SEMINAR ON CAPACITY DEVELOPMENT DURING POLITICAL TRANSITIONS SENEC, SLOVAKIA 21-23 NOVEMBER, 2005

1. SEMINAR ON CAPACITY DEVELOPMENT DURING POLITICAL TRANSITIONSSENEC, SLOVAKIA 21-23 NOVEMBER, 2005 Introductory Comments: On the Evolution of Salary Supplement Payments Ted Valentine, Consultant

2. I. Introduction An effective and efficient public service is essential to promoting economic growth, the general well being of the citizenry, poverty alleviation and improved global competitiveness. Appropriate foundation for an such a public service requires that the reform effort focuses on three essential building blocks: • Strong central capacity for formulating and coordinating policy; • Efficient and effective public service delivery systems; and • Motivated and capable staff. UNDP CDF Seminar on Capacity Development During Political Transitions

3. Pay reform and Incentive Systems • Many of the problems associated with the poor performance of the public service are related to a lack of an appropriate compensation structure and incentives regime. • Reinvigorating the government and improving service delivery will require, among other things, addressing low human resources capacity in the public service: • Attracting and retaining professional, managerial and technical personnel with requisite skills; • Motivating personnel towards desired levels of performance; • Providing incentives for undertaking necessary training and capacity building; • Building institutional structure for improved team performance; (minimizing the islands of prosperity which currently exist in the world of donor-funded projects and programs); and • Paying adequately within the government resource envelop and raising salaries over time to move towards a reasonable living wage. UNDP CDF Seminar on Capacity Development During Political Transitions

4. II. The ‘Pay and Incentives Problem’ Extended period of economic decline and stagnation became commonplace throughout much of SSA, where double-digit real wage declines on a per annum basis were not uncommon. Figure 1: Comparative Real Average Civil Service Pay Trends for Various Sub-Saharan African Countries, 1975 - 2000 UNDP CDF Seminar on Capacity Development During Political Transitions

5. Figure 2: Real Civil Service Average Pay Trend, Tanzania: 1969-1995 UNDP CDF Seminar on Capacity Development During Political Transitions

6. Consequences of Declining Real Pay and Weakening of the Incentive Regime Contributed to depletion of scarce human and motivational capital as: • Many public servants pursued an exit strategy, leaving government employment altogether • Exited on-the-job, using work hours and public resources to engage in their own income-maintenance strategies. • Spread of deviant work behaviour: • Production deviance, which includes work slow downs, misuse of paid work time to engage in non-work activities, or “time theft”; and/or • Property deviance, which refers to the (mis)appropriation, misuse of public institutions’ tangible and/or financial assets for personal gain. The consequences for the public services was the further erosion of the capacity to deliver public services above and beyond that observed by the direct reduction of government budgetary allocations. UNDP CDF Seminar on Capacity Development During Political Transitions

7. Governments undertook First-Generation PSRs with various degrees of success Tanzanian government undertook far reaching reforms within the context of First-Generation PSRs • Civil service workforce was reduced from roughly 354,600 in 1993/94 to about 264,000 by 1998/99, i.e., a payroll reduction of about 90,600 or 26%. • Rationalized compensation and job-grade structures, leading to decompressed and improved horizontal and vertical equities. • 36 inequitably and non-transparently awarded allowances were eliminated or consolidated into the revised salary structure. • Greater control was gained over the wage bill and the integrity of the payroll was restored. • After years of declining and then stagnant real pay, the declining tendency of real public service pay was reversed: average real pay rose by over 40% between FY95/6 and FY99/2000. UNDP CDF Seminar on Capacity Development During Political Transitions

8. Figure 2: Real Civil Service Pay Trends: 1995- 2005 (1996 = 100) UNDP CDF Seminar on Capacity Development During Political Transitions

9. Pay Reform Challenge: improved services in period of budgetary stress • In recent years governments have sought more systematic and comprehensive pay reform strategies to address their pay and incentives problems. • Even where problems are correctly diagnosed and appropriate strategies are set in place, relying on wage bill savings from employment reductions and government resources is not likely to yield much in the way of Pay reform. • Governments adopt gradual approaches to pay reforms, perhaps too gradual to bring about the desired improvements in work behavior, public sector performance, and institutional development. • Given the continuance of severe budget constraints, there was no simply solution to salary enhancement. Pay increases would have to be targeted towards qualified skilled personnel who are the most difficult to attract and retain and are key to efforts to raising public service efficiency. UNDP CDF Seminar on Capacity Development During Political Transitions

10. Need for Systematic Pay reforms The need for Pay reform and Incentives Regime • Governments require framework to move from the cost containment stage of reform process towards the service improvement and capacity building stage of the reform process: move from unfulfilled expectations to mutual expectations. • Sustained success in Pay reform requires a consistent and comprehensive medium term pay policy (MTPP), guided by a comprehensive and consistent medium term pay reform strategy (MTPRS). • Pay reform should be deemed an essential and integral component of the overall PSR. • The introduction of a targeted salary enhancement scheme may provide the pay incentives required to jump-start the PSR effort and improve work performance and services in the near term. UNDP CDF Seminar on Capacity Development During Political Transitions

11. Overview of donor experience with top-up schemes • Pay and incentives problems limited governments’ capacity to manage donor-funded development projects. Donors began providing salary supplement payments (SSPs) to some public servants. These included: • Salary top-ups, payments to civil servants over and above what personnel with comparable grades and responsibilities receive; • Other monetary incentives – per diems, extra-duty payments, training allowances, sitting allowances, honoraria, etc.; • Payments to public servants who are seconded by government to work on donor-funded projects (PIUs) and programs (PMUs), at rates of compensation far in excess of what pertains in the civil service. UNDP CDF Seminar on Capacity Development During Political Transitions

12. Recognizing the need to facilitate pay reform and contribute to deepening of public service reforms (PSRs), donors began to: • re-think their development support; and • rationalize salary supplement payments (SSPs), to better complement long-term CD efforts. • Donors’ willingness to top-up salaries has evolved over the years. Initially, while public service personnel could benefit from indirect SSPs, salary top-ups were primarily restricted to personnel in project implementation units (PIUs) and/or program management units (PMUs). • With the drive towards strengthening tax administration and raising tax efforts, the revenue-agency approach was adopted in many countries. With donor support, personnel in agencies received salary top-ups above and beyond those paid in the public service. This gave rise to incentives to ‘balkanize’ the public service by spinning-off government departments into public agencies with various degrees of autonomy, including autonomy over pay determination. UNDP CDF Seminar on Capacity Development During Political Transitions

13. SSPs rationalization efforts gained momentum as donor development-support strategies shifted from supporting stand-alone projects to sector-wide approaches and budget support programs. Donor competition began to give way to cooperation, where rationalization efforts included: • Information-sharing on SSP practices among donors; • Harmonizing salary top-ups by establishing unified approaches SSPs among donors; • Pooling funds to finance salary top-ups and/or facilitate general pay reform. • With this re-thinking and rationalization efforts, donor-fund salary top-up schemes have been extended in some countries beyond PIUs and PMUs and agencies to cover some public service personnel in positions critical to improved service delivery and strategic government outputs. If implemented properly, these SSP arrangements could help to jump-start PSR, institutional development and HR CD efforts. UNDP CDF Seminar on Capacity Development During Political Transitions

14. Good practices in Donor SSP Schemes • They should be strategically applied and explicitly linked to the PSR and the MTPRS. • Facilitate enhancement of public service capacity. • Provided in pooled funding arrangement, to facilitate payments within public service priorities rather than individual donor priorities. • Linked to key posts not the person. • Linked to performance with monitorable indicators. • Limited in duration, with set time horizon. UNDP CDF Seminar on Capacity Development During Political Transitions

15. Thank you for Listening UNDP CDF Seminar on Capacity Development During Political Transitions