Extensive state pay reform under way

The central social partners in the Finnish state sector agreed in December 2004 that a pay structure they have been developing since 1993 should be extended to cover all state agencies. By July 2005, over half of the sector's employees were included in the new system, whereby up to a third of pay depends on employees’ individual competence. Opposition to the pay reform has been strong among border guards and university staff. They have argued that the reform increases competition and hierarchies among employees and leads to wider pay differentials.

The main central social partners in the state sector agreed in 1993 on guidelines on the development of pay policy. The parties involved are: the sector negotiating commission (Julkisalan koulutettujen neuvottelujärjestö, JUKO) of the Confederation of Unions for Academic Professionals (AKAVA), representing salaried employees with higher education; the Federation of Salaried Employees Pardia (Palkansaajajärjestö Pardia), representing other salaried employees; the Organisation of State Employees (Valtion yhteisjärjestö, VTY) representing blue-collar workers; and the State Employer's Office (Valtion työmarkkinalaitos, VTML). Since 1993, the central collective agreement covering all 124,000 state employees has recommended the wider use of competence-related pay and job-evaluation schemes to state agencies. The former involves rewarding employees’ individual skills, knowledge and performance while the latter are to be used to establish the requirements of each job in order to determine pay levels. The application of these guidelines was left at the discretion of the social partners at individual state agencies.

To complete the process of pay reform, the main central social partners in the state sector agreed in December 2004, as part of the collective agreement for 2005-7, that the pay policy guidelines laid down in 1993, whose adoption had until then been voluntary, must be adopted at all remaining state agencies during 2005. The social partners at the agencies were given strict deadlines by which they have to both agree on the way the guidelines are to be applied to their institutional settings and actually start using the new pay structures. The new collective agreement also stipulates that if no agreement on pay reform is reached at the agencies by the given deadlines, the central social partners are to negotiate on the matter and may impose their decision on the agencies.

Part of a wider reform of pay structures

A component of pay based on individual competence, which involves the rewarding of employees’ skills, knowledge and performance, has become characteristic of pay determination in Finland. In the private sector its use has been steadily increasing since the 1990s (FI0208101F and FI0309202F) and by 2003 some 33% of private sector employees received such payments. In the public sector the adoption of competence-related pay was later but in 2003 it began in earnest in the state sector as recommended by the sector's central social partners. By the end of 2004, 41% of state employees were covered and by July 2005 the share had reached over 50%. In municipalities, the use of competence-related pay continues to be much less common (14% of employees in 2003) but in this sector too there are plans to extend its use.

Another trend in the development of Finnish pay structures in recent years has been the adoption of job-evaluation schemes to establish the requirements of each position in order to determine pay levels. In 2004 these covered 38% of all employees but they are now to become compulsory for all establishments with 30 or more employees, as stipulated in an amendment to the Act on Equality between Women and Men that came into effect in June 2005. Job-evaluation schemes have proved to be an important instrument in closing the gender gap in wages. The extended use of competence-related pay has also proved positive in this respect because women tend to perform at least as well as men in competence evaluations (FI0409203F).

Stronger incentives

The main aim of the state pay reform, as stated by the employers, is to provide employees with greater incentives. Traditionally, pay increases in the state sector have been largely automatic, in that pay has risen with the years of service. The guidelines set by the social partners in 1993 encourage moving away from such a system and instead rewarding individual competence. In the agencies that had adopted the new pay guidelines by July 2005, the average agreed maximum share of the individual competence-based part is, on average, 45% of the main, job-specific component of pay. This means that in the absence of other pay components, the rewards for individual competence on average constitute up to one third of total pay. At most of the agencies, in fact, no other allowances have been retained in the pay structure, although work experience and various bonuses continue to play a minor role at some agencies. The share of the competence-related pay component is considerably below the average only at the Ministry of the Interior and at its subordinate police departments. Given the nature of the tasks at these establishments, it is understandable that the agreed level of incentive use is relatively low.

To determine the job-specific component of pay, the social partners at state agencies have mostly used ready-made job-evaluation schemes. In only 15% of the agencies has the scheme been drawn up by the social partners themselves. Jobs are divided on average into 13 different categories according to their requirements.

Mixed responses from state employees

Bringing in the new pay structures at state agencies has on the whole happened rather smoothly. After all, JUKO, Pardia and VTY acted under the mandate of their member trade unions when agreeing to introduce the reform. There has, nonetheless, been major opposition among two groups of workers. One of these is border guards and their representative organisation, the Border Guard Union (Rajavartioliitto), which refused to accept the proposed changes to the pay structure and organised a strike to that end (FI0506201N). Finally, after being promised minor changes to the proposed pay structure and a hefty pay rise, it agreed to the new pay policy (FI0508202N). The main objection that Rajavartioliitto had to the pay reform was that it would increase pay differentials and thus lead to the relative impoverishment of many workers.

The second group of employees among whom there has been major discontent is university staff, who account for as much as a quarter of all state employees. Specifically it has been lecturers and researchers who have most objected to the proposed changes in pay determination. They are represented mostly by the Finnish Union of University Researchers and Teachers (Tieteentekijöiden liitto) which is still to agree to the blueprint for the reform with the state employer. The union is, however, committed to doing so; its general manager, Eeva Rantala, maintains that the reform has already been agreed upon by the central social partners and the decision is thus binding on all unions. She is, nonetheless, of the opinion that the reform will bring in a result-based hierarchical pay structure that is ill-suited to the university environment. Many of the researchers and lecturers are less willing than Ms Rantala to agree to the decision of the central social partners. In spring 2005, almost 3,000 of them signed a petition to the Minister of Education and Science, Tuula Haatainen, demanding that the process of pay reform at universities must be stopped. The drafter of the petition, Heikki Patomäki, resigned from his post as the head of the Department of Political Science at the University of Helsinki due to his opposition to the pay reform. He insists that an environment of freedom, equality and democracy is needed to conduct research and that the pay reform works against these principles as it increases hierarchies and competition between researchers and turns the products of research into 'instruments'.

Commentary

Trade unions have long demanded that the rules on competence-related pay should be agreed between the social partners instead of being set unilaterally by employers. In this respect, the state pay reform represents a positive step for unions because its direction is bilateral in nature. The process, nonetheless, goes against the traditional union solidaristic pay policy (FI0408202F) because pay differentials will increase due to the reform. The agreed average share of competence-related pay, up to one third of total pay, means that pay variation in the state sector will increase to levels closer to those of the private sector. As such the reform represents a victory for employers and the unions representing highly educated employees, who have long demanded higher salaries at the upper end of the scale. The former have argued that this is needed in order to attract competent labour to Finland while the latter have maintained that their members’ pay levels have been dampened by solidaristic pay policy. There is no doubt that paying higher salaries helps to attract and motivate employees to some degree but it is equally clear that increasing competition and hierarchy among them, which is what the pay reform undeniably does, has many undesirable consequences. (Aleksi Kuusisto, Labour Institute for Economic Research)