Ministers’ salaries: too big or too small?

Why a teacher’s salary is 5 thousand UAH and the minister’s salary is 200 thousand UAH? Some say that the “end of the poverty era” has come only for ministers, while others say that officials really deserve such salaries.

As part of the “Percentage of Truth project”, VoxCheck and Ukrainian Radio have tried to “con” on high salaries for officials, about civil service reform, and the refutation of myths about officials’ salaries and a selection of credible sources of civil service reform – are in this article.

Thus, should civil servants have overt the top salaries?

Reformers argue that it is impossible to have a fair and effective state until officials receive meager salaries. If you analyze the latest research on this topic, you can formulate such pros and cons.

Pro argument #1️. Corruption is offset by low wages

The low salary of an official, manager of a state-owned enterprise, or a budget employee increases his or her incentive to seek sources of additional income. This is a typical argument for raising wages. To take this argument in its purest form, civil servants and budget employees abuse their positions and take bribery to bring their incomes to the optimum level and cover basic living needs. But such an argument does not always work, because sometimes corrupt revenues can satisfy needs that are difficult to call typical or basic.

Pro argument #2️. Low salaries do not allow to attract qualified specialists to the civil service

The lack of high-quality specialists and the complexity of their training increases the competition for them. The private sector, which has more flexibility in setting wages, is pushing them up. Thus, public sector employees are encouraged to move to private companies. This is especially true for the salaries of top executives of large state corporations or experts of higher authorities. Their salaries should not only cover a decent standard of living, but also persuade them to reject the alternative in the private sector.

Cons arguments on high salaries

Typical “cons” arguments are often related to the issue of justice. But, if low wages actually increase the incentives for corruption, this argument has serious drawbacks: wages remain low because everyone understands that officials take bribes; and officials continue to take bribes, in particular because wages are low. 

Another con argument relates to motivation. Setting salaries that are too high can attract people who are interested in money first and foremost. This can create additional risks of abuse of the position. In addition, this is inconsistent with the very idea of ​​the civil service, which, in its uncorrupted version, should attract people capable and interested in caring for the public good

Thus, salaries act as a positive material incentive, reducing the need for illicit income. But they in no way affect the risks of being punished. In the absence of a guaranteed punishment, persistent corruption in the organization and tolerance of luxury among officials encourage not to give up bribes, even as official revenues increase. Therefore, in addition to positive material incentives, such as decent wages, negative social incentives are also important – public pressure from citizens and honest colleagues within the organization.

According to CES (Centre of Economic Strategy) Executive Director Hlib Vyshlinsky, the salary of a minister or a deputy in the amount of 100-150 thousand UAH. per month is normal and correct. Low salaries in the civil service will, in fact, mean establishing a property qualification for Ukrainian politicians. Only people with passive income from business, investment, or high savings can afford to go into politics. But in whose interests will they decide? Obviously, for a narrow circle of the same business owners.

What did the civil service reform launched in 2016 envisage?

According to a VoxUkraine study, after the Revolution of Dignity, civil service reform has become a priority, as only quality civil service can develop and implement quality policies and regulation. At the end of 2015, a new law on civil service was adopted, which provided open competitions for positions, changes in the structure of salaries of civil servants, and emphasized their integrity. However, since the law introduced significant protection for civil servants, including dismissal, significant renewal of civil service 

there was no influx of new people. This can be partly explained by the lack of political will, in part by the low salaries offered by the civil service and, in general, by its not very good image in society.

To overcome this problem, directorates responsible for policy-making were created in 10 pilot ministries in 2017, which would eventually have to take over the functions of the departments (while functions that were not directly relevant to policy-making should be curtailed). According to the study of the head of the iMoRe project Tetiana Tyshchuk, this model proved to be quite successful.

At the end of September 2019, the Civil Service Law was substantially amended, namely:

• procedures for both appointment and dismissal of civil servants were simplified (civil servants were completely removed from the labor law jurisdiction);
• the possibility of a civil service under a fixed-term contract was introduced;
• the influence of political leadership on the staff of the relevant authorities has been greatly enhanced;
• it is determined that the system of remuneration of civil servants will be set by the Cabinet of Ministers (previously the minimum wage and the difference between the minimum and maximum wages were set by law). The Cabinet must do this by 01/01/2020.

This should speed up the implementation of policies in line with the vision of heads of government – as the new leader will be able to change a significant part of the team. At the same time, the role of the civil service is to support the stable work of state bodies, regardless of changes in political leadership. Therefore, and because of the fact that, as a rule, public sector wages are lower than in private, widespread practice in the world is a higher protection of public servants from dismissal.

How effective is the civil service reform that has changed the payroll for civil servants?

At present, civil servants and experts lack an understanding of the next steps in reforming the civil service. For example, will the Directorates remain in some form? How will civil servants be evaluated? It is not always possible to adequately define KPIs for everyone, and sometimes achieving individual KPIs may conflict with the effective functioning of the body as a whole or the achievement of policy goals. Finally, there is a risk of dismissal of the “new” civil servants , whom were difficult to recruit to the civil service, and who have shown good results. For the authors of the reform, this risk is clear and acceptable.

However, another risk is that the incomprehensible public service situation is holding back potential private sector candidates from competing for positions in government.

Thus, according to a study by the Centre for Economic Strategy, despite significant changes for the better after 2016, the civil service remuneration system in Ukraine still lacks integrity and transparency, as well as stability and predictability of wages. The salaries of civil servants remain uncompetitive, especially in senior positions. 

Much of the aggregate remuneration is made up of incentives and bonuses, which are by definition volatile components of remuneration, and in Ukrainian realities depend more on the commitment of management and the availability of financial resources in the state body than on the performance of the employee. Not only does this not attract the best of the private sector, where pay is up to 100% of wages, but it also reduces the efficiency of budgetary use of wages.

The analysis of the Centre for Economic Strategy shows that the level of remuneration in the central government sector is much lower than in the private sector for middle and senior management, but it is competitive for the level of specialists. For reform professionals, who are the role model of civil service reform, wage levels are more competitive, but much of the pay is a non-guaranteed component, which reduces the predictability of payments. There are also disparities in the salaries of employees within the same link of different agencies, which is a disincentive.

What are politicians most often manipulating when talking about salaries of public servants?

The decision to pay the premium to the management (in fact $ 46 million) was made by an independent Naftogaz Supervisory Board, not by the management of the company. That amount is 1% of the winnings, and so far only the first part of the premium has been paid – USD 20.7 million. It was paid out of the funds that Naftogaz now does not have to pay to Gazprom for gas delivered in 2014, according to a Stockholm court ruling. (Previously, this amount was reported in the NAC as debt). Instead, the second part of the premiun – $ 26 million – will be paid within 3 years if the entire amount of the prize is received.

Regarding the withdrawal of money abroad, the politician says that Yurii Vytrenko (not officially confirmed) and Andrii Kobolev (personally confirmed) committed the act of withdrawal. The premium was also paid to 39 more people from Naftogaz management. We do not know whether they have withdraw the money out of Ukraine

The latest available data on the salaries of top management of “Ukrposhta” we took from the electronic declarations for 2017. In 2017, the monthly salary of Ihor Smilyanskiy CEO of Ukrposhta was 330 thousand UAH, Oleksandr Pertsovsky – 510 thousand UAH, Lilia Bushina Lilia Bushina – 178 thousand UAH, Kostyantyn Mishustyn – 202 thousand UAH, Oleksandr Nakhod – 196 thousand UAH, Leonid Bortnichuk – 172 thousand UAH, Mykhaylo Vasylenko – 81.5 thousand UAH, Valentina Dudko – 204 thousand UAH, Arthur Cvintarniy – 149 thousand UAH, Arthur Moravitsky – 187 thousand UAH So, the salaries of Ukrposhta’s top executives are really high, but mostly much lower than the speaker calls.

Where to find the truth?

What the civil service reform envisaged and why it was carried out can be read on the website of the Cabinet of Ministers of Ukraine. It is also worth paying attention to the provisions of the Law of Ukraine “On Civil Service”.

The salaries of ministers, officials and deputies are indicated in their declarations, which are available on the NACP website or on the Declaration resource created by anti-corruption NGOs.

Civil service reform and competitions for civil servants can be monitored through information from the National Civil Service Agency.

What else is going to change in the civil service in the next 2 years – in the Public Administration Reform Strategy until 2020.

What is happening in the civil service and how the reform is progressing is written by the following experts:

• Tetyana TyschhukTatiana Tishchuk, leader of the iMoRe project,
• Iryna PiontkivskaIryna Piontkivska, CES Senior Economist,
• Oleksandr Starodubtsev, Head of the National Agency for Civil Service.