Government clears road to formation of a Pay Commission

But a Pay Commission is not as simple and easy as recent history shows

The Cabinet is in the final stages of forming the Pay Commission with the Ministry of Finance recently nominating the names of members of the much awaited Pay Commission.

The Cabinet, in keeping with the Constitution, is expected to soon submit the names of the members to His Majesty the King, who will formally appoint the members.

The Prime Minister Lyonchhen Tshering Tobgay said, “The Pay Commission is being constituted and we will be submitting the nominations to His Majesty as required by the Constitution.”

The Finance Secretary Lam Dorji declined to share the names nominated by the ministry, but he said that the type or makeup would not be very different from the previous Pay Commission.

This would mean that it would include government secretaries from the Ministry of Finance, Ministry of Economic Affairs, a Parliamentarian, a private sector representative and other relevant experts and stakeholders.

The PM said that the Pay Commission would not only have to look at the house rent allowance, salary hike, but at the current situation in terms of living costs, revenue situation, economic conditions, inflation, house rents, etc.

He said the Pay Commission will also be asked to look into the pool vehicles issue.

Lyonchhen said that the Pay Commission would have a period of three months from their date of appointment to come out with a final report.

The commission is expected to have detailed terms of reference on the issues they have to look at, however, the heart of their ToR will be the PDP’s 100-days pledge that says, “We will call the Pay Commission to revise the pay and allowances of the civil service and the local government leaders. We will introduce the 20% house rent for civil service and revise entitlements of local leaders.”

Even if the new government gives only a 20% hike as house rent allowance, this will have an economic cost of around Nu 1.7bn per year. Salaries and wages in the 2013-2014 budget already constitute around 36 percent or Nu 8.238bn of the Nu 19.160bn.

The eventual cost will be much higher than Nu 1.7bn, as the corporate sector and other government corporations are also expected to give hikes to keep their salaries on a competitive scale.

The formation of the Pay Commission and its aftermath may not be as simple as the previous DPT government found.

The DPT government after coming into power in 2008 instituted a similar Pay Commission which divided government officials into 17 categories and recommended hikes accordingly. The

bulk of the civil service was recommended to get a 50 to 55 percent pay hike. Senior civil servants and politicians would get a much higher hike with the Pay Commission recommending a 140% pay hike for the former Prime Minister. The Pay Commission had also recommended up to a 77% pay hike.

In contrast lower level support staff would be getting only around 40% hike. The total financial implication was around a whopping Nu 2.3 bn per year.

The logic of the Pay Commission, at the time, was that since the most important and delicate work was handled by senior officials their pay should be higher. Comparisons were also made to the higher pay packages of company heads in DHI.

Once these Pay Commission figures were leaked in the media, there was an outrage, first at the lower rates for the junior staff and at the higher rates for senior officials and politicians.

The period also coincided with the Global Financial Crisis with the Finance Ministry predicting that Bhutan would face some impact.

Given the political and financial implications the Cabinet sent the Pay Commission report to the Finance Ministry which changed the entire proposal and in January 2009 announced a flat 35% hike for civil servants, 20% hike for MPs and 45% hike for the under paid local government heads.

A 61% hike was given to support staff and elementary personnel.

The former Prime Minister and Cabinet Ministers did not take any pay hike, but their discretionary grant was increased to from Nu 150,000 to Nu 300,000 per year for the then PM and from Nu 100,000 to Nu 200,000 per year for the then ministers.

The Finance Ministry report stating limited resources and the Global Financial Crisis as reasons said that despite the Pay Commission’s recommendations

only a limited hike would be given. The government said that a hike could be given in the future when the economic situation was more favorable.

The financial implication at the time was Nu 1.333bn on the current expenditure which was around Nu 1 bn less than the original Pay Commission proposal.

Two years later in 2011 the government again in January announced a 20% across the board hike for civil servants. The cost implication was Nu 627mn a total every year.

Here again, the former Prime Ministers and Ministers declined to accept a pay hike.

The civil servants pay hike was soon followed by major hikes by government corporations in order to retain their employee and keep productivity at a high according to them.

The only sector that could not catch up was the largest sector, the private sector whose several lowly paid employees though not getting any hike were the worst hit with the high inflation in the form of higher rents and other expenditure due to all the pay hikes.

All in all, the Pay Commission’s original recommendations of 2008 were much higher and would have imposed higher economic burden on the economy and money was supposed to be saved through strong cuts in ‘wasteful government expenditure’ or other ‘austerity’ moves.

The current Prime Minister who was the then Opposition leader quoting the Constitution had questioned why the government was not using the Pay Commission to come up with the final figures.

Ironically the current Prime Minister and Cabinet will find themselves in a familiar 2008 bind of expectations from the civil service who strongly feel they are underpaid, Pay Commission’s own idea of a pay raise, Corporations readying for another competitive raise, a struggling private sector and tough economic realities.

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