CIVIL SERVICE AND SALARY REFORMS By: Pfof. Prijono Tjiptoherijanto

CIVIL SERVICE AND SALARY REFORMS

 By:

Prijono Tjiptoherijanto

Faculty of Economics and Business

University of Indonesia

 

In 1991, the World Bank released a report entitled “The Reform of Public Sector Management : Lesson From Experience”[1])  which was drawn from the experience of the World Bank and its member countries in the 1980’s and has approached civil service reform from two complementary perspectives which are : short-term cost-containment measures aimed at  reforming public pay and employment systems, and medium-term programs to build institutional support for cost-containment and to strengthen the government’s ability to manage the civil service. For a short term measure, the government pay and employment reform, has focused on four main problems, such as :

• excessive public sector wage bills, measured both by the ratio of personnel expenditures to government revenues or total expenditures and by the degree to which were personnel recurrent  expenditures are crowded out by wages.
• surplus[2]) civil service staff, with “surplus” defined by a range of measures and rates, including the member of civil servants in relation to the member of participants in the modern sector labor forces, and by operating budgets too low to support the current member of employees,
• salary erosion, that is declines in wages that reflect not only the high level of inflation in many countries but also trade off between expanded employment and lower average pay, and the proliferation of non-wage benefits to mitigate  the fall in real pay; and
•  wage compression, meaning low ratios between the highest and lowest civil servant salaries making it difficult to attract and retain qualified staff.

These reforms were the reaffirmation to the issue of the modernization it public service experienced by the Western countries, especially in the Organization for Economic Cooperation and Development (OECD)[3]).  The following factors helped to push this modernization :  first,  the

[1]) World Bank, Country Economic Department, “ The Reform of Public Sector Management : Lesson and Experiences”, World Bank : Washington D.C, 1991.
[2]) The notion of “surplus” contains an element of subjectivity; rigorous measures of the concept have proved difficult to devise and apply. Criteria used include comparative (cross-national) ratios of the number of civil servants to the overall population, or as percentage of the country’s modern sector labor force. Another measure often used is the extent to which personnel costs “crowd out” operating budget for supplies and maintenance. In trying to determine when staff are in surplus, functional reviews and staff inspections may be undertaken to identity sector-or function-specific excess through the use of ratio analysis-which applies standardized norms of, say, proportion of agricultural extension workers to farmers.

[3])Organization for Economic Cooperation and Development (1990 and 1993) “ Public Management Development : Survey 1990 and Survey 1993” Paris : OECD, 1990 and 1993.

economic and financial pressures facing the government of such countries in the last quarter of the twentieth century and the early years of the twenty-first century. These pressures led government to question the benefits of traditional large-scale public bureaucracies and reinforced demands for greater  efficiency and value of money in the operations of civil services.

Second, the public pressure  on governments to deliver services that are more responsive to public. There has been a growing recognition that the consumer of public services should be at the heart of the arrangements for services delivery. Whereas the traditional public administration perspective was based on the idea that public sector management was different from business management, there is now a view that public administration ”has everything to learn from the private sector”. There is a belief that “better management” can solve a range of economic and social problem faced by governments, and that management techniques from the private sector should be imported into the civil service and other parts of the public service.

Third, the growing awareness of the potential of information technology in helping to improve the efficiency and effectiveness of public service operations (see : OECD 1990, p.14). Technological developments have transformed the processes of public administration. The development of information technology in the delivery of public services is one of the four administrative “ megatrends” linked with the emergence of the so-called New Public Management or well known as the NPM.

 Lastly, the desire to improve political control of central government bureaucracies is another important factor in helping to explain the modernization agenda. In a number of Western liberal democratic countries, the higher civil service has been seen as an abstract to control by elected politicians. Concerned that permanent officials had become too powerful in the formulation of public policy, the political leaders of many Western countries have attempted “to reassert political control over the bureaucratic machine”.

 The Indonesian Case

Salaries for Indonesian civil servants are determined by the level of responsibilities, the type of job, and the cost of living. The salary system for government employees in Indonesia is classified in a combination scale system since it combines the single scale system and the double scale system. Under a single scale system, employees at the same rank receive the same salary regardless of the type of job and the level of responsibilities. Under a double scale system, salaries are determined based on employees’ level of responsibility and types of job. Job performance is not generally taken into account. Under the combination scale system, some civil servants might have significantly higher salary than their colleagues at the same rank.

The basic salary for a civil servant at rank I a (primary and junior high school graduates), regardless of the job held and the level of responsibility, is around  US 66 per month, or a little over US 2 per day.

The salary for an employee at rank IV e with 32 years of service is the less than a chief executive officer of an Indonesian’s state owned enterprise.  In fact,  income disparities between the private and the public sector are widening.  The income earned by civil servants in Indonesia is just one-quarter, or at best one third, of what employees of private companies receive.

Table 1 presents a comparison of government and private pay by education in 1998. On average , government earnings at 414,000 rps./month exceeds the national non-government average of 274,000 rps./month. This is not surprising since government is more education-intensive than the private wage sector.

Table 1 : Monthly Earnings by Education Level, 1998 (percent of wage earners in category)

Source : Authors’ analysis of Sakernas (National Manpower Survey) : Central Bureau of Statistic; 1998

In the report from Central Bureau of Statistic in 1998, around 49 percent of workers that are engaged in the private wage sector have a primary education or less as compared to only 5 percent for workers employed by government. When disaggregated by education level, a government pay premium remains at lower education levels; close to pay parity is achieved for graduates of senior high school; and a private sector premium emerges for those with some tertiary education (‘Diploma I/II” or “Akademi./Diploma III”) or a university degree (“Universitas/Diploma IV”).

The pattern of government pay exceeding private compensation for less educated workers and private pay exceeding government compensation for more educated workers – the problem of government salary compression-is a pattern common to other civil services. Indonesia’s situation does not appear unique.

In recent years, the government has become aware of the need to link civil servants’ salaries to those paid in the private sector if they are to attract and retain the talent necessary to improve and sustain public sector performance. When income inequality among staff is deliberately increased, senior management positions become more attractive than was previously the case. In theory, an egalitarian pay structure is more attractive to those in the lower ranks of the civil service, whereas a pay structure that more clearly differentiates between staffs at different levels is conducive to recruiting and retaining talent that might move to the private sector. However, Indonesia’s salary structure is moving towards an egalitarian system, resulting in most of its best graduates from well-known and highly qualified universities uninterested in becoming government employees. Moreever, the low salary tend to encourage wrongdoings and illegal activities such as accepting bribes and asking for compensation for services provided.

In Indonesia, as in many developing countries, allowances and in-kind  benefits play a substantial role in remunerating public sector employees, which is why determining the right balance between pay, benefits and allowance is very important. In Zambia, for instance, permanent secretaries earn 50 times as times as much as the lowest paid civil servants when in-kind benefits (housing, cars, telephones, and so on) are taken into account, but if such benefits are excluded, the difference is only fivefold. Moreover,  where “moonlighting” and corruption prevail, senior civil servants will earn more than junior ones, as they are likely to have more opportunity to engage in such activities.  The income of civil servant in Indonesia consists basically of three elements :

1. The basic salary which based on the rank and grade of the civil servant
2. 2. Various standardized allowances, like rice and family allowances, structural allowances (for holders of structural positions), functional allowances (for holders of functional allowances), and special allowances for civil servants working in remote areas (like Papua; in the past)
3. Other salary supplements in cash or kind, like Idul Fitri (the Moslems holiday) bonuses, provisions of transport to and from the office, housing, daily subsistence allowances for official travel, and medical care.

As an example  of the allowances given to the Indonesia’s civil servants, who are holding structural positions, Table 2 given information on allowance for structural positions.

Table 2. ALLOWANCE FOR STRUCTURAL POSITION FOR CIVIL SERVANTS 2007

Source : Government Regulation No. 26 Year 2007 dated June 19, 2007

In 2007 as a result of the bureaucracy reform initiative implemented in the Ministry of Finance, an additional allowance to increase staff take-home pay were substantials as seen in Table 3 below.

Table 3. Monthly Special Allowances provided under the additional grading scheme in Directorate General Tax/Ministry of Finance, 2007.

Source : Ministry of Finance decree number 289/KMK.01/2007; and Bisnis Indonesia Newspaper’s article on July 6, 2007 entitled “Tunjangan Depkeu naik Rp. 4,6 triliun”.

In the recent years the Director General of Tax at the Ministry of Finance received monthly special allowance around Rp. 117.000.000; almost four times of the allowances given to the same rank, Echelon 1a, in the other government/non-government agencies.

Jakarta, June 2015

Prijono Tjiptoherijanto

Commisioner ICSC