Debate over law capping pay of managers of state-owned enterprises

In addition, the law regulates the principles of granting annual bonuses and various extra benefits, such as welfare and transportation benefits. The law also capped the salaries of councillors and members of the then management boards of local/regional government units formed by legislative bodies at these levels. Since an administrative reform in 2002, the law can be applied to the remuneration of municipal (gmina) executive officers (voits), mayors, city presidents and their deputies elected by direct suffrage (PL0408104N).

Consequences of the law

The implementation of the law capping the salaries of the managers of state-owned entities has provoked relatively little controversy as regards its consequences for local and regional government units. The maximum monthly remuneration of municipal executive officers, mayors, and city presidents stipulated by the law far exceeds that actually paid by most local and regional governments. However, the law has prevented these people from receiving an extra bonus that was customarily granted by many local and regional legislative bodies. These rules have been challenged by the regional authorities, which have had their position upheld by the Supreme Administrative Court (Naczelny Sąd Administracyjny, NSA).

However, heated debate has arisen over the law's provisions on the salaries earned by the managers of state-run enterprises. Opponents of the law argue that, as a result of its provisions, State Treasury-controlled companies often cannot employ eminent managers because of the unsatisfactory remuneration they can offer. The majority of specialists are much more interested in better paid posts in the private sector. Only a minority are attracted to the state sector by the challengeof managing a large enterprise. Others are motivated by their state sector employers through extra bonuses, such as extra pensionable benefits, training, business travel or company credit cards. According to the managers, there are many ways of evading the law - such as being a member of supervisory boards of other companies or being paid for preparing analyses for affiliated companies. An illustration of the point may be the ownership structure of the Gdynia Shipyard (Stocznia Gdynia). Its management staff are reportedly not paid in accordance with the law - despite the fact that the State Treasury has 73% of votes in the general assembly of shareholders, it holds only 45% of the company’s shares.

Changes proposed by Ministry

On 20 July 2004, during a session of the State Treasury Committee, the Under-Secretary of State at the Ministry of the Treasury (Ministerstwo Skarbu Państwa, MSP), Tadeusz Soroka, announced that the Ministry supported the introduction of new principles setting limits on the remuneration of the people covered by the salary-cap law. The Ministry of the Treasury suggested that the new principles of the remuneration system should include the basic salary, 'motivation bonuses' and a share in company profits. The new maximum basic salary would amount to 10 times the average wage and, additionally, could depend on the size of an enterprise. The motivation bonuses would be based on management performance and would be granted by the supervisory board of the company, which at present lacks such powers. The third element of the new remuneration system, the profit-share, could not exceed 2% of the company’s profit or could be based on increases in the value or capitalisation of the company.

Polish Confederation of Employers' position

Employers' organisations have always been opposed to the enforcement of all or most of the controversial provisions of the 2000 law. The most ardent critic is the Polish Confederation of Employers (Konfederacja Pracodawców Polskich, KPP) (PL0209104F), which represents such major state-run enterprises as the PKN oil group (Polski Koncern Naftowy Orlen, PKN Orlen), the National Lottery (Totalizator Sportowy), Polish Post (Poczta Polska) and the Polish Airports State Enterprise (Przedsiębiorstwo Państwowe Porty Lotnicze). On 2 September 2004, the president of KPP, Andrzej Malinowski, stated that the law was a legislative fudge adopted merely for populist reasons. According to KPP, the limits imposed on remuneration should apply solely to the management staff of public entities redistributing benefits, such as public healthcare funds, while for State Treasury-controlled companies the regulations violate the principle of equality of private and state economic entities. The KPP president pointed out that in 2000 the European Integration Committee Office (Urząd Komitetu Integracji Europejskiej, UKIE) expressed two contradictory views of the draft law. Initially, it stated that the draft complied with EU law. Later on, however, following the case law of the European Court of Justice, it stated that the law lacked legal clarity.

KPP announced that, unless the government annulled the regulations in question by 15 September 2004, it would lodge a complaint with the European Commission, claiming a breach of the provisions of Article 86 of the Treaty establishing the European Community.

Commentary

In 2000, it was the Election Action 'Solidarność' (Akcja Wyborcza Solidarność, AWS) party, which constituted the core of the then cabinet led by Prime Minister Jerzy Buzek, that was the most ardent supporter of the law capping of salaries of the managers of state-owned entities. The draft was formulated in response to a widespread view that the managers of state-run enterprises received exorbitant remuneration.

It appears that the law is not only ineffective but also detrimental. Its ineffectiveness is reflected in the variety of ways of evading its provisions, while its detrimental effects have two dimensions. On the one hand, some managers may tend to succumb to a kind of passivity, resulting from a lack of new candidates for the managerial posts in certain state-owned companies. They avoid the risk of taking up a job in private enterprises, where stronger motivation in the form of higher salaries is always accompanied by fiercer rivalry and stricter assessment criteria. On the other hand, the law fosters the stereotype of 'unjustly high salaries' for management staff - a cliché frequently used by trade union officials. (Jacek Sroka, Institute of Public Affairs, [Instytut Spraw Publicznych, ISP] and Wroclaw University[Uniwersytet Wrocławski])