Governance reforms anchored in civil service reforms–II

Compensation structure, Civil servants complain about commitment and performance demotivation because their compensation structure compares unfavourably with those in the private sector with similar degree of responsibility and scale and level of experience. And highlight this as the reason why after 25 years of service the urge for taking initiatives dries up, and they become cynical and spend the remaining years in service shuffling paper.

While registering this disappointment they selectively only compare the cash part of their compensation, conveniently ignoring that they receive a significant part of their package in kind (non-monetary benefits) and unrevealed benefits. These unacknowledged perks and privileges, not transparently reflected in their pay slip, misrepresent the “real cost” while distorting the incentive structure.

The foremost issue that has bedeviled budgetary allocations and systems is lack of transparency. A major portion of the compensation structure that, as it exists today, buries a number of privileges under various budget and off-budget heads, many of which are not costed to enable taxpayers to know in a transparent manner the “price” that they have to pay for the services of a civil servant.

Governance reforms anchored in civil service reforms — I

The technique adopted ensures opaqueness, concealing information from the hapless taxpayer on what senior bureaucrats in Grades 20 and above actually cost the government. The most useless data in the public domain pertains to pay scales - the portion of the salary paid in cash, which on the face of it, suggests that those in Grades 19 and above, considering the scope of responsibilities delegated to them, are grossly underpaid. But this information, as indicated above and further elaborated below, hides more than it reveals.

Admittedly, the system of Unified pay grades has also damaged the incentive structures. Under this system anyone in Grade 20 gets the same compensation as say the Finance Secretary of the province, with much greater responsibility. Before the adoption of the unified pay scales in the 1970s the pay of a civil servant was linked to the post held and the degree of responsibility.

The same pay regardless of the function, professionalism required and level of responsibility, while disincentivizing the efficiency and productivity of performance, also resulted in governments failing to attract high performers in priority areas of governance by paying an acceptable premium for such skills.

The unified pay scales were introduced in 1973, ostensibly to make the system fair and transparent. However, over time this regime has broken down because of arbitrary and uneven distribution of rewards in the form of special pay packages- special allowances and perks for some cadres and in some cases within the same group- bestowed without the adoption of a fair and transparent process for selection to these special positions.

An excellent study. “Cash Poor, Perk (Plots, Privileges) Rich!, Civil Service Compensation: Incentives, Disaffection and Costs” conducted by PIDE under the supervision of Dr. Nadeem Ul Haque estimated that the total cost of an officer in Grade 21 is 15% more than that of a Pakistani national in the UN officer cadre in Pakistan.

It argues that the compensation system conveniently ignores to value the following benefits and perquisites to which those in BPS 20 and above (especially the PAS cadre) is entitled. It is because of these monetary and non-monetary benefits that whereas the wage compression ratio for the lowest and highest pay grades, based purely on the basic pay scale. is below 10 it rises to 24 when both these remuneration components are factored in.

a) A host of allowances like entertainment, special pay at 15% of basic salary as is the case in the Punjab, qualification pay, senior post, etc.;

b) Furnished residences provided in prime locations of the city (with services of security staff and a gardener) whose maintenance and periodic renovation is shown respectively under repairs and maintenance of the euphemistic term ‘public buildings’ and under the much celebrated term development expenditure!!!;

c) The cost of residential utilities like electricity, gas and telephone borne by government;

d) Peons, janitorial staff in offices or those employed by local governments found providing free services in the homes of officers in Grades 19 and above (the former especially in the provinces);

e) The use (including the cost of petrol) of an official chauffer-driven car for private use as well. According to the PIDE study, the cost of use of an official car can be as high as the cash salary of those in pay grades 20-22. In reality, most senior civil servants in Federal Ministries or provincial departments that have set up public sector agencies have at least an additional chauffer-driven car at the disposal of their families, whose running costs are financed by one of these parastatals, that are also more than likely to be bearing the cost of his cell phone;

f) The costs of medical treatment of him/herself and his/her family. The PIDE study reveals that whereas a medical allowance is paid for separately as part of the monthly salary slip more than Rs.2.3 billion on average costs the Federal Government monthly on their medical related reimbursements;

g) As representatives of government, memberships of boards of entities in which the government has a stake;

h) Postings to high profile Pakistan specific positions in multilaterals;

i) Subsidized social clubs in all major cities;

j) Almost all Secretaries also get a heavily subsidized, if not allotted (free of cost), a residential plot on retirement (with the more ‘enterprising’ among them managing multiple allotments), apart from being entitled to retain (free of rent) for 2 years after retirement the official residence that they were occupying on the date of retirement;

Apart from job security they are also entitled to forms of social protection, both pension and non-pension in nature, such as life insurance, medical coverage, provident fund, etc. briefly described below. An understanding of the pension system is important since aver age life-expectancy is rising and government functionaries as a group are likely to live longer than the rest of the population, which is pushing up the already high future pension payment bill even further-and by now the pension liability of the Federal and provincial governments (excluding those pertaining to staff of public universities) has crossed Rs.13 trillion.

k) Civil servants are entitled to a generous monthly pension payment after 25 years of service, which is linked to the salary drawn at the time of retirement and the number of years of service, presently it is 70% of the last drawn salary. According to the PIDE study, the rights to pension are even more generous-after the civil servant’s death 13 heirs can claim pension as family-including widows, unmarried or divorced daughter, underage/dependent children at a reduced rate of 50%. Moreover, with pension increases announced periodically by government the pension payment, in some cases, touches almost 1.4 times the last drawn salary.

Furthermore, under the pension entitlement rules they can ‘commute’ 40% (reduced from 50% in 2001) of their gross pension in lump sum at the time of retirement. This is a generous benefit, since the amount paid as commuted pension is not discounted to arrive at the present value of this payment in advance that the retiree would have received as monthly pension over several years in the future;

l) On retirement civil servants are also paid a gratuity, equal to 40 times the last drawn salary. Under the current pension system existing civil servants are not required to make any contribution to their eventual pension or gratuity benefit. This cost is borne entirely by the government;

m) Civil servants are also entitled to a General Provident (GP) Fund to which only they contribute, but on which, until 2001, they were paid an interest rate that was 30% higher than the market rate;

n) Employees also contribute 2% of their basic salary to a benevolent fund, the benefit under which translates to 35% of wages for premature death or disability up to the age of 70;

o) There is also a life insurance cover under a Group Insurance Policy under which the benefit is roughly 2.5 times the annual salary- ranging from Rs. 100,000 to Rs.1 million;

p) Civil servants are also entitled to four days a month as leave that they can accumulate equivalent to one year’s vacation with pay, of which six months can be encashed.

Admittedly, some of the non-monetary perks granted to senior civil servants tend to be discretionary and selective in nature; the rationing covering less than 15% of the total civil service work force. In return for the granting of such benefits favours have to be exchanged, undermining governance systems and structures.

Recommendations:

a) Reorientation of government

The discussion above has tried to show that now with budgetary constraints, competing imperatives, pallid growth and rising expectations of citizens, necessarily warrants an overriding vision informing the future role of government governments, requiring a need to re-consider functions they should take upon themselves to perform, and accordingly re-engineer the institutional set-up. It has attempted to demonstrate the need to re-think and re-define the role of government, since this will determine the size, skill-mix, compensation and training of the civil service to be paid from the public purse. The best way to explain this is in terms of what the government should neither do nor pay for (e.g. running retail outlets for articles of daily use, banks, airlines, etc.), should do and pay for (only defence, foreign policy, fiscal and monetary policy, justice, law and order and some categories of physical and social infrastructure that the market and the private sector cannot provide come to mind as the government’s sole responsibility) and those that the government should pay for but not necessarily do itself.

Identifying areas and services that the government should pay for but not do, produce or provide itself, is relatively more difficult. However, the following example should be able to illustrate this point.

It is the moral duty of the state to ensure that the population gets free good quality elementary level education. Which only means that the government must pay for this education. It does not mean that the government should produce or provide the service itself. Better quality education in terms of learning outcomes can be provided through private schools than that being delivered by government schools by providing funding at a rate per child which could be less than half the cost incurred to educate a child in the public schooling system, while making this financial assistance conditional on performance of children.

Today, such an effort can be facilitated by harnessing the whole range of instruments (such as telecommunication and internet technology) to improve the quality, efficiency and effectiveness of services, and by partnering with a rapidly maturing private sector. This is, therefore, an opportune time to conduct an assessment of the kind of roles that the government.

A large part of the regulatory framework exists because of lack of clarity on the role of the government, thereby providing employment opportunities for skills that the market neither demands nor produces. New products and instruments are better replacements and more effective mechanisms for achieving the objectives underlying the rules and institutional arrangements for enforcement. For instance, the provincial Boiler Acts, 1923 expect Grade-11 Boiler Inspectors to certify boilers manufactured by globally recognized multinationals. While the technology for manufacturing boilers has taken a leap these professionally ill-equipped inspectors are tasked to perform a regulatory function.

Similarly, governments recruit Building and Electricity Inspectors to ensure the safety of private buildings used for public purposes, e.g cinema houses, factories, etc. These regulatory functions can be better achieved by such buildings being comprehensively covered by insurance. The owners can then be spared the frequent visits of these government employees. The insurance companies will ensure the security and safety of the public using these boilers and buildings.

Such examples question the justification of a regulatory apparatus to achieve objectives that other market-based institutional arrangements and instruments can provide much more efficiently and effectively. In other words, to bring greater focus to the government’s activities, there is a need to redefine its role and the way it carries out its business.

Similarly, it would be a cheaper proposition to outsource several services. Examples include the daily cleaning operations of government offices instead of the government employing an army of cleaners, and computerized CAD services, available in abundance in the private sector.

The rightsizing of government (following the 18th Amendment) will also improve government efficiency, simply through a reduction in the number of layers of processing. Further gains can be realised through elimination of unnecessary tasks and by closely aligning functions, resources and responsibilities.

(This is the second part of a three-part essay. Its third and last part will be carried tomorrow)

Copyright Business Recorder, 2023