The Consolidated Pay Grade System of remuneration for the employees of federal state institutions (the Russian acronym is ETS) is essentially a distribution-based model of remuneration that does not take into account individual performance.
For the purpose of introducing new effective remuneration systems with the aim of enhancing the quality of services and work productivity of the workers of federal budget-supported institutions, the Government of the Russian Federation has adopted Resolution No.605 of September 22, 2007 On Introducing New Remuneration Systems for the Employees of Federal Budget Supported Institutions and the Civilian Personnel of Military Units Who Are Paid in Accordance with Consolidated Pay Grade System for the Workers of Federal State Institutions. The main principles of the Resolution are as follows:
1. When introducing new remuneration systems the remuneration of employees may not be less than their remuneration before the introduction of new systems.
2. The amount of money allocated for remuneration of an institution's employees may only be reduced if the volume of government services rendered by the institution concerned is reduced.
In the course of introducing new remuneration schemes the principle of systemic increase of budget financing at a rate not below the current rate of inflation as well as increased allocations to institutions for the payment of remuneration will be preserved.
3. At least 30% of the resources allocated for the wage fund shall be intended for incentive payments.
4. Under the new terms the following functions are delegated to the CEO of an institution:
- to determine the size of remuneration (on the basis of professional training and level of skills needed to engage in a professional activity and with due account of the complexity and volume of the work performed). This will enable the CEO to make more effective use of financial instruments within the limits of the wage fund. The base pay can be established by attaching upward coefficients to the salaries of employees that take into account their professional competence, the complexity and importance of the work performed, the degree of independence and responsibility in fulfilling the tasks set, as well as other ad hoc factors;
- to approve the staff chart of the institution. In the event of staff cuts the wage fund of the institution will not be reduced. Of late the institutions have tended to engage in "featherbedding" in order to increase the wage fund, in particular, by increasing the number of administrative and auxiliary personnel. In some institutions such personnel accounts for 60% of the total workforce.
Because under the new scheme the salary of the CEO is a multiple of the average salary of the employees who perform the core activities of the institution, the CEO stands to gain directly from raising the salaries of that category of employees.
Additional financial resources in the amount of 30% of the wage fund will be allocated to effect the transition to the new remuneration systems as of December 1, 2008.
Considering that at present in some institutions the share of off-budget financing is comparable to the budget sources and much of that funding is diverted into the "grey economy," the introduction of such remuneration schemes would legalise off-budget payments and contribute to fair distribution of that money among the employees.
The transition to new remuneration systems and abandonment of the consolidated tariff schedule, given an increase of the minimum wage from 2,300 roubles to 4,330 roubles (the subsistence level in the 4th quarter of 2007) would preserve a sufficient level of differentiation between low-skilled and high-skilled workers.
The introduction of the new remuneration scheme would help the budget- supported institutions to adapt themselves to the market economy, and create conditions for improving the quality of their services, which will boost labour productivity at these institutions.
If the current system is preserved in whatever shape, the following considerations need to be taken into account:
1. Because it is impossible to assign salaries below the statutory minimum wage, the differentiation in the remuneration of low-skilled and high-skilled employees will diminish dramatically.
2.Considering that the bulk of the wage fund would be absorbed by the increase of the minimum wage level, there will be a shortage of resources to pay guaranteed compensation benefits. That runs counter to the guaranteed rights of the employees under applicable legislation. To secure these guarantees it would be necessary to at least double the wage fund of institutions.
3. Rigorous differentiation between occupational qualification grades would virtually signify a return to the old ETS-based remuneration system and bring back the "leveling" element that deprives employees of incentives to work better. That would potentially limit competition between institutions and stunt the growth of the services market.
4. If new remuneration systems are introduced in all the regions, rigorous assignment of salaries based on occupational qualification grades would prevent the regions with different economic potentials from having the same degree of wage differentiation.
Government House of the Russian Federation,
July 23, 2008