PERFORMANCE-RELATED PAY SCHEME FOR GOVERNMENT EMPLOYEES IN CHILE: 1998-2004

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GOVERNMENT OF CHILE MINISTRY OF FINANCE Budget
Office
PERFORMANCE-RELATED PAY SCHEME FOR GOVERNMENT
EMPLOYEES IN CHILE 1998-2004
Alberto Arenas de Mesa Deputy Director, Budget
Office, Ministry of Finance of Chile
October 07, 2003
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MODERNISATION OF THE STATE AND ITS FUNCTIONS
In the 1990s Chile began to modernise its public
sector management, starting, in 1998, with the
pay structure, by introducing a results-linked
concept, or performance-related pay (PRP). The
reform process took place in an economy with no
fiscal deficit and with the participation of the
public sector workforce unions, as players and
beneficiaries of a modernised state.
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PUBLIC SECTOR ANTECEDENTS
PUBLIC SECTOR STAFF DISTRIBUTION 2002
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PUBLIC SECTOR ANTECEDENTS
Public spending on human resources grew
substantially between 1990 and 2002, by 124 in
cumulative real terms, an annual real average
increase of 6.4. Spending on central
government staff was equivalent to 19.2 of
total public expenditure in 2002 and to 4.4 of
GDP.   Specifically, between 1990 and 2002
salaries rose in cumulative real terms by 71,
well above the 47 real growth in national pay
levels in the same period.
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CHILES CIVIL SERVICE REFORMS
  Unlike reforms in other countries, where civil
service reforms have aimed to reduce the size of
the public sector, exercise more control over
expenditure and balance the fiscal finances,
Chiles reform process is directed mainly at
strengthening management and administration
capabilities in its public organisations.
The reform can be divided into two stages

• 1998-2002 The Initial Stage
• 2003 onwards Consolidating the Process

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PERFORMANCE-RELATED PAY 1. 1998-2002 The
Initial Stage
The PRP scheme was applied at the level of
individual members of staff and of the
organisations, and allowed regulated growth in
pay rates. The aim is to reward good performance
by individuals and organisations, raise the
quality of public services, increase salaries,
and motivate civil servants.  

• Base increment The fixed component, paid in all
  cases to all employees
• 5.5 in 1998
• 6,0 in 1999-2002
• 8 in 2003
• 10 in 2004
• Individual performance increment PRP applied to
  each employee, awarded on the basis of individual
  performance ratings
• i) 4 for the 33 of highly-rated staff in each
  workplace
• ii) 2 for the second, lower-rated group, up to
  a total 66 of the best-rated.

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PERFORMANCE-RELATED PAY 1. 1998-2002 The
Initial Stage

• Institutional performance increment PRP applied
  at organisation level. This introduces management
  by results in public organisations. Employees
  receive a pay increment related to their
  organisations performance on its management
  objectives, agreed in the management improvement
  programmes (MIP)
• Compliance with the management objectives in an
  annual MIP gives agency employees the right to a
  3 salary increase the following year, provided
  the agency has met at least 90 of the annual
  objectives. The increase is 1.5 if compliance is
  between 75 and 90.

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MANAGEMENT IMPROVEMENT PROGRAMS

• First two years performance against quantitative
  goals, 1,200 indicators
• Budget unable to assess relevance and accuracy,
  99.5 received maximum benefit
• In 2000 focus changed towards assessing progress
  in managerial systems development
• Managerial systems in 7 areas
• Human resources
• Customer service
• Strategic planning and management control
• Internal auditing
• Decentralization
• Financial management
• Gender focus
• For each of the above, previous regulations,
  directives, but little compliance

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MANAGEMENT IMPROVEMENT PROGRAMS

• Every area divided into systems
• Progress in every system coded through
  descriptors
• Government agencies assess their current
  situation and propose next stage to attain

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MANAGEMENT IMPROVEMENT PROGRAMS
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MANAGEMENT IMPROVEMENT PROGRAMSOperational
Design
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(No Transcript)
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PERFORMANCE-RELATED PAY 2. 2003 onwards
Consolidating the Process
  New Deal on Employment and the Senior Public
Management System Work continued in 2003 on
improving public management to provide better
public services. In 2001, after lengthy
negotiations, the government and the public
sector employees union, (ANEF) reached an
agreement in 2002 a new law was drafted and sent
to Congress, in October, and finally came into
force in June 2003. The aim of the new
legislation, known as the New Deal on Employment
and the Senior Public Management System (Nuevo
Trato Laboral y Sistema de Alta Dirección
Pública), is to develop an integrated policy on
public sector employment through improved
incentives, and through major changes in the
mechanisms for appointing senior civil servants.

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PERFORMANCE-RELATED PAY
Specifically, the new law strengthens the PRP
scheme with higher incentives in the pay
structure and increments for excellence at
organisational level sets up a permanent system
of voluntary redundancy and, in 2004, increases
the modernisation allowance by 8. Modernisation
allowance 1998-2004
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PERFORMANCE-RELATED PAY Public
Sector Pay Structure 2001 and 2004
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PERFORMANCE-RELATED PAY
a)      Allowance for collective performance
PRP for team work. The increase is a new tool,
applied on a decentralised basis by the heads of
each organisation. The increment for collective
performance is awarded to staff in teams, units
or work areas depending on how well they meet
their annual targets.   As from 1 January
2004, target fulfilment by such groups in the
preceding year will give the staff involved a 4
rise where compliance is at or above 90, and to
a 2 rise where the level is below 90 but at or
above 75.   The head of each organisation
will be responsible for defining annually the
teams, units or work areas according to
functional or territorial parameters, or both.
Territorial parameters may be applied nationally
or by region or province.
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PERFORMANCE-RELATED PAY

• Annual prize for excellence in public
  organisations This prize will be awarded to the
  organisation that has excelled in service to the
  public in terms of productivity and quality. It
  will be given, from 2003 onwards, when the
  organisation with the best results has achieved
  100 or above of its MIP targets. The prize will
  consist of a 5 increment on the same base as the
  modernisation allowance. The National Civil
  Service Office will be responsible for managing
  and awarding the prize.
•  
• Senior executive allowance With the
  implementation, in 2004, and development of the
  Senior Public Management System, top executives
  will receive a senior executives allowance, of
  which a percentage is variable, awarded on the
  basis of performance and target fulfilment set
  out in a specific performance agreement.

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Senior Public Management System
The new system covers civil servants in senior
posts as heads of public organisations or their
organisational units, and whose functions are
chiefly the execution of public policies and the
provision of services to the community, i.e.
first and second level management. The System
is based on entry through open public
competition, on the principles of transparency,
equity and merit. From 2004 onwards senior
civil servants will receive a senior managers
allowance of which part is performance linked.
Heads of organisations and second level managers
will receive the allowance depending on the
percentage of targets met in their performance
agreement of the preceding year, according to the
following formula i) a maximum 20 increment
for meeting 100 or more of the targets, and
ii) 50 of the maximum for meeting between 80
and 100 of targets.
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DIFFICULTIES IN APPLYING PRP
The implementation of the performance increment
has been in force long enough to allow the
organisations to draw some basic conclusions on
both the drafting and the implementation, and for
the staff organisations responsible for the
technical and operational side of the programme
to improve the processes and its tools. Main
Results
Management Improvement Programs
1999-2002 General Summary of Compliance for
Agencies
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DIFFICULTIES
IN APPLYING PRPGeneral Summary of Compliance
for Agencies 2001 and 2002
160
79
139
140
66
116
120
100
80
Number
60
17
17
17
40
30
29
28
4
20
8
0
0
1,5
3
Compliance
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DIFFICULTIES
IN APPLYING PRPGeneral Summary of Compliance
for Agencies 2001 and 2002
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DIFFICULTIES
IN APPLYING PRPGeneral Summary of Compliance
for Agencies 2001 and 2002
From 2001 onwards a new methodology has applied
for the MIP, which explains the drop in the
number of organisations in the highest level.
However, There were no major changes in the
number of staff 94 achieved the maximum
allowance in 2002. The fall, in 2001, in the
number of organisations achieving it is due to
the impact on decentralised organisations in the
regional and provincial governments when targets
and control mechanisms were imposed centrally and
external adjustments were made. This reduced
their performance levels considerably.
General Summary of Compliance Staff distribution
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DIFFICULTIES
IN APPLYING PRPGeneral Summary of Compliance
for Agencies 2001 and 2002
Summary of Fulfillment for Centralized Agencies
Summary of Fulfillment for Decentralized Agencies
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MANAGEMENT IMPROVEMENT PROGRAMS, 2001
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MANAGEMENT IMPROVEMENT PROGRAMS, 2002
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CHALLENGES IN APPLYING PRP
A significant challenge will be to apply the new
PRP instrument for collective performance, which
it is hoped will strengthen decentralisation and
staff commitment to organisation goals. The
organisation performance allowance for heads of
organisations should recognise the achievement of
strategic goals set in the respective performance
agreements.   The MIP management tool has not
only reinforced the incentives for more effective
and transparent management, but also forms a base
from which to extend these efforts. In the short
term, progress in meeting basic management system
targets gives staff a financial increment. In the
medium term, organisations that meet
comprehensive targets or standards can then
guarantee a level of management responsibility,
which could give them differentiated
institutional status.
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CHALLENGES IN APPLYING PRP
The Ministry of Finance is considering
eliminating some kinds of controls of a
financial-operational nature, like the
pre-established regulation on cash surplus
transfers, and integrating budget sub-items for
operational expenses, in order to allow
organisations to reallocate resources
autonomously within the authorised overall
appropriations.   Work must continue on
reviewing aspects of establishing MIPs in each
organisation, and encouraging participation in,
diffusion to and comprehension of the programme
by employees and different managerial levels.