Pay determination in public institutions

The remuneration of those working in Latvia's public institutions (public administration, security and defence, justice, social welfare etc) is determined by a very complicated system of laws and regulations. This article examines this system of pay determination, as of 2004, and highlights increasing concern over the major pay disparities between groups within public institutions.

This article examines pay in Latvian public institutions. For its purpose, these are state organisations performing the functions of the state, including administration, security and defence, justice, social welfare and so on. Not considered here are educational, scientific, health and cultural institutions, together with a range of other specialised public service bodies. Public institutions in Latvia may be completely financed from the state budget, by a mix of state funding and income from their own activities, or entirely from their own activities.

The general principles for determining remuneration are defined in Division 3 ('remuneration for work') of the Labour Law (Latvia's main item of legislation regulating individual and collective relations at work - LV0405103F) and apply to employees of public institutions. Section 62 (5) of the Labour Law provides that 'work remuneration for employees of institutions financed from the state budget and the accounting system thereof shall be determined by the cabinet'. As a result of this and other legislation, remuneration in public institutions and companies with state capital is subject to a wide range of regulations (28 Cabinet Regulations apply). In several public institutions, remuneration issues are further clarified in legislation specific to those institutions (eh the Prosecutor General’s Office, the judiciary and the police).

Since 1996, the government has sought to achieve uniformity in the state sector remuneration system. To that end, Cabinet Regulation No. 461 on 'remuneration, qualification levels and benefits of civil servants' was passed on 15 October 2002. This Regulation was to replace Cabinet Regulation No. 20 (of 2 January 2001) on 'remuneration and benefits of civil servants' and various separate regulations that had previously regulated matters such as the remuneration of employees of public administration authorities and prosecutor’s offices, civil servants and employees of the State Revenue Service (Valsts Ieņēmumu dienests, VID).

Cabinet Regulation No. 461 provides that remuneration of state civil servants and other employees shall be monthly, at a level determined by the head of the particular institution, and in accordance with a salary scheme that differentiates between 18 qualification categories and five qualification levels (according to length of service).

However, this Regulation has never come into force, and all the regulations it was meant to replace, except Cabinet Regulation No. 20, are still valid. Additional temporary legislation has been passed with the intention of implementing the principles of Regulation No. 461 to various degrees. The idea of pay reform in the public service has never been rejected, but it is not known whether it will ever be implemented in the spirit of Regulation No. 461.

An essential characteristic of the state sector remuneration system is that levels of payment and benefits, from the lowest to the highest, are all regulated by Cabinet Regulations. Although institutions may enter into employment contracts with staff, such contracts cannot provide for remuneration other than that allowed by the Regulations.

System of laws and regulations on pay

The basis of the legislation regulating the remuneration of employees working in public institutions is the status of the particular institution and employee. In terms of employee status, the important issue is that those working at public institutions are either civil servants or employees, and that some are considered to perform 'intellectual work'.

In terms of institutional status, a state institution may be a 'public service authority' or not. The State Civil Service Law stipulates that 'state civil service authorities' are either direct administrative authorities or specialised state civil service authorities. The latter include diplomatic and consular corps, the State Revenue Service (Valsts Ieņēmumu dienests, VID), the State Police (Valsts Policija), the Security Police (Drošības Policija), the Ministry of the Interior Communications Centre (Iekšlietu ministrijas Sakaru centrs), the Ministry of the Interior Information Centre (Iekšlietu ministrijas Informācijas centrs), the State Border Guard (Valsts robežsardze), the State Firefighting and Rescue Service (Valsts ugunsdzēsības un glābšanas dienests, VUGD), the Prison Administration (Ieslodzījumu vietu pārvalde) and the State Forensic Science Bureau (Valsts tiesu ekspertīžu birojs).

Some public institutions are not civil service authorities. These include the Prosecutor’s Office, the authorities of the court system, the professional military service, the State Audit Office of the Republic of Latvia (Latvijas Republikas Valsts kontrole, LRVK), the Corruption Prevention and Combat Bureau (Korupcijas Novēršanas un Apkarošanas birojs, KNAB) and the Constitution Protection Bureau (Satversmes aizsardzības birojs, SAB). Particularly unclear is the legal status of public institutions financed from their own activities, such as the Latvian Telecommunication State Inspection (Latvijas Valsts elektrosakaru inspekcija, VEI), the Public Utilities Regulator (Sabiedrisko pakalpojumu regulators) and the Latvia State Radio and Television Centre (Latvijas Valsts Radio un Televīzijas Centrs, LVRTC).

The Prime Minister, Deputy Prime Minister, ministers and 'ministers for special assignments', and employees of their respective departments and parliamentary secretaries, are not civil servants.

Senior state executives

The remuneration of members of parliament (the Saeima) is determined by parliament in accordance with its rules of order.

The remuneration of 'senior state executives' is stipulated by Cabinet Regulation No.1 of 7 January 2003), issued pursuant to section 28 of the Law of the Structure of the Cabinet. The Regulation determines the monthly salary of the Prime Minister, Deputy Prime Minister, ministers, ministers for special assignments, state ministers and parliamentary secretaries. The highest salary is EUR 3,313 a month and the lowest EUR 828. In accordance with this Regulation, the cabinet, state ministers and parliamentary secretaries do not receive some expenses in addition to their salary.

Civil servants

The status of civil servants is governed by the State Civil Service Law. Section 3 of this law distinguishes between 'general' and 'specialised' civil servants.

On 16 December 2003, the cabinet approved Regulation No. 705 on the 'remuneration, benefits and compensations of civil servants', which replaces Regulation No. 461 and abrogates Regulation No. 20 on the 'remuneration and benefits of civil servants'. Cabinet Regulation No. 705 was approved in accordance with the State Civil Service Law. It provides that the salaries of managers and civil servants in 'direct administration authorities' are determined by the Prime Minister, relevant minister or head of the authority. The Regulation specifies the type and amounts of benefits, bonus entitlements and other matters related to civil servants' remuneration. Monthly pay is thereby determined for civil servants at the State Chancellery (Valsts Kanceleja), the State Civil Service Administration (Valsts Civildienesta pārvalde, VCP), ministries (except Ministry of Foreign Affairs, which is dealt with specifically), the secretariats of ministers for special assignments, authorities subordinate to State Chancellery, and territorial authorities (town, district and regional) subordinate to ministries.

Regulation No. 705 states that Cabinet Regulation No. 220 of 28 May 2002 on the 'remuneration system for civil servants and employees of the State Revenue Service' is applicable to civil servants and employees of this service until the implementation of a new remuneration system.

State institution employees

The remuneration of state institution employees who are not civil servants is governed by Cabinet Regulation No. 217 of 28 May 2002 on the 'remuneration system of employees of state-funded authorities', adopted in accordance with Part 5 Section 62 of the Labour Law. It provides that a monthly salary is to be paid to such employees in accordance with their professional qualification category, determined by applying a special methodology.

Employees are entitled to receive 12 types of additional payment. These are prescribed pursuant to the Labour Law and usually correspond to the lowest permitted rate. Employees may be paid bonuses, which must not exceed 5% of total remuneration funds.

Regulation No. 217 identifies 178 position titles, which correspond to qualification categories numbered 3-24. Medical employees are categorised in a special list, which identifies 40 separate position titles and professional categories corresponding to qualification categories 3-23. Monthly pay currently ranges between EUR 345-EUR 430 for personnel in professional category 6 to EUR 120-EUR 122 in professional category 14, and is EUR 120 per month for professional categories 15-24. The monthly pay of medical personnel may range from EUR 355 for category 6 to EUR 123 for category 16, and is EUR 120 for categories 17-23. Three indicators are used for the evaluation of positions - complexity of work, responsibility and workload, each comprising several elementary indicators. Each basic indicator has several 'stages' with each stage having a certain number of points. Points are totalled to determine the appropriate qualification category.

Public agencies

The legal status of public (state and municipal) agencies as public institutions was introduced in 2003.

The monthly salary of public agency directors is determined in accordance with Cabinet Regulation No. 17 of 15 January 2002, approved pursuant to Section 9 of the Transitional Public Agency Provisions Law. This Regulation is intended to operate until the approval of a unified system for the remuneration of employees of state-funded authorities. Neither of the subsequent Regulations on the remuneration system for employees and servants of state-funded authorities (Nos. 217 and 461 - see above) identify the position title of 'public agency director' and thus do not cancel Regulation No.17.

Regulation No.17 determines four public agency groups (A, B, C and D), and salaries across the groups range between EUR 1,957 and EUR 1,054 per month. The agency director enters into a 'management agreement' with the relevant public institution. The public agency may allocate bonuses to the director for performance of the management agreement and successful operation of the agency, but the bonus may not exceed 15% of the director’s yearly salary.

The remuneration of public agency employees is regulated by the Public Agencies Law. In accordance with this law, the remuneration is determined by the agency director, while always being dependent on the funds available to the agency.

Other public institutions

Remuneration in public institutions that are not civil service authorities is regulated by the application of Cabinet Regulation No. 217 (see above), or special provisions. The following Cabinet Regulations are currently valid:

• Regulation No. 213 (issued on 28 May 2002) on the remuneration of staff in public administration authorities and the Prosecutor’s Office;

• Regulation No. 214 (28 May 2002) on the remuneration of staff in the National Human Rights Office;

• Regulation No. 482 (29 October 2002) on the remuneration of staff in the Central Election Commission;

• Regulation No. 442 (1 October 2002) on the remuneration and compensation of catering expenses for District and Local Government Election Commission and Polling Station Commission members;

• Regulation No. 213 (2 June 1998) on the remuneration system of staff in the Criminal Assets Legalisation Prevention Service,

• Regulation No. 334 (30 July 2002) on the remuneration, social guarantees and covering of expenses related to training and qualifications improvement for staff in the Corruption Prevention and Combat Bureau;

• Regulation No. 282 (26 June 2001) on the remuneration of staff in the Public Utilities Regulation Commission;

• Regulation No. 567 (14 October 2003) on the remuneration of staff with special service positions in the authorities within the system of the Ministry of Interior;

• Regulation No. 592 (28 October 2003) on the remuneration of specialised civil servants in the Prison Administration;

• Regulation No. 416 (27 July 2003) on the service remuneration of soldiers;

• Regulation No. 552 (23 December 2002) on the remuneration of compulsory active military service soldiers;

• Regulation No. 415 (28 November 2000) on additional social guarantees for officials (employees) of the State Forest Service; and

• Regulation No. 764 (23 December 2003) on the payment of allowances and compensation in the Diplomatic and Consular Corps.

Basic remuneration provisions for judges are stipulated by the Law on Judicial Power, for prosecutors by the Law on the Office of the Prosecutor - these are just a few examples of the separate legislation applying to remuneration.

Management agreements

The legal basis for additional remuneration at public institutions and business companies performing public administration functions pursuant to legislative acts may be 'management agreements' as provided for by Cabinet Regulation No. 46 of 21 January 1997). A management agreement is a written agreement between:

• on one side a minister or state minister (including the State Auditor and Prosecutor General) and on the other side the head of a public administration authority (administrative director of the Prosecutor’s Office), its deputy or the head of a department or permanent division of the ministry’s central apparatus (also of the LRVK and Prosecutor General's Office), or an executive in charge of a separate task or of implementation of a budget programme;

• on one side the head of a public administration authority and on the other side the head of a subordinate structural unit or the manager of a budget programme;

• on one side a state secretary and on the other side the chief executive of a business company; or

• relating to the State Chancellery, on one side the Prime Minister and and on the other side the Chancellery director or the head of the Prime Minister’s Office, or on one side the Chancellery director or an executive authorised by the Prime Minister’s instruction and on the other side State Chancellery civil servants (or candidates) and employees.

An executive authorised by a state executive may enter into an agreement on behalf of the state executive.

Management agreements are also generally available to middle management.

'Intellectual work' in public institutions

Cabinet Regulation No. 185 of 28 May 1996 on the 'basic methodology for evaluation of intellectual work and determining qualification categories' was valid until 2003. This Regulation applied to all public organisations where 'intellectual work' may be performed, and stipulated a methodology for evaluation of such work and determination of qualification categories that was mandatory in state-financed authorities. If the methodology could not be fully applied because of specific work constraints, sectoral and civil service methodologies were developed in the respective institutions on the basis of the Regulation's methodology, which were submitted by the respective ministries to the cabinet for examination after being approved by the Minister for Welfare.

Regulation No. 185 was abrogated by Cabinet Regulation No. 533 of 23 August 2003 on the 'basic methodology for evaluation of intellectual work and determining qualification categories of employees in state-financed institutions'. This Regulation was issued concurrently with amendments to the Labour Law (Section 62 Part 6), which provided that the evaluation of both physical and intellectual work and the designation of qualification categories for positions in state-funded institutions are to be determined by the cabinet.

Regulation No. 533 applies to state-funded institutions (authorities and companies). Intellectual work is evaluated by an evaluation commission established by the head of the institution, in accordance with the job description and a system of evaluation indicators. This system comprises a set of three indicators, which bring together seven basic indicators, each having 33 levels (enabling detailed evaluation). Each level has a points value. The qualification category of a position (out of 13 available) is determined by the total sum of points.

Regulation No. 533 does not provide a definition of intellectual work or criteria by which work may be considered to be 'intellectual'. Apparently it is considered that the intellectual content of a given job is revealed during the evaluation process. However, in the absence of a precise definition, it is impossible to determine when Regulation No. 533 is applicable. Section 6 of this Regulation contains an arguably confusing provision, stating that until a system is introduced to regulate remuneration for intellectual work in state-funded authorities, Addendum 3 of Regulation No. 217 is applicable.

With regard to physical work, Cabinet Regulation No. 403 of 22 July 2003 sets out the 'basic methodology for evaluation of physical work and determining position qualification categories of employees in state-financed institutions'.

Control of remuneration in public institutions

Information on remuneration in the more than 100 public institutions is surveyed by the the State Civil Service Administration (VCP) for the purpose of carrying out its functions.

To bring order to the remuneration system for those working in public authorities, the cabinet adopted Regulation No. 62 of 3 February 2004 on a 'unified remuneration accounts system for state-financed institutions', which stipulates a procedure whereby the Ministry of Finance is to administer, improve and update the unified remuneration accounts system, as well as the procedure of data records concerning remuneration at state-financed institutions - public authorities, public agencies, state enterprises, business enterprises and capital companies. The Regulation was issued pursuant to Section 62 Part 5 of the Labour Law and applies to all positions at public institutions, including those whose remuneration is regulated by special regulations, but does not apply to state security authorities. The unified accounts system contains information on the public institution concerned, including data on the institution’s total wage funds, and detailed information on each position, including data on the activities of the executives and evaluation of their performance, salary and additional payments.

All public service employment is divided into 15 basic position functions. Ten types of position status are prescribed: civil servant; intellectual worker; specialised civil servant; military personnel; health worker; social work specialist; teacher; judge; prosecutor; and manual worker. Five methodologies are used for the evaluation of the positions: manual work evaluation; intellectual work evaluation; evaluation of positions of civil servants and employees of public administration authorities; determination of position qualification categories; and the provisions of Cabinet Regulation No. 217 on determining judges' certification class. The information also indicates the level of education - 11 education levels are distinguished. The first level is primary education and the last level is a doctoral degree. The information provides for 28 available types of additional payments, 13 types of benefits, two types of compensation, remuneration for working on national holidays and awards - in total 48 sources of additional payment. The Regulation precisely groups public institutions according to their status: direct administration authorities; central public authorities (financed by appropriation stipulated in the state Budget Law); public agency; business company, prosecutor’s office; court system authority; and educational establishment. Possible subordinate types include: managerial authority (ministry or State Chancellery); central public authority (financed by a direct appropriation stipulated in State Budget Law); or capital company where a ministry or authority is a shareholder.

Remuneration in practice

In the first quarter of 2004, the average monthly income in the public sector was EUR 325; in the public administration, defence and compulsory social security sectors it was EUR 388.

The complex legislation and the practice of determining remuneration for those working in public sector have caused large differences in salaries.

The monthly salary of state executives in public authorities and companies varies between EUR 1,204 and EUR 15,060. The highest state executives - the President and the Prime Minister - are in the centre of this range. The salaries of the heads of the LRVK, Public Utilities Commission (Sabiedrisko pakalpojumu regulēšanas komisija, SPRK) and Financial and Capital Market Commission (Finanšu un kapitāla tirgus komisija, FKTK) are significantly higher (the latter being more than twice as high) than those of the highest state office holders. The highest salaries are for heads of state enterprises, starting from EUR 6,024 per month. The National News Agency LETA (Nacionālā Ziņu aģentūra LETA) has conducted fruitless investigations to determine the criteria by which the state’s senior managers are remunerated. The Office of the Prosecutor-General employs 560 prosecutors, but the Prosecutor-General's salary is about one third that of the Chief State Auditor, who is responsible for the control of application of state assets and the work of 130 state auditors.

The remuneration of state executives is usually increased by using management agreements (see above). These agreements mean that the remuneration of some state executives has been lawfully increased to levels over three times that provided by the relevant Cabinet Regulations or laws. Senior state executives are often nominated to the boards or councils of business companies and otherwise participate in the work of state enterprises, which also allows the generation of additional income. As a result, there are marked differences between the remuneration of officials performing similar functions in similar organisations and, even more so, differences between the remuneration of top officials and their subordinates.

Debate on pay

The salaries of state executives and heads of public institutions are discussed during the budgeting process, usually with little further consequence.

During the budgeting process, the opinion is often voiced that the remuneration of those working at the lowest levels of public institutions is too low, resulting in high staff turnover. Recently, it has emerged that employees at some public institutions are dissatisfied with the low pay and disparities in pay between different organisations. For example, it is possible for a specialist lawyer in one organisation to be paid less than an office manager in another, better financed, public institution. State Police and State Customs officers received pay increases a few years ago, when their pay was seen as being at a critically low level.

According to the Neatkarīgā Rīta Avīze (NRA) newspaper, the average gross monthly salary for an agent at the State Employment Agency (Nodarbinātības Valsts aģentūra, NVA) is EUR 155, half the national average and only slightly more than the 'minimum basic survival level'. There are about 700 employees at NVA and its 28 branches. The average salary in whole agency is slightly higher - at EUR 239 a month - but still lower than the average in the public sector. The NVA director’s salary is EUR 1,506 per month, nearly 10 times that of an agent. At the State Social Insurance Agency (Valsts Sociālās apdrošināšanas aģentūra, VSAA) the average monthly wage is slightly higher at EUR 225-EUR 300, but is still lower than the average gross salary in the public sector.

The Minister for Welfare, Dagnija Staķe, has recently announced that agreement has been reached with the Ministry of Finance on an increase in remuneration for the health and social care employees working in authorities subordinate to the Ministry of Welfare, as of 1 October 2004. This is aimed at evening out differences between the average remuneration of middle-ranking medical and social staff at the institutions of the Ministry of Health and Ministry of Welfare.

Commentary

There are surprisingly large disparities in pay rates between workers in public institutions performing work of equal difficulty or responsibility, with disparities between groups such as managers and subordinates, managers of equivalent public institutions, and various senior state executives. The issue is coming under increasingly widespread discussion at present. The obvious question arises: are the principles and practice of remuneration in Latvian public institutions fair and equitable? Closer analysis tends to suggest that the question is well founded, as the system of payment for work performed and additional payments is exceedingly complex and inscrutable, giving rise to legally permissible but economically unsound differentiation in the remuneration of state employees.

The main reasons for the major and unjustified pay differentials in public institutions is weak control over the remuneration system, complex case-by-case legislation and errors in the state budget regarding the financing of such institutions. Determination of the annual state budget is based on the previous year’s figures. There is no reason to reduce the salaries of previously highly paid officials, while it is not possible to increase the salaries of others to a similar level due to lack of funds. The potential to determine pay increases within individual public institutions is influenced by the complex legislation and also by the highly politicised budgeting process. In Latvia, ministers are regarded as representing difficult political forces within the coalition government, and cabinet decisions are in fact agreements between different political groupings. The state budget is the most important instrument for achieving political compromise.

It is envisaged that it will be possible to level out remuneration at public institutions after the implementation of the control system stipulated by the abovementioned regulations, provided that a sufficiently effective technical solution is found. Experience shows that ministers try to obtain more funds for their ministry, which only widens gaps further. (Raita Karnite, Institute of Economics, Latvian Academy of Sciences)