Monday, August 16, 2010

My First Masteral Term Paper

Below is my first-ever term paper for the course "Understanding the Bureaucracy" I am currently taking up at the Ateneo School of Government's Masters in Public Management program. The paper is titled "A Comparative Study of Public and Private Sector Salaries after SSL 3." The issue of public sector compensation has been very much in the news recently and I thought of sharing my work in order to enlighten people who tend to view the issue of government salaries in a rather "over-simplistic" way.

Our professor, former DBM Undersecretary Cynthia Castel, limited our paper to only 8 pages. So here is:

A Comparative Study of Salary Levels in the Public
and Private Sector after SSL 3

By
Oliver M. Mendoza

Governments that need to be elected by its people generally have a tendency to underpay its officials. The need for popular support, coupled with the long-established notion that public officials are more than compensated by the “honor” of their positions, all serve to perpetuate low pay in government. Thus when the Singaporean government in 1995 tried to increase the salaries of its civil servants, proposing that public sector wages be tied with economic growth and that it be pegged at two-thirds of what their private sector counterparts are receiving (as disclosed in income tax returns), it caused an enormous stir. Notwithstanding the fact that they have one of the best-managed governments in Southeast Asia – i.e. Singapore’s economy has been growing at an annual rate of 7% to 10% for decades, graft is virtually non-existent, public services are efficient, etc. – majority of Singaporeans still felt adamant about “rewarding” their civil servants and many could not seem to grasp the idea that public sector salaries should be at par with the private sector.

In the Philippines, government is characterized by traits that often make it the complete opposite of Weber’s model of bureaucracy as a rational organization. Majority of Filipinos perceive government officials to be corrupt and hopelessly inefficient, and their government not as a provider of services but more as a provider of jobs and largesse. Government workers do not deserve high salaries is a popular sentiment among the people and efforts to improve public sector compensation have always been met with widespread criticism.

This paper will first give a brief history of salaries in the Philippine government. Then it will examine the current government compensation scales vis-à-vis the private sector after the implementation of Joint Resolution No. 4, more popularly known as Salary Standardization 3. Lastly, it will attempt to come up with practical suggestions on how to improve the current compensation structure in government.

Historical Framework

Contrary to popular perception, government salaries in the Philippines were not always low. During its inception in 1905, members of the Philippine Civil Service received salaries that could be described as generous by today’s standards. A review of the 1939-1940 General Appropriations Act (GAA) reveals the government compensation rates of that era: the President of the Philippines received an annual gross salary of P30,000, the Speaker of the National Assembly P16,000 a year, a Cabinet Secretary P12,000, a middle-ranking “Legislative Assistant” P6,000 and a “Chauffeur” P1,140 per annum. While these amounts may seem miniscule by today’s standards, if we translate (using the “Purchasing Power Conversion Factors” formula) President Manuel Quezon’s 1939 salary into present-day terms it would be equivalent to about P10 million today. Using the same computation formula, the Speaker approximately took home P5 million a year while a Cabinet Secretary P4 million. Rank-and-file government employees like a “Legislative Assistant” would have grossed an estimated annual salary of P2 million (or about P166,000 a month) today while a “Chauffeur” P380,000 (or P31,000 monthly) .

Table 1: Pre-War Government Salaries and their Estimated Present-Day Values
[3]

POSITION

SALARY

PER ANNUM

ESTIMATED

PRESENT-DAY VALUE

President of the Philippines

PhP 30,000

PhP 10,014,686

Speaker of the National Assembly

PhP 16,000

PhP 5,341,116

Secretary to the President

PhP 12,000

PhP 4,005,874

Chief of Records and Curator

PhP 10,980

PhP 3,665,375

Asst. Secretary to the President

PhP 9,000

PhP 3,004,405

Secretary of the National Assembly

PhP 9,000

PhP 3,004,405

Administrative Assistant

PhP 6,000

PhP 2,002,937

Legislative Assistant

PhP 6,000

PhP 2,002,937

Protocol Officer

PhP 6,000

PhP 2,002,937

Member of the National Assembly

PhP 5,000

PhP 1,669,114

Technical Assistant

PhP 3,600

PhP 1,201,762

Clerk-Stenographer

PhP 2,400

PhP 801,175

Steward

PhP 1,560

PhP 520,763

Librarian

PhP 1,200

PhP 400,587

Cook

PhP 1,080

PhP 360,528

Chauffeur

PhP 1,140

PhP 380,558

Gardener

PhP 1,020

PhP 340,499

Laundrywoman

PhP 600

PhP 200,293

Laborer

PhP 600

PhP 200,293

Security Guard

PhP 600

PhP 200,293

As we can see in Table 1, the compensation structure was not rationalized – there was still no position classification structure and salary rates in the various branches differed markedly. The President, for instance, received almost double the salary of the Speaker of the National Assembly. Also, pay ratios were grossly “undemocratic.” For instance the highest-ranking position (the President) received an annual salary of P30,000 while the lowest plantilla item in government (i.e. Security Guard, Laborer, Laundrywoman) earned only P600 in annual salary, which translates to a pay ratio of 50:1. Policy-makers therefore saw the need to adopt a uniform salary and position classification structure to prevent demoralization and foster professionalization in the Civil Service.

The government attempted to implement a “Compensation and Classification Plan” in 1957 but it was only in 1976 that salaries and positions in all branches and instrumentalities of government were rationalized. Presidential Decree No. 985, signed by President Marcos on 22 August 1976, created 28 Salary Grades (SGs) with corresponding compensation scales and schedules (eight incremental “Steps”). PD 985 also introduced such concepts as “security of tenure” and “merit and fitness” for the Civil Service. In 1989 President Corazon Aquino signed Republic Act No. 6758 or “The Compensation and Position Classification Act” as the enabling law of Article IX, Section 5 of the 1987 Constitution.[4] More popularly known as the Salary Standardization Law (SSL), RA 6758 added five new salary grades (Salary Grades 29 to 33) to PD 985’s twenty-eight. In 1994, Congress passed Joint Resolution No. 1 (famously known as SSL 2) further increasing salaries in government, to be implemented over a 4-year period (1994-1998). Another eleven years would elapse before government workers next received their official wage hike, first by virtue of Executive Order No. 811 signed by President Gloria Macapagal Arroyo and then by Joint Resolution No. 4 passed by Congress last June 17, 2009.

Table 2: Post-War Government Salaries (Monthly) [5]

Salary Grade

P.D. 985 (1976)

RA 6758

“SSL” (1989)

J. Res. No. 1 “SSL 2” (1994)

J. Res. No. 4 “SSL 3” (2009)

1

405

2,144

5,230

9,649

2

448

2,223

5,701

10,373

3

494

2,312

6,214

11,151

4

546

2,412

6,711

11,987

5

603

2,525

7,248

12,886

6

666

2,651

7,828

13,853

7

736

2,793

8,376

14,892

8

813

2,950

8,962

16,009

9

898

3,127

9,589

17,209

10

992

3,325

10,229

18,500

11

1,096

3,547

10,842

19,887

12

1,211

3,796

11,493

21,379

13

1,337

4,074

12,182

22,982

14

1,477

4,386

12,913

24,706

15

1,632

4,737

13,688

26,868

16

1,802

5,132

14,509

29,017

17

1,991

5,577

15,380

31,339

18

2,199

6,079

16,303

33,846

19

2,429

6,646

17,281

36,554

20

2,682

7,288

18,318

39,478

21

2,961

8,017

19,050

42,636

22

3,270

8,845

19,812

46,047

23

3,611

9,789

20,605

49,731

24

3,988

10,866

21,430

53,709

25

4,403

12,206

22,287

58,006

26

4,864

13,563

23,126

62,646

27

5,373

14,919

24,105

67,658

28

5,935

16,275

25,069

73,071

29


18,307

26,072

78,916

30


18,975

27,115

85,230

31


19,550

29,717

97,163

32


22,000

35,661

111,198

33


27,000

41,604

120,000

34



47,547


The 11-year “salary freeze” period (1998-2009) inopportunely occurred during a time of double-digit inflation rates and resulted in further widening the gap between public and private sector salaries. In a study conducted by the Civil Service Commission (CSC) from 2002 to 2006, using salaries in mid-sized private corporations as benchmark, it was discovered that “salaries for senior managers and highly technical personnel in government were 74% below comparable jobs, and that salaries for professional and technical personnel were about 40% below, while clerical and trade personnel were actually 20% above the benchmark”[6] (see attached Annex “A”). Compounding the picture is the preponderance of SSL-exempt government entities (primarily GOCCs and GFIs) which pay salaries that are way above that of other government agencies. These factors in a way forced National Government Agencies (NGAs), Local Government Units (LGUs), the Judiciary and other instrumentalities to circumvent RA 6758 by devising creative ways to increase their employees’ remunerations thru “official but semi-hidden” perks like expense accounts, allowances, subsidized travel or schooling, extra bonuses, etc.

Upon its full implementation in 2012, SSL 3 will make salaries in the Career Sub-Professional (SG 1-9) and Professional (SG 10-24) levels more or less at par with the private sector, provided that the current private sector rates will remain the same until 2012. But the third Career Executive Service (SG 25-30) level will continue to suffer considerable disparities in pay over their private sector counterparts. [7]

A new concept guided the framers of SSL 3 in determining the rate of increase per salary grade – the principle of “equal pay for work of equal value which supposedly takes into consideration the level of importance, degree of difficulty, educational prerequisites, etc. of each SG position. Thus the initial version of SSL 3 proposed hefty increases for the upper-level Salary Grades to make their salaries comparable with their private sector counterparts. But it was pared down by Congress after widespread criticism and adverse media reportage.

Discussion

President Benigno Simeon “Noynoy” Aquino III recently complained that he is encountering difficulties finding “good people” to fill up critical positions in his government.[8] This really comes as no surprise because even after the passage of SSL 3, several internal and external factors continue to make government service unappealing to “good people.” External factors include the huge disparity in pay of the third Career Executive Service level vis-à-vis their corporate counterparts. The SSL compensation scheme, which can be better described as “the higher your rank, the more underpaid you become,makes it very hard for government to attract and keep executive talent. Internal factors include increased “politicization” in the government appointment process and the proliferation of SSL-exempt agencies which pay their employees way above the government rate. A study conducted by Dr. Toby Monsod for UNDP entitled “The Philippine Bureaucracy: Incentive Structures and Implications for Performance” showed that “the share of CESO eligibles occupying CES positions has been falling beginning around 2004. A decreasing share indicates that the share of political appointments is increasing and/or that CESO eligibles are leaving voluntarily. Note from the numbers alone that this decreasing share cannot be attributed to a lack of supply of CESO eligibles to fill in CES positions. There is even a decreasing trend in the share of CESO eligibles even in GOCCs that are SSL-exempt. In other words, the monetary incentives in these agencies could be inviting greater political intervention in the hiring of personnel. In turn, such interventions may be causing CESO eligibles to leave.”[9] In his first-ever State of the Nation Address (SONA) President Aquino described as “scandalous” the salaries of MWSS executives and Congress has responded by conducting an investigation into the “excessive” salaries of GOCC executives.[10]

All these factors tend to erode the principles of “merit and fitness,” “security of tenure” and “equal pay for equal work” enshrined in RA 6758. If not addressed, the Philippines will most likely end up with a Civil Service bureaucracy manned by “clerks” and ran by “dilettantes in public service” (read: political appointees). This development is truly alarming because it comes at a time when governance becomes increasingly more complex requiring higher levels of educational preparation, competence and imagination. In today’s fast-changing and highly-competitive world, the Philippines cannot afford to have a “government of clerks” in the age of knowledge workers.

It used to be that the Philippine Civil Service attracted the best and brightest Filipinos because of its attractive compensation rates. Based on historical records and anecdotal stories from people who lived through the pre-War period (or “Peacetime” as oldtimers call it), ordinary rank-and-file civil servants like public school teachers and police officers were highly-regarded and people were generally satisfied with the performance of their public servants. Of course one can always argue that Filipinos were simpler then, that people were more trusting of their leaders and less cynical about their government. But the fact remains that because of the good pay, government attracted good-quality people and the quality of public service during the Commonwealth Period was inarguably high.

Various studies have shown that governance outcomes are primarily determined by the quality of leadership in government – bad leadership results to bad governance while good leadership results to good governance. Studies have also shown a causal link between good governance and development. In fact, a World Bank Institute (WBI) study was able to measure precisely the “development dividend” derived from good governance, which it claims translates to a 400% increase in incomes per capita in the long run, improvement in infant mortality from 2.5 to 4 times, and improvement in literacy rates by 15% to 25%.[11] Thus viewed from this perspective, the potential “development dividend” from good governance should convince Filipinos to invest more in their public servants.

Recommendations

Clearly, the government’s “high-minded approach” towards recruitment is no longer effective. In this day and age, governments must simply compete with the private sector in attracting good-quality people to join the Civil Service. But simply increasing public sector salaries to mirror that of the corporate sector will not be enough to produce positive outcomes: government also has to address the existing internal inequities to prevent further demoralization and promote professionalization in the Civil Service. Below are three concrete steps to correct the situation:

1. Enact the “Career Executive Service Act.” While it is virtually impossible to insulate the selection process for senior government positions from factional politics, this should not stop government from instituting measures that would ensure that only qualified persons, whether political or career, are appointed to positions of high responsibility in the bureaucracy. This is the main rationale for the Career Executive Service Act (CESA).

During the last 14th Congress, the version authored by Iloilo City Congressman Raul T. Gonzalez, Jr., Chairman of the House Committee on Civil Service and Professional Regulation, wanted to establish a “Judicial and Bar Council-type” selection process wherein a “Selection Board” (composed of the CSC/CESB and OP/OES) will vet applicants to senior government positions and present a shortlist of nominees for approval first by the Secretary of the department where the applicant is seeking appointment and finally to the President. The Civil Service Commission under then-Chairperson Karina Constantino-David wanted to include a provision in the bill specifying a more definitive “career vs. political appointments” ratio (first it was 60-40, then it became 50-50) in the Civil Service but it was thumbed down at the Technical Working Group (TWG) level as “impractical” and “virtually un-implementable.” The Career Executive Service Act bill was passed on 3rd reading in the House of Representatives but was not deliberated upon by the Senate Committee on Civil Service, which was chaired by Senator Antonio Trillanes IV.

2. Repeal the Salary Standardization Law. The Salary Standardization Law has failed to achieve its stated purpose. Twenty years after it was enacted, the government compensation structure remains un-rationalized. Today, a driver working in an SSL-exempt agency receives more than a driver doing the exact same work at DTI or Congress. In fact, a recent DBM-CSC study showed that executives of several GOCCs and GFIs (i.e. GSIS, PDIC, BCDA, etc.) already receive salaries far higher than the President of the Philippines (see attached Annex “B”).

In fact, the Salary Standardization Law has only succeeded in demoralizing our career public servants. Government workers are demoralized not so much because their wages are low – the vast majority of our public servants have already accepted it as a given when they decided to join public service – but more because it is patently unfair for employees of SSL-exempt agencies to be receiving higher salaries for performing basically the same tasks. The list of government agencies applying for SSL-exemption grows longer every year and Congress definitely has not been parsimonious in handing out exemptions. As the number of SSL-exempt agencies grows larger every year, government workers will increasingly be split into two classes of employees – the “haves” (those exempted from SSL) and the “have-nots” (those covered by SSL). Congress should therefore repeal the Salary Standardization Law before this happens and fashion a new compensation policy for government employees.

3. Introduce a “Performance-Based” Compensation Structure. Instead of a standardized, one-size-fits-all salary structure, the national government should consider adopting a “performance-based” compensation and incentive structure wherein excellent performance is financially rewarded and mediocre performance penalized by pay cuts. “Performance-based” here does not mean individual but group or departmental performance. And performance measures or indicators should be based not only on “the volume of output” but more on the actual end-results or outcomes.[12]

Public servants are often timid and “tamad” because under the current set up, nothing good happens to them when they do a good job and nothing bad happens to them when they do a bad job. Under this performance-based compensation scheme, wages in government shall not be uniform or standardized; rather, employee incomes will vary or fluctuate depending on how their department fares in the performance audit conducted by an independent, third party body. This way, employees of better-performing departments shall be receiving salaries higher than those employed in lesser-performing departments. At the same time, employees in lesser-performing agencies will be better motivated to improve their performance. By equating pay with performance, the Philippine bureaucracy will become more “entrepreneurial” – that is, results-oriented and mission-driven – and by fostering competition, the Civil Service will become more efficient and effective. The healthy competition among agencies will make government into a “team of rivals.”

Performance-based compensation systems have been proven effective in motivating and enhancing productivity of government employees as in the famous “China Lake Experiment” of the U.S. Federal Government. “The China Lake Experiment revolutionized the personnel system at the Naval Weapons Center in China Lake, California and the Naval Ocean Systems in San Diego. It classified all jobs in just five career paths (professional, technical, specialist, administrative and clerical) folded all 18 GS (General Schedule) grades into 4, 5 or 6 pay bands within each path. It allowed managers to pay market salaries to recruit people, to increase the pay of outstanding employees without having to reclassify them, and to give bonuses and salary increases based on performance. It automatically moved employees who received repeated marginal performance evaluations down to the next pay band. And it limited bumping to one career path and based it primarily on performance ratings, not seniority.”[13]

Conclusion

As the great economist John Maynard Keynes once said: “the difficulty lies not so much in developing new ideas as in escaping from old ones.” In other words, the greatest impediment to reform is really “the power of outdated ideas.” The proposal to introduce a performance-based compensation structure in lieu of the Salary Standardization Law is sure to generate intense opposition in the bureaucracy. Bureaucracies, after all, have always been resistant to change.

But the world has been swept by tremendous changes in the last 50 years. We now live in a global economy wherein events in places as far away as the Middle East or Europe can have a significant impact on our local economy, necessitating government leaders that are extremely knowledgeable, responsive and adaptable. We now live in an information society where people get access to information as fast as their leaders, necessitating a bureaucracy manned not by clerks but by knowledge-based workers. We now live in a world of mass consumerism where people not only have bigger material needs but higher expectations in life, necessitating governments that not only compel its employees to become honest and efficient but that also provides the necessary monetary and non-monetary incentives for them to do so. In the end, we simply have to pay our public servants their due if we want them to remain honest and efficient. Then and only then will we have a government that we truly deserve.



[1] “From Third World to First: The Singapore Story” (Volume 2) by Lee Kuan Yew, Harper Collins 2000 pages 167-169.

[2] From the time of the Commonwealth until the administration of President Diosdado Macapagal, the peso-dollar exchange rate was fixed at P2 to $1. So whether in 1937 or 1957, the President’s annual salary of P30,000 was equivalent to $15,000. To find out what $15,000 would be equivalent to what it can purchase today, economists often refer to the table “Purchasing Power Conversion Factors” prepared by the US government. If you take $15,000 circa 1937, multiply it by 12.814 (the factor according to the table) and then multiply it further by the current peso-dollar exchange rate, then you will get an idea of what a certain income in 1937 could buy in 2010.

[3] Source: Manolo Quezon’s blog (www.quezon.ph/2007/10/01/the-empire-strikes-back/#comment592123)

[4] Article IX, Section 5 of the Constitution: “The Congress shall provide for the standardization of compensation of government officials and employees, including those in government-owned-or-controlled corporations with original charters, taking into account the nature of the responsibilities pertaining to, and the qualifications required for their positions.

[5] Sources: Presidential Decree 985, Republic Act 6758, Joint Resolution No. 1 (series 1994) and Joint Resolution No. 4 (series 2009). Amounts quoted are based on salary rates upon full implementation of said laws.

[6] “The Philippine Bureaucracy: Incentive Structures and Implications for Performance” by Toby C. Monsod. HDN Discussion Paper Series, PHDR Issue 2008-2009 No. 4.

[7] DBM Powerpoint Presentation on Proposed SSL 3

[8]A Few Good Men in Government: Noynoy hard-pressed to fill vacant jobs in public service” by Robert Gonzaga, Philippine Daily Inquirer 18 July 2010, page 1. “We have to find people who will work on our own platform and not continue the age-old and wrong platforms. The problem is, it’s no joke to enter government service. Your salary will go down, while criticisms will multiply. It’s difficult to convince good people to fill up these positions,” the President said. The new Aquino administration needs to fill-in as many as 4,301 executive/management positions, as well as 50,000 rank-and-file employees, who were co-terminous with President Gloria Macapagal-Arroyo.

[9] “The Philippine Bureaucracy: Incentive Structures and Implications for Performance.” Monsod, Toby. HDN Discussion Paper Series, PHDR Issue 2008/2009 No. 4 pp. 18-21.

[10] “Probe on Alleged Excessive Salaries of GOCC Execs Sought” by Christina Mendez, Philippine Star Aug. 11, 2010 p. 19.

[11] “Governance Empirics: Some Methods, Findings and Implications.” A video presentation by Daniel Kaufmann, World Bank Institute at the 4th Session of the Committee of Experts in Public Administration, UN ECOSOC, UN Headquarters, New York (slide 15).

[12] For instance, when public organizations set out to measure performance, their managers usually draw up lists that measure how well they carry out some administrative process i.e. how many people they served, how fast they served them, what percentage of requests are fulfilled within a set record of time, etc. In essence, they measure their “volume of output.” But outputs do not guarantee outcomes. A TESDA tech-voc school might pump out more and more graduates of a welding program for instance but if those graduates cannot find jobs as welders, what good is the program? Thus, government will just be spending money without generating any positively tangible outcomes.

[13] “Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector.” David Osborne and Ted Gaebler, Penguin Books 1992 page 128.

2 comments:

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