Compensation is a critical element of human resources management (HRM). For civil servants, it is probably the most important reward for their work. For governments, especially in Latin America and the Caribbean (LAC), wage management is a critical function that regulates incentives and impacts on a country’s fiscal sustainability. Balanced remunerative systems contribute to attracting, motivating and retaining staff without compromising fiscal health. On the contrary, distorted remunerative systems have a negative impact on HRM. Therefore, it is key to consider the rules that impact on the pay system, such as the negotiation scheme and criteria used for pay setting.
In LAC countries with available data, like in most OECD countries, compensation tends to be negotiated centrally between the government and the unions. This means that only one negotiation defines pay adjustments for all civil servants. Centralisation makes it possible to negotiate looking at the overall health of public expenditure, while delegation allows ministries to agree according to their own margin of action, but with the risk of big differences among them and higher overall expenditures.
Close to three-quarters of LAC countries reported using a centralised scheme for pay negotiation. However, there are differences. While Chile, Colombia and Costa Rica, are more centralised, in other countries such as Argentina, Brazil, El Salvador, Guatemala, Mexico and Uruguay there are adjustments at the decentralised level or by department/sector; although always within the rules and limits of the payroll defined by the budgetary authority. Peru reported a decentralised negotiation scheme, although since November 2018, collective bargaining is forbidden by law. In Jamaica wages are set following a recommendation of the executive.
In 69% of OECD countries, negotiation is also centralised between governments and unions. However, an interesting feature in some OECD countries, which is absent in LAC, is the existence of an independent examining committee that provides evidence and objective parameters aligned with the economic and institutional context and makes recommendations.
In terms of criteria for defining base pay in the different hierarchical levels, the most common practice is to use functional parameters – such as the actual content of each job and the specific experience needed to hold it – over personal characteristics such as age and seniority. This is repeated in all job segments from senior managers to administrative support. Regarding performance, for 33% of LAC countries, it is a priority in the calculation of compensation for managers and in 25% for professionals, technical support and administrative support. In 67% of OECD countries, performance is highly relevant for determining the compensation of technical support staff; for the other categories, a proportion similar to that of LAC countries consider it to be highly important.
In terms of criteria for defining bonuses, seniority still has more weight than performance in LAC countries. Although 67% assign bonuses for seniority on the job (only Brazil, the Dominican Republic, Peru and Uruguay do not), some countries have been decreasing their importance. In the OECD, 69% still include a bonus for seniority (although 31% have reduced their share in overall compensation).
Regarding performance pay, 42% of the countries in the LAC sample reported using this mechanism. While its implementation is mostly decentralised to individual institutions, Brazil, Chile and Uruguay tend to link their performance pay schemes to institutional or team performance, while Costa Rica and Jamaica tend to apply it at the individual level (IDB, 2014). In OECD countries, 83% have some type of performance pay, which is implemented through an annual bonus and/or salary increases.
