MAKE A DIFFERENCE

Performance-Related Pay of Government Employees in Denmark

OECD Expert MeetingParis, October 7, 2003

MAKE A DIFFERENCE

• Background • Design of the new pay system• Implementation • Difficulties

Agenda

MAKE A DIFFERENCE

1. Background- the Danish State

The Counties (14) 130.000

The Municipalities (254) 385.000

The State (1) 160.000

Typical functions: Central administrationDefencePoliceUniversities

Typical functions: HospitalsHigh schools

Typical functions: Primary schools. Care of children, elderly anddisabled persons

MAKE A DIFFERENCE

1. Background - milestones

1997 2002 2005

Collective Agreement ’97

Collective Agreement ’02

Collective Agreement ’05

New permanent pay system• Academic employed

Experiments with the new pay system• Office workers• IT-workers• Etc.

• Academic employed• Office workers• Agricultural workers• State tradesman• Etc.

MAKE A DIFFERENCE

1. Background- result contract for managers

Ministry of TaxationDirector Contract

Contract between

The department of the Ministry of Taxation

and

The Central Customs and Tax Administration

1’st of January - 31’st of December2000

Ministry of Taxation

Result contract

Focus on:The objectives for the institution in the periodConcrete goals for the institutione.g.. number of controls, quality, HRM-activities, etc.

Director contract

1. The result of the institution (min. 50%)

2. Strategy and development(min. 10%)

3. Internal management and HRM(min. 10%)

MAKE A DIFFERENCE

1. Background- the objectives

• recruitment and retention • strengthen link

– pay setting and objectives and strategies – pay and personnel policy

• reflect responsibility and authority, qualification and performance

• reasonable and fair

MAKE A DIFFERENCE

2. Design of the new pay system- Differences between the systems

The old pay system

Centralised

Based on objective elements

Long payruns

Few possibilities for allowance

The new pay system

Decentralised

Mainly based on subjective elements

Short payruns

(In principle) no limits for allowance

MAKE A DIFFERENCE

2. Design of the new pay system - delegation

The Ministry of Finance

Danish State Employer's Authority

The departemente.g. Ministry of Culture

The State Institution

The different management levels

- direct leader of the employees

MAKE A DIFFERENCE

2. Design of the new pay system- change in pay runs

New payrun

Old payrun

Salary

Years

Saving

Cost

MAKE A DIFFERENCE

2. Design of the new pay system- The old pay system

Pay level II

Pay level VI

Clark – 174.199 DKK

Clark – 185.769 DKK

MAKE A DIFFERENCE

2. Design of the new pay system- The old pay system

Wage bracket Steps1 2 3 4 5 6

1 1 2 3 4 5 62 6 7 8 9 10 113 7 8 9 10 11 124 8 9 10 11 12 135 9 10 11 12 13 146 11 12 13 14 157 12 13 14 158 13 14 15 169 14 15 16 17......31 40 42 4432 43 4533 4634 4735 4836 49.......42 55

Location (geographically)

Step II III IV V VI

17 199.592 203.859 206.812 211.078 214.030

Annual pay

MAKE A DIFFERENCE

2. Design of the new pay system- the elements

Basic pay- basic pay system

- interval pay system- minimum basic pay system

Superstructurecentrally/decentrally/locally

agreed allowance

Performance-related pay

80%

20%

MAKE A DIFFERENCE

2. Design of the new pay system- linking institutional policies and salary

Annual Performance Interview

Goals for the institution

Personnel Policy

Salary Policy

Goals and assignments

for the employee

Competence- development Salary

The institu

tion

The employee

MAKE A DIFFERENCE

3. Implementation- communication

• Dynamic guide • Folders• Education of personnel from HR-units• Conferences • Special information to the top managers• Information on the internet• Courses for managers• Courses on development a local salary policy• General information to the press• Local meetings/workshop etc.

Vej

MAKE A DIFFERENCE

3. Implementation - assessment

• Number of employees on the new pay system

• Numbers of new agreement based on the new pay system

• Different surveys

0

10.000

20.000

30.000

40.000

50.000

60.000

Q2 19

98

Q1 19

99

Q2 19

99

Q3 19

99

Q4 19

99

Q1 20

00

Q2 20

00

Q3 20

00

Q4 20

00

Q1 20

01

Q2 20

01

Q3 20

01

Q4 20

01

Q1 20

02

Q2 20

02

Q3 20

02

Periode

Num

ber

of m

an-y

ears

Number of man-years

MAKE A DIFFERENCE

3. Implementation - Motivation survey

Salary has an effect on motivation and effort.

The most motivating salary elements:• Pay in connection with education and development

of qualifications• Transparent criteria for pay

54% of the employees find that individual salary based on qualification and work effort has a positive influence on motivation

Most important motivational factors

0% 20% 40% 60% 80%

Image

Speciel payments & employment conditions

Leadership

Company culture

Development and training opportunitites

Work environment

Salaries

Work scheduling

Job content

MAKE A DIFFERENCE

3. Implementation - Survey – Negative effects

0 10 20 30 40 50 60 70 80

Create uncertainty among the employees

To much administration related to the effect

Create diversion among the employees

Decrease satisfaction among the employees

Make line managers uncertain regarding their role

Create problems regarding budgets and wage control

Create uncertainty among line mangers

Create inexpedient competition between government institutions

Create inexpedient competition in relation to other publicinstitutions

Union representative Managers

MAKE A DIFFERENCE

0 10 20 30 40 50 60 70

More focus on on individual appraisal and payment

Strengthen the link between performance and pay

Better possibilities for retention

Better possibilities for recruitment

More responsibility on development of own competences

Better competence development in general

Increased flexibility among the employees

More focus on results

Better dialog between management and employees

Empowerment to the line managers

Strengthen the link between goals, personnel and salary policy

Increased satisfaction among the employees

More efficiency and better quality

Union representative Managers

3. Implementation - Survey – Positive effects

MAKE A DIFFERENCE

4. Difficulties- seen from the central level

• Lack of delegation• Lack of knowledge with the line manager• Not enough courage to make discrimination

MAKE A DIFFERENCE

4. Difficulties- the institutional level

• Unclear salary policy • No clear link between goals, personnel policy and

salary policy• not enough information

MAKE A DIFFERENCE

4. Difficulties- seen from union representatives’ side

• Not enough money in the new pay system• Resistance against the new pay system among

some members • Maybe to much focus on pay

MAKE A DIFFERENCE

4. Difficulties- prospects

• From a traditional pay system to a total reward system based on individual needs

”The new salary systems are a good tool in this context, but recognition and rewards should be interpreted and should be adapted to individual needs.”

The Danish State’s personnel and management policy, June 2003