New bill in Kuwait aims to standardize pay for the public sector, bring reform

Published August 9th, 2015 - 09:18 GMT

Kuwait’s proposed public sector wage bill, which currently awaits National Assembly approval, would restructure job classifications, standardize pay across the public sector and introduce an annual inflation adjustment, a report said.

The measures are intended to provide the government with increased centralized control over wage growth and unify pay standards across the public sector, explained the latest Economic Update by the National Bank of Kuwait (NBK).

The initiative will include staff of all government entities, K-institutions and the oil sector. Military professions (defence, National Guard, police and fire-fighters) will be excluded.

The initiative will cost an estimated KD 350 million ($1.15 billion) during the first year of implementation, or 4.5 percent of the KD 7.85 billion public sector wage bill. The cost will go towards increasing the salaries of employees earning less than the new pay scale (those below the mode in their category).

An estimated 45 percent of public sector employees currently earn below the proposed new pay scale; their salaries will be increased by 18 percent on average. As a result, the initial implementation year could see a moderate boost to household income and consumer spending.

The salaries of those earning above the new pay scale will not be reduced. Instead, individuals in this group will have their pay frozen until it equals the pay corresponding to their grade and job classification. This group‘s pay will still be adjusted for inflation.

In the long run, the reforms should mean substantial savings for the government in addition to the improvement in efficiency. Official estimates put the fiscal savings at over KD 16 billion during the first ten years of implementation. By the tenth year, the government wage bill under the proposed system is projected to be over 20 percent lower than if no action was taken.

The “strategic alternative”, the result of over a decade of research and deliberation, was developed by the Civil Service Council (CSC) and Tri International Consulting Group (TICG). CSC, which currently manages new hiring across most of the public sector, will be responsible for the implementation and enforcement of the initiative once it is approved.

The core objectives of the reforms are based on the research prepared by TICG (a joint venture between Oliver Wyman, KIA and Kuwait Fund), which has undertaken a comprehensive analysis of pay in the government, public entities and the oil sector.

One of the main objectives of the “strategic alternative” is to reduce unfairness in pay and increase transparency. Research revealed that pay across the public sector varies widely; for example, pay at one of the K-institutions for a “grade 4” accountant is double what is paid at one of the ministries.

One of the reasons for this is the proliferation of job-specific allowances (not including child and social allowances) which can vary significantly; but there are also inconsistencies in basic pay across the public sector. Not surprisingly, the analysis has shown that individual performance did not appear to play any role in explaining differences in employee pay.

The wide discrepancies in compensation across the public sector exist both within entities and between them. At some of the entities with the largest proportion of underpaid staff, more than half, and up to 2/3, of employees will receive an increase in pay as a result of the proposed law. Meanwhile, staff at entities with the lowest proportions of employees earning below the new pay scale will require smaller adjustments.

In an effort to resolve the problem of unequal pay, the initiative would set a unified basic pay scale and a “job allowance” scale to account for differences between job categories or professions. The proposal sets up 15 equivalent grades across the public sector, with each having the same basic salary; each job category would also have its own “job allowance” scale. Of course, the initiative calls for unifying job classifications, which will be done according to the internationally recognized standard (ISCO).

Another key objective of the initiative is to manage growth in the public sector wage bill. Wage bill growth over the last two decades has averaged around 12 percent a year. In some years, growth was even higher, topping 20 percent in FY11/12 and 18 percent in FY12/13. The high pace of growth in the wage bill is partly due to the lack of an overarching system that would allow the government to manage the wage bill more tightly, without the proliferation of new categories, benefits, and cadres. The new proposed system will fix that.

The reform initiative should eliminate the existing haphazard process of salary growth and could reduce average wage bill growth to around 9 percent a year, while increasing fairness and transparency. The existing system allows worker groups and organized professional cadres to lobby for wage hikes in the absence of a formal process that accounts cost of living growth and changes in the labour market. One step is to introduce an annual inflation adjustment.

A pay review every four years will also be introduced whereby the CSC would negotiate adjustments to the pay scales in accordance with specific budgetary guidelines from the government. This process will allow authorities to make needed adjustments to the pay scales to accommodate changes in labour market conditions.

The new wage system also seeks to encourage high performance among employees. According to TICG’s analysis, the existing annual performance review fails to identify top performers, with 80 percent of employees receiving the top “excellent” grade. To fix this, the new wage system will require that no more than 10 percent of employees receive the newly created “superior” grade. This will allow the government to identify and reward the high performers more effectively.

If approved in its current form, the proposed wage system will be a positive step that will help control wage bill growth and contribute to making the public sector more effective and efficient. Meanwhile, the focus on reducing the (correct) perception of unfairness in public sector compensation should also help boost employee motivation and productivity, and ultimately overall government sector efficiency. Other steps are needed but this is necessary and “feasible” first step.

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