Republic of Montenegro: Public Expenditure and ... - Vlada Crne Gore

46 Chapter 3: Public Administration Reform
required for each. 51 As with the senior civil service, there is some concern that this could have a
negative effect on motivation and performance within the judiciary.
3.19 The concept of performance based pay has been established in law, but it has not yet
been tested in practice. Once implemented, the law will link pay and performance in two ways:
(a) promotion to a higher salary grade (if an employee over three consecutive years gets the
appraisal mark “good”, or achieves the appraisal mark “excellent“ at least twice during the
period) and (b) a bonus which is awarded for excellent performance at the end of the year. This
variable pay component will be determined by the head of the administrative body, instead of the
Ministry of Finance. The total amount of resources for the bonuses will not be permitted to
exceed 10 percent of the resources planned in the budget for the civil service wage bill in the
previous fiscal year. Implementation of the performance pay initiative is dependent upon having
a functioning performance appraisal system, a task which has not yet been implemented.
3.20 Resources that could be used to recruit or motivate highly skilled civil servants are
instead used to sustain an overly generous allowance for employees with long tenures.
Although it is common within the public sector to give salary adjustments based on the length of
employment, in Montenegro the magnitude of the allowance makes it costly and highly
distortionary to internal equity. Data obtained from the MOF does not allow one to see exactly
what proportion of aggregate base salary goes to support the allowance. However, the benefit
structure is very generous compared to other countries—even those from the former
Yugoslavia. 52 At 30 years of service, the allowance is equivalent to about 22 percent of base
salary. In contrast, a promotion within the civil service results in a base salary increase of only
about 5 percent. Consequently, it is possible for two people with very different levels of
responsibility to make the same amount of money—thus distorting internal equity. All
employees receive the allowance regardless of performance, thereby undermining the concept of
performance-base pay. Moreover, keeping the allowance as it is means there are fewer resources
to make base salaries competitive for potential new recruits, and fewer resources with which to
make promotions meaningful.
3.21 Although the Law on Salaries of Civil Servants and Employees established a good
foundation for the management of the civil service pay, several actions are needed going
forward:
• Decompress the salary structure further without significant increases in the overall wage
bill. Despite modest progress in 2005, the system is still highly compressed, which will
continue to make recruitment and retention difficult. It is likely that further
decompression will entail fiscal pressures, but it is important for the government to
achieve decompression with little overall impact on wage bill. This could be achieved by
focusing increases toward the skilled and professional civil service positions. Reliable
data on public-private pay comparisons are needed before additional increases for lowskilled
positions can be justified.
51 In contrast, in Canada and the US the salaries for members of the legislative body are significantly lower than
those of judges on the Supreme Court.
52 Beginning at 10 years of service one receives an extra 0.75 percent of base pay (up from 0.5 percent), and after 20
years the increment jumps to 1.0 percent. In Serbia and Bosnia the increment never exceeds 0.5 percent.