Slovenia’s public sector salary system
Slovenia implemented a new public sector salary system in 2008. Negotiations for the new system were long and the reform process was complex. Implementation of the reform was further complicated by the unexpected deterioration of Slovenia’s economic growth and public finances, necessitating a temporary freeze to some provisions in the new system. This chapter explains the current public sector salary system and its evolution.
Initial development of the public sector salary system and first reforms
The Law on Relation of Salaries in State Organs, Local Communities and Public Institutions, adopted in 1994, established a unified salary scheme for the whole of the Slovenian public sector, ranging from officials in higher state institutions (the President, parliamentarians, ministers, etc.) to the lower ranked public employees. There were similarities between this system and the present structure. However, the cohesion and systematisation of the original scheme turned out to be unsustainable, possibly because it was not supported by an appropriate budget system and efficient employer co-ordination. The system was instead distorted little by little over the course of time, as ministries made adjustments and introduced new forms of cash supplements.
As the proliferation of allowances and special cases grew, the system was distorted. It became almost impossible to know which salary components and amounts were applicable, and the scheme became quite opaque. Salary disparities between ministries were widespread and substantial - the variable component of a salary could amount to more than 50% of the take-home pay (even up to 80% according to certain sources), varying from one budget user1 to another, or even from one individual to another.
The state of the then-salary system led to a push by the government and unions for reform. Negotiations between the government and the representative trade unions on a proposal to modernise the public sector salary system commenced in 1998/1999. After a long negotiation period, a settlement was agreed; the first stage of a modernisation effort occurred with the implementation of the Public Sector Salary System Act and Civil Servant Act, which were adopted by the Slovenian Parliament in 2002. Vital parts of the implementation of the Public Salary System Act, including salary setting, could only be achieved through a collective agreement.
The reform was at least partially intended to restore the remuneration structure laid down in 1994. It thus entailed changes in the relative remuneration (including cash supplements) for different tasks and professions - a controversial issue in any national context. The changes in relative salaries also meant that remuneration increases for some employees would have to be balanced by remuneration reductions for other employees, which is even more controversial. It is thus not surprising that the reform led to disagreements among trade unions and a continued fracturing of the trade union structure.
An element which helped Slovenia overcome these controversies and to reform the system was that all salary adjustments were frozen when the Public Sector Salary System Act was adopted, awaiting a collective agreement on its implementation. As the years passed, this led to a gradual general erosion of the public remuneration level. However, at the same time, a stockpile of unallocated salary increases was accumulating. The erosion reduced the number of employees who would have to face additional salary cuts when the new system was adopted, and the stockpile of funds facilitated the government’s financing of the salary increases that would come with the implementation of the new public sector salary system.
However, this was not in itself sufficient for an agreement. The legislative requirements for a collective agreement meant that the government had to secure acceptance by trade unions representing a majority of the public sector employees. This turned out to be difficult, possibly due to the strain of the re-arrangement of relative salary levels and abolition of special allowances, and was probably the main reason for the drawn-out reform process. Progress was only made possible by a legislative amendment changing the formal requirement to a majority of the representative unions (quorum rules).2 The reform could then be launched with the support of a number of small unions, even against the opposition of certain large trade unions. It is unclear if, and to what extent, this affected the content of the collective agreement.
Negotiations between the government and the representative trade unions continued after the adoption of the Public Sector Salary System Act in 2002, until a new salary system was agreed in 2008. In effect, negotiations on the existing salary system took some nine years (negotiations on the reform of the public sector salary system originally commenced in 1998/1999). This negotiation period was long and protracted, and it is fair to say that public servants, unions and the government grew weary.
The final stage of negotiations became hurried, since the government wanted to conclude the process before the parliamentary elections in 2008. This also meant that the time available for implementing the new salary system in the different public organisations was cut short; several officials interviewed indicated that this also affected the quality of the implementation of the new salary system and negatively impacted upon public sector staff.
The outcome of the negotiations was implemented partially through legislation and partially by collective agreement. The reform - which became the existing public sector salary system - entailed substantial changes in relative salaries and the abolition of many supplementary cash benefits, which meant that there would be both winners and losers at the individual level, as well as across public functions and professions. A key component of the agreement was the payment of a 13% salary adjustment to staff, eliminating disparities between agreed and actual wages, to help compensate staff for the long period of frozen wages during the negotiation period.3 Slovenian public employees went without salary increases during the negotiating period for the new salary system, and thus made a major contribution to the reform process. They could legitimately argue that the increases distributed were not new salary increases but represented a paying out of salaries due for past work.
The release of the pool of frozen salary increases entailed a substantial increase in the public wage bill. In order to avoid an economic disturbance due to a rapid increase in domestic demand, it was agreed that the salary adjustment increases should be paid out in four instalments. The first two payments were made as agreed. However, due to the unexpected deterioration of Slovenia’s economy and fiscal situation in 2009, the government considered that it would not be prudent to implement the remaining agreed adjustment increases. Thus, the third and fourth payments were frozen. They remain so today, and will be paid only after growth in real GDP exceeds 2.5%. As at May 2011 (OECD, 2011a), growth in real GDP is expected to pass the 2.5% threshold in 2012, when it is predicted to reach 2.6% (see Figure 2.1).
Wage adjustments were also frozen after the January 2011 indexation (but should the actual cost of living growth index for the period December 2010 to December 2011 exceed 2%, basic salaries will be increased by this difference in January 2012). A number of other cost-saving measures were implemented in the public sector salary system at the same time as salary increases. These included freezing performance pay and bonuses during 2011 and 2012, and reducing compensation for an increased workload. In addition, officials promoted to a higher position during 2011 would not receive the corresponding salary increase until 2012, and other public employees could not progress to a higher pay class during 2011.
Any slowing in economic growth will see the remaining payment of salary increases pushed further into the future, which will likely have a devastating impact on staff morale and performance. This would also impact the government’s ability to further negotiate reform of the public sector salary system with trade unions. It is understood that the Negotiating Group of Public Sector Trade Unions, which opposed the government’s measures
2. SLOVENIA’S PUBLIC SECTOR SALARY SYSTEM - 39
to freeze salaries and payments, has challenged the decision before both the Constitutional Court and a Labour and Social Court, and attempted to initiate a popular referendum.
Figure 2.1. Real GDP growth, 2000-2012
Source: OECD (2011), “OECD Economic Outlook No. 89”, OECD Economic Outlook: Statistics and Projections (database), Vol. 2011/1, OECD Publishing, Paris.