countries, European public sector pay practices are generally structured around a common set of objectives: 0 ensure consistency, internalequity, and transparency 0 create pay differentials that provide an incentive for staff to perform well and to seek higher levelsof responsibility 0 set salaries reasonably in line with market pay levels in order to attract and retain qualified staffandto minimizeincentivesto supplement income through other means. 0 Drawing on work from various organizationsand consulting firms, one can summarize some ofthe key elements of Europeanpay practice as follows: 0 Base pay is the main element of total pay, typicallyforming at least 90% of total pay. Many governments still use allowances to reflect special working conditions, but by limiting the number and magnitude of allowances, governments increasethe transparency of compensationsystem andthe perceptionof fairness across positions. 0 Bonuses are not common - it is generally considered difficult to devise bonus schemes inthe public service environment that are objectiveand that motivatestaff. Performance- based pay systems require a system for managers and staff to agree on objectives and system for assessingperformanceagainst those goals. 0 Where bonuses exist they are usually limited to around IO-20,percent of base pay and take into account performance over the full previous year. Though governments are increasingly looking to emphasize the link between pay and performance, bonuses are most common among senior professionaland managerialpositions where there is greater scope to affect results. 0 Bonuses are typicallyfunded through a specific allocation in the budget. Money saved from staffvacancies cannot be usedto pay bonusesto existingstaff. Ministry budgetsare intended to fund the actual staffing levels, and any unused resources revert back to the Treasury. 0 Benefits in kind (e+ housing, cars, mobile phones) are rare - benefit schemes are regarded as expensive to administer and potentially divisive, i.e. some people get greater value from the benefitsthan others for whomthe benefitsmay not be relevant. 0 Total pay levels in the public service are normally lower thanfor comparablejobs in the private sector. The range varies from country to country, but in general they will approximate perhaps 60-80 percent of private sector pay levels. The lower pay level recognizesthat public servants usually have greaterjob securitythan in the private sector. The actual rate of comparabilityto the privatesector often varies with position. 66Extractedfrom a longerresearchnote on "Public Sector Pay Practicesin Europe" preparedby Bernard MyersandAleksandraRabrenovic for the RomanianMinistryof Labor in May 2007. 61 Pay structures are usually based on a series of grades that reflect relativejob content. The grade of ajob is usually decided by means of ajob evaluationsystem that allocates jobs to grades on the basis of an assessment of relative outputs, accountability, knowledge and skills required, management responsibility, and the extent and nature of contacts inside and outside the department etc. Under this system it is possible to have similar titles, but based on the job requirements in different departmentdministriesthe jobs may be indifferent grades. For each grade there is usually a pav range which allows staff at each level to receive an annual salary increase each year (up to the maximum of the pay range) that reflects increasingexperienceand performanceat thatjob level. The size of the rangevaries, but usuallyit is no morethan 50 percent. Seniorityplays a subordinate role to actualjob responsibility. Annual salary increases enable a personto progressthroughthe salary range, butthey are capped at the maximum of the pay range. The benefits of experience are linkedto a particularjob or grade. Pay for seniority is therefore within the overallrangefor thejob. Once at the top ofthe range, further increasesin pay requirean increase injob responsibility(Le., a promotion). There is a significant differential between pay levels of successive grades, normally at least 12% (and usually more) from one grade mid-point to another. This provides the financial motivation for staff to accept higher level responsibility. It motivates performancewithinthe grade by makingpromotionsomething ofvalue to pursue. 0There is a single grade and pay structure within each public service or occupation family (e.g., health workers, teachers, etc.), which reflects the HR principle of "equal pay for equal work". This ensures that the employees in each public service with the same level of qualification, with approximately the same complexity of job, responsibility and workingconditions, are equally paid. Thepay structure is intended to achieve equal competitiveness of remuneration across public sector positions. In other words, if the government's objective were to pay at the median of the private sector, it would seek to achieve this across all positions within a public service category. 62