Report No. 50767-MN Mongolia Towards a High Performing Civil Service June 2009 Poverty Reduction and Economic Management Sector Unit East Asia and Pacific Region Document of the World Bank TABLE OF CONTENTS ACKNOWLEDGEMENTS .................................................................................... ........................................ I EXECUTIVE SUMMARY ..................; ....................................................................................................... I1 INTRODUCTION ........................................................................................................................................ .1 1. RATIONALE FOR THE REPORT .......... .................................................................................................. 1 2. STRUCTURE OF THE REPORT ............ ........................................................................................... .......2 CHAPTER 1: THE ARCHITECTURE OF THE CIVIL SERVICE .............,............... ...................... ....4 ....................................................................................................................................... 4 1. INTRODUCTION ........................................................................................................................ 5 2. THE LEGALR ~ ~ / ~ E W O R K F 2.1. The Legal Regimefor Core Civil Servants ........................................ 2.2. The Legal Regimefor Teachers......................................... 3. THE STRUCTURE OF THE CIVIL SERVICE................................................................................................ 3. I . Size and wage bill .............................................................. ....................................... 12 3.2. Skill mix and geographic distribution ........................................ 3.3. Basic demographic characteristics.. ............. ....................................... 15 CHAPTER 2: GRADING, COMPENSATION,AND PAYROLL ADMINISTRATION .......... 17 1. INTRODUCTION ..................................................................................................................................... 17 2. THECIVIL SERVICE POST CLASSIFICATION AND COMPENSATION SYSTEM ........................................... 18 3 . MAINISSUES......................................................................................................................................... 22 3.1. Lack o Proper Job Evaluations ........................................ f 3.5. Compressed and Overlappi ....................................... 27 3.6. Pay Setting is not based on ....................................... 29 5. I. Policy Decision on Simpli3ing Pay ..................................................... 5.2. Sequenced Introduction o Gra f 5.3. Localitypay to encourage hor f 5.4. Development o an Automate 5.5. Ensuring Effective Coordina CHAPTER 3: PERSONNEL MANAGEMENT ....................................................................................... 41 1. INTRODUCTION .................................................... 2. RECRUITMENT ..................................................... 2. I . Recruitment o administrative civil servants f 2.2 Recruitment o teachers f ......................................... 3 . TRANSFERS, DISPUTE RESOLUTION, AND HORIZONTAL M BLT O II Y ......................................................... 47 4. PERFORMANCE MANAGEMENT .............................................................................................................. 49 5 . RECOMMENDATIONS .............................. ...................................................................................... 51 5.I Increased capacity o the Civil Sew f ....................................... SI 5.2 Improving the recruitment modaliti 5.3 Tackling the problem o the instabif 5.5 Improving the intensity and quality o monitoring .............. f CONCLUSION ............................................................................................................................................ 55 ANNEX 1: MONGOLIA CIVIL SERVICE REFORM POLICY MATRIX......................................... 56 ANNEX 2: PAY SCALES FOR THE CIVIL SERVICE OF MONGOLIA .......................................... 58 REFERENCES ............................................................................................................................................ 61 FIGURES Figure 1: Trends in. and Composition of. Mongolia's Civil Service .................................................. Figure 2: Mongolia's civil service i s significantly larger than other countries in East Asia ............... Figure 3: Trends in the composition of government expenditures ................................................................ 12 Figure 4: Civil service wages increased considerably over the past three years .......................................... 13 Figure 5: Skill mix in the Mongolian Civil Service ...................................................................................... 14 Figure 6: The distribution o f staff across the aimags points to some horizontal inequities........................... 14 Figure 7: Basic demographic features of the civil service............................................................................. 16 Figure 8: Simplification o f teacher pay ......................................................................................................... 20 Figure 9: Allowances are roughly twenty to thirty percent o f overall compensation in the administrative service ........................................................................................................................................................ 21 Figure 10: Most civil servants do not receive in kind benefits l i k e government provided housing ..............21 Figure 11: Post classifications o f select administrative jobs by organizational location ............................... 24 Figure 12: Most civil servants do not receive a rank allowance.................................................................... 25 Figure 13: The majority o f OECD countries provide monetary compensation only in the form of base salary .......................................................................................................................................................... 25 Figure 14: International benchmarks on pay compression ............................................................................ 27 Figure 15: Basic pay scales are very compressed for teachers, nurses, and doctors .................................... 27 Figure 16: The pay distribution o f staff in the Administrative Service i s quite unusual ............................... 27 Figure 17: Mongolia's system o f payroll administration .............................................................................. 31 Figure 18: Assigning administrative job families to a pay scale ................................. ............................. 36 Figure 19: Illustration o f a pay band for teachers ......................................................................................... 36 Figure 20: Future and interim systems for payroll administration ................................................................ 39 Figure 21: The administrative civil service has become a more attractive career in recent years .................45 Figure 22: There i s a high degree of staff turonover in the Mongolian civil service, in particular the administrative service ................................................................................................................................. 48 Figure 23: There i s an increase in dispute cases and senior level selections in the aftermath o f an election 48 Figure 24: Very few staff are assessed as poor performers ........................................................................... 50 Figure 25: The Civil Service Council's staffing and budget have increased recently ................................... 51 TABLES Table 1: There i s no significant problem o f ghost employees ....................................................................... 13 Table 2: Number o f civil servants in key agencies ........................................................................................ 15 Table 3:Determinants o f Compensation in the Mongolian Civil Service ...................................................... 19 Table 4: Current job classification in the Administrative Service................................................................. 22 Table 5: Modalities for recruitment for the core civil service ....................................................................... 44 BOXES Box 1: Key Amendments to the Civil Service Law ........................................................................................ 9 Box 2: Examples of locality pay ................................................................................................................... 38 ACKNOWLEDGEMENTS This report was written by a team consisting o f Zahid Hasnain, Senior Public Sector Specialist, EASPR (TTL), Naazneen Barma Public Sector Specialist, EASPR, and Malcolm Green, Consultant. Zahid Hasnain was the lead author for the report, drawing on background papers by Naazneen Barma "Human Resource Management in the Education Sector" and Malcolm Green "Civil Service Grading and Compensation Review." Valuable comments were provided by Kin Bing Wu, Jeff Rinne, and Denyse Morin. Lynn Yeargin, Maya Razat, and Otgonbayar Yadmaa provided administrative support. The note was prepared under the overall guidance o f Barbara Nunberg, Sector Manager (EASPR), Rogier V a n Den Brink, Lead Economist (EASPR), and Arshad Sayed, Country Manager, Mongolia. The note draws on discussions with the following officials during missions to Mongolia in November 2008 and March 2009: Ms. Dolgor, Head o f Cabinet Secretariat Mr. Zumberelham, Chairman Civil Service Council Mr. Tsedendamba, Governor o f the Arkhangai aimag Mr. Namjildorj, Governor o f the Erdenebulag soum Mr. Batjargal, Director General, Fiscal Policy and Coordination Department, Ministry of Finance Mr. Nyamaa, Director, Expenditure Division, Ministry o f Finance Ms. Bayart, Director Administration Department, Ministry o f Health Mr. Otgonbatar, Finance Department, Ministry o f Health Dr. Samballkhundev, General Manager, C i v i l Service Council Mr. Munkhzul, Finance Division, Ministry o f Social Welfare and Labor Ms. Enkhtuya, Labor Policy and Coordination Department, Ministry o f Social Welfare and Labor e Ms. Tsedevsuren, Director Administration Dept., Ministry o f Education, Science, and Culture Mr. Ganbold, Head o f Administrative Unit, Ulaanbaatar City Municipality Ms. Lkhamjav, Education and Culture Department, Arkhangai aimag Ms. Narantuya, Chief Accountant, Hospital # 1, Ulaanbaatar Director, School #3, Arkhangai aimag Director, Ireedui Complex School, Arkhangai aimag Dr Tudev, National Institute o f Management Ms. Gerelmaa, Open Society Forum 1 EXECUTIVE SUMMARY Objective o f the Report 1. Mongolia i s at a critical juncture in its development. During the copper boom years of 2003 to 2008 i t s economy grew at a real annual rate o f over 8 percent and public revenues increased four-fold, allowing for a rapid expansion in public spending. Some o f this windfall was used for much needed infrastructure investments - capital expenditures increased seven-fold over this period - but a lot o f it was consumed through untargeted social transfers and across- the-board public salary increases. Avoiding the resource curse and ensuring that the mining boom i s channeled into sustained economic growth and poverty reduction i s Mongolia's main developmental challenge, the urgency o f which i s underlined by the dramatic collapse in copper prices over the past six months and the resultant economic crisis. 2. Civil service reform i s one important component o f the menu o f reforms needed to meet this challenge. This i s an area o f increasing engagement by the Government o f Mongolia, as evidenced by the approval o f a c i v i l service reform strategy and implementation plan in 2007, and amendments to the legal framework in 2008 aimed at reducing political discretion in personnel management and improving the procedures for determining c i v i l service compensation. The economic crisis in particular has underlined the need for simplifying c i v i l service compensation to enable tighter expenditure controls while reducing horizontal inequities and increasing pay transparency, and for better payroll administration given the significant claims o f the c i v i l service on public expenditures. 3. This report aims to capitalize on this window o f opportunity and provide advice to the government o n these focal areas o f reform. The report identifies three key areas o f reform for the Government. First, the c i v i l service grading and compensation system requires significant changes in order to be able to attract and retain high caliber staff. Second, Mongolia needs to move in a phased manner towards centralized payroll administration in order to enhance establishment and expenditure controls. And finally, the personnel management regime needs to be improved as it presently does not fully protect c i v i l servants from undue political interference; there i s a lack o f clarity over the precise recruitment modalities for the senior administrative c i v i l service positions; and limited horizontal mobility that negatively impacts career development. The report provides a phased sequence o f recommendations in each o f these areas, delineated in the policy matrix in Annex 1. 4. The note i s organized along three chapters. The first reviews the legal framework and the structure o f the c i v i l service; the second examines c i v i l service grading and pay, and the mechanisms for establishment control and payroll administration; and the third reviews the personnel management regime. Chapter 1: the Architecture o f the Civil Service The Legal Framework 5. Mongolia's legal framework for the c i v i l service has evolved rapidly since the transition from socialism in 1990, with the present arrangements coming into effect with the passage o f two key laws, the C i v i l Service L a w (CSL) and the Public Sector Management and Finance L a w (PSMFL) in 2002 and 2003 respectively. As in many countries, the public sector in Mongolia comprises a range o f employment regimes with distinct legal statuses. "Civil servants" are 11 defined under the C S L as the following four sets o f public sector employees: the "political service", which consists o f elected officials and their advisors; the "administrative service" which includes managing and executive positions in the ministries, regulatory bodies, local administrations, and other agencies financed from the budget; the "special service" which consists o f the uniformed services, the judiciary, and staff o f the audit organizations; and the "support service" which consists o f key frontline service delivery staff. 6. The administrative and special services are further classified as the "core c i v i l service" and are governed by the personnel management provisions under the C S L and the PSMFL, and enjoy particular rights and protections. Support c i v i l servants are governed by the specific laws pertaining to their sectors, but these in general relate only to the structure o f compensation with the personnel management o f these c i v i l servants being similar to the arrangements in place for the private sector and governed by the general provisions o f the labor code, and with no additional major protections. 7. The CSL and the PSM F L contain modalities for personnel management, pay, and the rights and duties o f core c i v i l servants, and place the C i v i l Service Council as the central agency for leading public sector management reforms and for ensuring adherence to the principles on pay and personnel management enshrined in the law. On recruitment, Mongolia approximates a "position based system" whereby the emphasis i s placed on selecting the best candidate for each position, whether by external recruitment or internal mobility, in contrast to "career systems" where the focus i s on initial entry into the c i v i l service, or into specific cadres within the c i v i l service, with established career tracks for these groups. On compensation, the C i v i l Service Council i s given broad powers on providing recommendations on a l l c i v i l servants, and i s mandated to conduct annual research benchmarking c i v i l service pay with marker comparators, and with inputs from the Ministry o f Social Welfare and Labor. The Council also has the main responsibility for dispute resolution and redress in personnel matters, specifically those pertaining to recruitment, performance evaluation, disciplinary actions, and dismissal. The PSMFL, drawing on the agency reforms o f some OECD countries, specifies a comprehensive performance management framework across the public sector consisting o f hierarchical sets o f annual performance agreements specifying staff accountabilities. 8. In general, the legal framework i s quite clear in making distinctions between the different groups within the c i v i l service and what rules and institutions govern human resource management practices for these groups. However, the fact that there are two laws governing core civil servants i s unusual from a cross-country perspective, and creates certain ambiguities and tensions. As both the laws have provisions on recruitment, it i s unclear exactly which positions in the administrative service are governed by the C S L and which by the PSMFL. More fundamentally, there i s a contradiction between the centralized control model laid out in the CSL, and the more decentralized system implied, though not stated, in the PSMFL. The performance contracts stipulated in the P S M F L would be ineffective without significant personnel management authority delegated to the individual departments, which goes against the provisions o f the CSL. 9. Unlike many other countries, Mongolia does not have a centralized personnel management agency with ready access to the highest levels o f the executive, and day-to-day management i s the responsibility o f the respective budget entities. The C i v i l Service Council, which i s an independent body that reports to the parliament, fuses oversight, policy, and certain key personnel management functions, which i s unusual as the norm in most countries i s to have separate bodies be responsible for setting overall personnel policies, for providing oversight to ensure fair treatment o f employees, and for monitoring the c i v i l service system to assure adequate iii control o f i t s functioning and enforcement o f i t s rules. Instead the Council's status as a parliamentary body creates a disconnect with the executive which while necessary for an oversight body i s a handicap for one with policy and management responsibilities. The size and structure o the civil service f 10. The size o f the c i v i l service in Mongolia, as measured in the number o f sanctioned government posts, has declined steadily following the transition from socialism, from 154,000 employees in 1995 to 122,000 in 2007, before increasing to almost 144,000 in 2008. The support service makes up 73 percent o f the c i v i l service, followed by the special service (1 8 percent), and the administrative service (7 percent). At 4.4 c i v i l servants per 100 population, the Mongolian civil service i s large in per capita terms, in part a reflection o f Mongolia's geography and the high unit costs o f delivering services to a scarce and scattered population. It i s also large in terms o f i t s fiscal impact, with the total wage bill increasing more than six-fold in nominal terms between 2000 and 2008, and average c i v i l servant real wages tripling over this period, o n account o f several rounds o f salary increases. The wage bill n o w comprises over a fifth o f total government expenditures. 11. The c i v i l services o f many l o w income countries are characterized by a very large proportion o f unskilled staff in the lower grades and a relative dearth o f professional and managerial posts. An analysis o f the different types o f positions within the Mongolian c i v i l service, and the educational qualifications of-civil servants, suggests that roughly a fifth to a quarter o f c i v i l servants can be categorized as l o w or semi-skilled, a significant proportion and indicative of the partial social welfare rationale o f public sector employment. 12. The geographic distribution o f c i v i l servants in Mongolia i s quite equitable, in contrast to many developing countries, with even the remote western aimags with similar per capita deployment o f staff. Proximity to Ulaanbaatar does play a role in the geographic distribution o f skill level with the Ulaanbaatar and the eastern aimags having a higher proportion o f advanced degree holders and a lower proportion o f c i v i l servants with only primary or secondary school qualifications. By contrast, the functional distribution o f c i v i l servants i s inequitable, with a number o f important agencies - notably the Ministry o f Finance, the audit and oversight agencies - grossly understaffed and other less important agencies overstaffed. Chapter 2: Grading, Compensation, and Payroll Administration 13. Reward structures are central to the performance and motivation o f c i v i l servants. Mongolia has one o f the most complex c i v i l servant pay regimes in the world, and this complexity has created considerable inequities in compensation, seriously impacted staff morale, and weakened centralized control over the establishment and the payroll. Reform o f the civil service grading and compensation structure i s required for both fiscal sustainability and for improving public sector productivity. The new compensation regime should be simple and transparent, provide equal pay for equal work, and adequately compensate employees through their careers. 14. The current grading structure results in significant horizontal inequities. Mongolia's grading system can be classified as one in which the allocation o f grades to jobs appears to be based primarily o n the status o f the organization employing the post-holder, with status a function o f organizational distance from the center o f administrative power (Ulaanbaatar). Similar jobs are graded differentially, and therefore compensated differently, depending on the organization to which the j o b belongs. iv 15. The c i v i l service compensation system combines a) complexity o f pay, b) non-uniformity o f pay across the c i v i l service, and c) for the support services, managerial discretion in setting pay. C i v i l servants' compensation consists o f basic pay, allowances, and extra payments. The types and magnitudes o f allowances varies by service, and within the support service by sectors, and, for the support services in particular, i s largely at the discretion o f the general managers o f budget entities and does not require approval by a central authority. For the administrative service, allowances and extra payments contribute roughly 30 percent o f overall monetary compensation, with the proportion higher for support c i v i l servants. The complex pay structure with a number o f allowances and extra payments exacerbates these grading inequities as pay i s driven by the personal characteristics o f the employee rather than the features o f the j o b and, combined with the considerable managerial discretion in setting pay, results in a non-transparent compensation regime. 16. Pay scales are very compressed, particularly for some key service delivery staff like nurses and teachers whose careers require grade structures that provide for salary progression over a period o f many years (`career grades'), but at present are essentially confined to one or two short grades. The pay increments in the pay scales also overlap to a considerable degree resulting in a rather random pay distribution that appears to serve no organizational purpose. The provisions for performance pay in the P S M FL are also unrealistic and inappropriate for Mongolia in i t s stage o f development. Performance pay i s currently only being given to teachers and medical professionals, and i s distributed not on the basis o f any real performance criteria but largely as a means to utilize surplus funds in the salary budget on account o f vacant posts. 17. Payroll administration in Mongolia i s decentralized to the individual budget entities, with each o f the five thousand budget entities maintaining the register o f annually approved staff positions and actual employee databases, and preparing the twice-monthly payroll using this data and the host o f relevant pay regulations. This decentralization, together with the complexity o f pay structure and pay policy, significantly weakens the fiscal controls o f the Ministry o f Finance and hampers budgetary planning. 18. The post classification and compensation structure o f the c i v i l service needs to be reformed in order to provide the appropriate incentives for recruiting, retaining, and motivating skilled staff, through the principle o f equal pay for equal work. The reform would entail moving, in a sequenced manner, to a job-based system in which employees are paid according to the responsibilities o f the j o b they perform and receive equal work for equal pay regardless o f the institution in which they are employed. The recommendations following from this analysis are threefold: first, a policy decision on simplifying pay by merging a l l the allowances and extra payments into basic pay. Second, a phased sequence o f analytical activities in order to achieve this reform, which includes j o b evaluations, the development o f a simplified grading structure, and pay surveys to insure that compensation remains competitive with the private sector. Finally, and importantly, in order to be successful these activities require broad ownership by the government and effective coordination between the concerned stakeholders, in particular the C i v i l Service Council, the Ministry o f Social Welfare and Labor, and the Ministry o f Finance. 19. Mongolia also needs to develop an automated, centralized payroll for enhanced establishment control. The long term objective o f the Government should be a system in which the Government maintains all relevant data o n posts, personnel, and the pay regulations and runs the payroll. Such a system would practically need t o be developed in a phased manner as it would entail a radical departure from the decentralized business processes currently in place, and ideally should be introduced after the compensation structure has been simplified. A feasible V interim step should be the development o f a centralized database that captures this information and allows for better financial planning and modeling. Chapter 3: Personnel Management 20. Recruiting competent individuals and ensuring that their management i s free from undue political interference, that employees have adequate opportunities for career growth, and that there are appropriate checks and balances for major personnel decisions are essential complements to a modern pay regime and a l l key ingredients o f a productive c i v i l service. The legal framework o f Mongolia gives adequate prominence to these aspects o f personnel management and specifies procedures for them. However, these provisions have not proven to be fully effective. 2 1. The C S L and the P S F M L give a l o t o f attention to recruitment modalities. These specify open competitive recruitment for senior positions and detail adequate checks and balances through a series o f "tiered screens" by differing sets o f actors rather than concentrating recruitment and selection power in the hands o f a single, central authority. However, having two laws governing recruitment creates ambiguities and confusion for appointing authorities. It i s not entirely clear exactly which positions require open competition and which positions can be filled through selection from existing core c i v i l servants. 22. By contrast, recruitment authority o f support staff such as teachers i s decentralized and unregulated. Decisions about teacher recruitment fall entirely to the school director, who can hire whomever they choose, with n o set formal procedures for the recruitment application, interview, or selection process. In practice, this puts the school director in a powerful position, especially in rural areas, where the school i s the largest and most regular employer and hence source o f income. Prior to the PSF ML reforms, c i v i l society representatives had a seat o n the school governing board that had responsibility for monitoring the school's budget. Currently, although some parents' groups form voluntarily, there i s n o formal accountability role for civic groups, such as parent-teacher associations, t o play a role in monitoring teacher quality or school directors' recruitment decisions. 23. Tenure protection i s one o f the defining features o f civil services across countries and i s required for depoliticized management, and it i s what sets apart the legal regime for c i v i l servants from that o f the private sector. The Mongolian c i v i l service however, i s characterized by a high degree o f staff turnover, particularly after elections, and this churn disrupts management and negatively impacts overall c i v i l service performance. These changes affect mostly the more senior ci v i l servants, and the fact that roughly 75 percent to 90 percent o f the top three grades in the administrative service have been in their current positions for four years or less i s in large measure a reflection o f the impact o f the election cycle. It i s also borne out in the spike in dispute cases and new senior staff appointments immediately after an election. 24. Lack o f horizontal mobility i s also a serious issue in the Mongolian c i v i l service, with most administrative c i v i l servants spending their careers in one or at most two line ministries, a reflection o f the decentralized management arrangement in Mongolia whereby budget entities are the employers o f c i v i l servants and the lack o f an institutionalized process for j o b rotation. Some have advocated the creation o f a Senior Executive Service (SES) akin to that found in many developed countries to in part address this problem o f limited horizontal mobility. This report cautions against this approach as the application o f a SES model in Mongolia would add to the complexity o f an already overly complicated grading and compensation system. It would also vi risk compromising the present recruitment flexibility o f the system and closing o f f senior management positions to only members o f the SES. 25. The Government o f Mongolia recognizes many o f these problems o f personnel management and many o f the legal changes introduced t o the Civil Service L a w are meant to address these. The recommendations o f this report are in the spirit o f ensuring that this improved legal framework can be more effective as well as identifying additional key areas. First, the recruitment modalities for administrative staff need to be improved by removing the recruitment provisions from the P S MF L and incorporating them into the CSL so that there i s clarity on the procedures to be applied for the different posts in the service. Second, the Government should, given the stronger treasury controls no w in place, consider devolving oversight over school management to parents and local communities. Third, there i s a need to tackle the problem o f insecurity o f tenure through removing some o f the loopholes in the legislation and developing an institutional mechanism to manage staff transfers, ideally by setting up a small personnel management unit in the Prime Minister's Office. Finally, the capacity o f the C i v i l Service Council will need to be increased to enable it to effectively operationalize i t s enhanced mandate. vii INTRODUCTION 1. Rationale for the Report 1. Mongolia i s at a critical juncture in its development. During the copper boom years o f 2003 to 2008 i t s economy grew at a real annual rate o f over 8 percent and public revenues increased four-fold, allowing for a rapid expansion in public spending. Some o f this windfall was used for much needed infrastructure investments - capital expenditures increased seven-fold over this period - but a lot o f it was consumed through untargeted social transfers and across- the-board public salary increases. Avoiding the resource curse and ensuring that the mining boom i s channeled into sustained economic growth and poverty reduction i s Mongolia's main developmental challenge, the urgency o f which i s underlined by the dramatic collapse in copper prices over the past six months and the resultant economic crisis. 2. Avoiding these past mistakes requires a number o f reforms - a transparent and fair mining regime that encourages investments while protecting the government's interests, structural fiscal reforms to prevent boom-bust cycles, increased allocative and technical efficiency of public expenditures, a well-targeted safety nets system, t o name but a few. An efficient and high- performing c i v i l service will also be a key to a high performing public sector in Mongolia. 3. The objective o f this report i s to identify specific steps that the Government o f Mongolia can take over the next three years to improve the performance o f the c i v i l service. C i v i l service reform impacts both the investment climate and the development o f a robust private sector, and sustained improvements in service delivery. A lack o f transparency and accountability in government business interactions has been repeatedly cited as the most significant impediment to private economic activity in Mongolia.' While in many ways Mongolia's record o f public service delivery i s impressive, the agenda for service delivery improvements i s far from over. Enrollment rates are high compared to regional benchmarks, and a high percentage o f children complete basic education. Infant and child mortality are also l o w compared to other countries at similar levels o f economic development. These are achievements that the c i v i l service can be justifiably proud off, given the challenges o f geography in Mongolia. However, learning achievements are low, and there are significant inter-regional disparities in access, quality, and outcomes, and addressing these challenges require improvements in public administration. 4. The Government's Medium-Term C i v i l Service Reform Strategy and Implementation Action Plan (2007) recognizes these problems and specifies a number o f strategic priorities for achieving a c i v i l service that i s "oriented to meeting the needs o f citizens, flexible in responding to changing circumstances, proactive, lean, capable, and outcome-oriented."2 These priorities include improved selection procedures for senior c i v i l servants, development o f leadership skills, more transparent, fair, and performance-oriented personnel management, and a modern remuneration system that i s also fiscally sustainable. Significant amendments in the legal framework o f the civil service in 2008 were aimed at many o f these areas such as reducing political discretion in personnel management, institutionalizing a transparent, merit-based recruitment process for senior c i v i l servants, and improving the procedures for determining c i v i l service compensation. ' World Bank (2007) * Government o f Mongolia (2007). 1 5. C i v i l service reform i s always politically difficult and many o f the current problems in Mongolia's c i v i l service that the report identifies have political roots. However, the economic crisis does provide an opportunity as it has underlined the problems associated with the current policies. For example, there i s a recognition that regular across-the-board salary increases are no longer sustainable and that there has t o be a more sophisticated approach to remuneration going forward, which in turn requires simplifying c i v i l service pay to enable tighter expenditure controls, reduce horizontal inequities, and increase transparency, and better payroll administration given the significant claims o f the c i v i l service o n public expenditures. 6. This report aims to capitalize o n this window o f opportunity and provide advice on what should be the key strategic reform priorities for the Government. It will also inform the Bank's operational engagement in governance, in particular the Governance Assistance Project and the Economic Capacity and Technical Assistance Credit that have significant components on public administration reform and capacity building, the fiscal reforms being supported under the proposed Development Policy Loan, as well as the institutional reform initiatives o f key government agencies in some o f the other sectoral operations. 7. It should be stated upfront that this i s not a comprehensive report about service delivery. While improvements in service delivery are indeed the core motivation for c i v i l service reform, services can also be improved by giving citizens the ability to chose between public or private providers, such as through school vouchers or health insurance, and by institutionalizing community involvement in the management and oversight o f service provider^.^ This report focuses almost exclusively o n improving the accountability relationships between policy-makers and service providers, and therefore only captures one dimension o f the service delivery agenda. The agenda for service delivery improvements i s much broader, and encapsulates several areas that are beyond the scope o f this report, such as improving the functioning o f the Social Health Insurance system, institutionalizing parents' role in school management, and exploring demand- side financing mechanisms (grants, loans) to improve access to education. 2. Structure of the R e p o r t 8. The report identifies three key areas o f reform for the Government. First, the civil service grading and compensation system requires significant changes in order to be able to attract and retain high caliber staff. The present compensation regime has a number o f serious problems. The grading structure creates horizontal inequities as similar jobs are graded differently depending on the status o f the organization to which the j o b belongs. The pay structure i s highly complex, consisting o f basic pay, allowances, and extra payments, which exacerbates these grading inequities as pay i s driven by the personal characteristics o f the employee rather than the features o f the j o b and, combined with the considerable managerial discretion in setting pay, results in a nontransparent compensation regime. Pay scales are also very compressed, in particular for key service delivery staff, The reform entails the simplification 3 World Bank (2003) presents these alternatives in a framework o f accountability relationships. Making service providers - teachers and doctors - accountable to citizens can be achieved via two routes, one long and one short. The long route entails a) improved accountability o f policy-makers, often elected, to citizens and b) improved accountability o f service providers to policy-makers. Civil service reform focuses on the service provider and policy-maker relationship (what i s referred to as the "compact''). The short route entails direct accountability o f the service provider to citizens, through giving greater choice to citizens, and giving them a direct role in the management o f service providers (what i s referred to as "client power"). 2 o f pay through merging the allowances and extra payments into basic pay, and the development o f a new grade structure and basic pay scale based o n j o b evaluations and a pay survey. 9. Second, Mongolia needs to move in a phased manner towards centralized payroll administration in order to enhance establishment and expenditure controls. Presently payroll administration i s conducted by each budget entity - and there are over 5000 budget entities - using non-standardized procedures which, combined with the complexity o f the pay structure, significantly limits the controls o f the Ministry o f Finance. This system also renders impossible accurate simulations o f wage increases, thereby weakening budgetary planning, a deficiency that has been dramatically highlighted in the current economic crisis and the urgent requirement for fiscal adjustment. A feasible first step in the sequenced transition to centralized payroll administration i s the creation o f a centralized human resource database within the Ministry o f Finance with information o n posts, personnel, and pay for all budget entities. 10. Third, the personnel management regime needs to be improved as it presently does not fully protect c i v i l servants from undue political interference, there i s a lack o f clarity over the precise recruitment modalities for the senior administrative civil service positions, and limited horizontal mobility that negatively impacts career development. The report specifies a number o f immediate steps that can be taken to resolve these issues. 11. The report i s organized along three chapters. Chapter one provides an overview o f the legal framework governing the c i v i l service in Mongolia, and i t s size, geographic distribution, skill mix, and basic demographic characteristics, and provides much o f the context for the more detailed analysis in the subsequent chapters. Chapter two examines the pay and grading structure o f the civil service, and the mechanisms for establishment control and payroll administration. The final chapter discusses personnel management. 3 CHAPTER 1: THE ARCHITECTURE OF THE CIVIL SERVICE 1. Introduction 1. C i v i l servants occupy a distinct legal status within the labor market and are governed by a specific set o f laws and regulations that define their rights and responsibilities, their classification, grading, structure o f compensation, modes o f recruitment, due process protections against dismissal and procedures for disciplinary proceedings, and other aspects o f personnel management. Mongolia's legal framework for the c i v i l service has evolved rapidly since the transition from socialism in 1990, with the present arrangements coming into effect with the passage o f tw o key laws, the C i v i l Service L a w (CSL) and the Public Sector Management and Finance L a w (PSMFL) in 2002 and 2003 r e ~ p e c t i v e l y . ~ 2. These de jure arrangements are the starting point for an understanding o f c i v i l service performance. This chapter also provides a broad overview o f the structure o f the c i v i l service, i t s size, geographic distribution, skill mix, and basic demographic characteristics, and lays the context for the more detailed analysis o f the subsequent t w o chapters. As a preview, the main findings o f this overview can be summarized as follows: In general, Mongolia's legal framework i s quite clear in making distinctions between the different groups within the c i v i l service and what rules and institutions govern human resource management practices for these groups. The strength o f the framework i s the explicit attention given to merit-based recruitment. However, the fact that there are two laws governing core c i v i l servants i s unusual from a cross-country perspective, and creates ambiguities and tensions. The most obvious tension i s between the centralized model o f c i v i l service management represented in the C S L and the more decentralized system represented in the PSMFL. In terms o f personnel management, Mongolia approximates a "position-based system" in which the emphasis i s placed on selecting the best candidate for each position, either by external recruitment or internal mobility, in contrast to "career systems" where the focus i s o n initial entry into the civil service, or, more precisely, into specific cadres within the c i vi l service, with established career tracks for these groups. This system provides the service the ability to attract regular, specialized skills from the market and to flexibly respond to changing demands. Unlike many other countries, Mongolia does not have a centralized personnel management agency and the C i v i l Service Council fuses oversight, policy, and certain key personnel management functions. This fusion i s unusual and, given the Council's status as a parliamentary body, creates a disconnect with the executive which while necessary for an oversight body i s a handicap for one with policy and management functions. There i s a degree o f ambiguity in the legal framework in the division o f responsibility over pay and grading policy which i s exacerbated by rivalries amongst the relevant government organizations. 4 In the translation from Mongolian, the Civil Service Law and the Law on Government Service are used interchangeably. 4 The Mongolian c i v i l service i s relatively large, a reflection o f the country's geography and the high unit costs o f service delivery to a sparse and dispersed population, which underlines the need to ensure that it i s high performing. In terms o f the skill mix within the c i v i l service, while Mongolia does not have the same scale o f the problem as many l o w and lower-middle income country bureaucracies, it does contain a significant proportion o f l o w skilled staff. While the geographical distribution o f c i v i l servants i s fairly equitable, the functional distribution i s not, with some key agencies, such as the Ministry o f Finance, severely understaffed. 2. The Legal Framework 3. As in many countries, the public sector in Mongolia comprises a range o f employment regimes with distinct legal statuses. "Civil servants" are defined under the C S L as the following four sets o f public sector employees: 0 Those holding political posts, designated the "civil political service", which includes the president, prime minister, ministers and deputy ministers, governors o f the aimag, capital city, soum, and district and their deputies, and advisors and assistants to these political positions; Those holding administrative posts, designated the "administrative c i v i l service", which includes managing and executive positions in the ministries, regulatory bodies, agencies financed from the government budget, aimags, capital city, soums, and lower level local administrations; hospital and school directors; and other managerial positions in the parliament secretariat, local assemblies, and higher level courts. The administrative c i v i l service positions are further classified into five categories - Chief Officer, Leading Officer, Senior Officer, Deputy Officer, and Assistant Officer - with a 14 pay grade structure, as discussed in detail in the next chapter; The "special c i v i l service", which consists primarily o f public sector employees providing judicial and security services such as judges and public prosecutors o f courts o f all levels, members o f the armed forces, police, intelligence services, border security, as well as managing and executive positions o f the anti-corruption commission and the audit organizations; The "supporting c i v i l service", which includes key service delivery staff, such as teachers, medical professionals, social welfare workers, and agricultural extension workers. 4. The administrative and special services are categorized as "core c i v i l servants" in the C S L and are governed by special provisions for personnel management under this law, as w e l l as the PSMFL, and enjoy particular rights and protections. Supporting c i v i l servants, by virtue o f being ci vi l servants, also have certain rights and obligations, but their overall personnel management i s not governed by these laws but rather by the Labor L a w and specific laws pertaining to their sector o f operation, as for example the Education L a w in the case o f school teachers. These sectoral laws in general only have provisions on the structure o f compensation with the personnel management o f these c i v i l servants being similar to the arrangements in place 5 for the private sector and governed by the general provisions o f the labor code, with n o additional significant protections. - __ __ __ __ Figure 1: Trends in, and Composition of, Mongolia's _ _ _ _ _Service_ ~ - _ _ _ _ Civil _ _ _ _ _ - Trends in the civil service and total public Distribution of civil servants, 2008 I sector employment (thousands) Political, I I 2600, 2% 1 230 210 - ~. Tats1 puki r: I 190 -*-- P ----""a. -e--* - #."-**".-!e ~ * l i \\, 170 150 130. f 110 > \ F Number st ccvlf $~~~~~~ : . 7 \ , 1 support 101,727, ' ipostsj 73% 90 \ , ,/ I 70 - `, , /` 50 4 , - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ? , ? -- - ~ Note` Actual civil service numbers will be lower due to staff vacancies Sources. Ministry o f Finance, C i v i l Service Council, and National Statistics Office 5. This definition o f c i v i l servants excludes, as it should, employees o f state owned enterprises and contract workers who provide some basic tasks such as janitorial services in government offices, or who are hired as consultants or specialists particularly for the execution o f development schemes. Following this definition, the size o f the civil service in Mongolia, as measured in sanctioned government posts, has declined steadily following the transition from socialism, from 154,000 employees in 1995 to122,OOO in 2007, before increasing to almost 144,000 in 2008 (Figure 1, l e f t panel). Actual number o f c i v i l servants filling these posts i s lower due to staff vacancies, but the trends are likely to be the same. As o f January 1, 2009 there were roughly 140,000 actual c i v i l servants as per the payroll (Figure 1, right panel), with the bulk o f them in the support services (101,000 or 73 percent), followed by the special services (25,000 or 18 percent), and the administrative services (10,500 or 7 percent). Approximately 20 percent o f c i v i l servants work for central government administrative and subordinate organizations, 20 percent for the capital city and districts, and the remainder for the aimag and soum administrations. Trends in overall public sector employment are similar to that o f the c i v i l service, with relative stability following the initial large decline in the aftermath o f the transition when total public sector employees went from 780,000 in 1990 to 205,000 in 1995. There were approximately 194,000 employees in the public sector in 2007, with roughly 50,000 employees o f state owned enterprises, and roughly 10,000 contract workers in addition to the c i v i l servants. 6. This report will focus i t s attention on the administrative c i v i l servants and the support c i v i l servants. The special service and political service i s excluded from the analysis as there are considerable sensitivities around, and limited access to, the uniformed services and the political leadership. Within support staff, which i s a very large category, the note will focus o n the teaching cadre, both as a matter o f pragmatism given the huge variety o f legal arrangements governing the different support cadres, and also because o f their importance as the largest group o f public servants in Mongolia with a key service delivery responsibility. For ease o f presentation, the categories and the scope o f this report are delineated in the schematic below. 7. In Mongolia, core c i v i l servants are the group that most closely meet the traditional definition o f a c i v i l servant given that the essence o f c i v i l service status i s that the legal basis for employment be different from that found elsewhere in the public sector, and that this framework should provide stronger due process and tenure protections than that afforded by the country's 6 labor laws. Supporting c i v i l servants, while formally c i v i l servants, are governed under an employment regime that resembles more the private sector, in common with the structure in many other countries. As stated, the Civil Service L a w i s the main governing framework for core c i v i l servants, and the PSM F L has important provisions on senior c i v i l servants pay, modalities o f recruitment, and performance management. These provisions are discussed in some detail below. Ministers, Governors, and 2. I . The Legal Regime for Core Civil Servants 8. The C i v i l Service L a w and the P S M FL contain modalities for personnel management, pay, and the rights and duties o f core civil servants, and place the Civil Service Council as the central agency for leading public sector management reforms and for ensuring adherence to the principles on pay and personnel management enshrined in the law.5 Important amendments to the C i v i l Service L a w were introduced in M a y 2008, which are summarized in B o x 1, and which, among other changes, greatly enhanced the Council's powers and purview in pay and grading, and dispute resolution and oversight. The main provisions o f this legal architecture are reproduced here with the more detailed analysis done in the following t w o chapters. 9. Recruitment: Modalities for recruitment are specified both in Article 17 o f the Civil Service L a w and Articles 45 and 48 o f the PSMFL. Together these laws imply that Mongolia approximates a "position-based system" whereby the emphasis i s placed o n selecting the best candidate for each position, whether by external recruitment or internal mobility, in contrast to "career systems" where the focus i s o n initial entry into the c i v i l service, or into specific cadres within the c i v i l service, with established career tracks for these groups. The following are the salient features o f these laws o n recruitment: Vacancies for core c i v i l servant positions can be filled either by a) selection from the existing core c i v i l servants employed from that particular government agency or any other government agency; or b) if a) i s not possible, then through open recruitment from the market. Employers are obligated to publicly announce any vacancies in the core c i v i l service positions (Article 17 o f CSL); 5 In the translation from Mongolian, Civil Service Council and Government Service Council are used interchangeably 7 The modalities for open recruitment involve a professional examination conducted regularly by the C i v i l Service Council and registration into a reserve l i s t o f citizens entering the core c i v i l service as per the scores on their examinations. The procedures for the professional examination and for creating and maintaining the reserve l i s t are determined by the C i v i l Service Council. Currently a Mongolian citizen can remain on a reserve l i s t for a period o f t w o years since taking the examination. If vacancies in the core c i v i l service cannot be met from existing core c i v i l servants than a citizen from the reserve l i s t who meets the specific requirements o f the particular position will be selected (Article 17 o f CSL); The details o f the selection process for managerial positions o f budgetary bodies are specified in Article 45 and 48 o f the PSMFL. Article 45 states that for senior managerial positions in the core c i v i l service the Civil Service Council shall publicly advertise the vacancy for at Ieast twenty-one days and nominate three to five candidates for consideration o f the appointing authority; the appointing authority will select one candidate from this l i s t o f nominees, and will have the right to reject these nominees only once. These general managers shall be appointed for a period o f three years but their term may be extended for successive periods o f two years; Article 48 o f the P S MF L states that more junior members o f the core c i v i l service not covered under Article 45 will be appointed by the relevant general manager and that the general manager will provide a report to the C i v i l Service Council on the criteria used to make the appointment. The C i v i l Service Council has n o authority to interfere with the employment authority o f general managers with regards to these junior positions. In addition t o these tw o laws, the Labor L a w o f Mongolia has one relevant provision (Article 7.4) which stipulates that when employing a citizen, n o questions shall be asked as to hidher private life, opinion, marital status, party membership, unless these questions are relevant to the specific nature o f the j o b and duties. 10. Performance Management: The PSMFL, drawing o n the agency reform programs o f some developed countries such as the U.K, N e w Zealand, and Australia, specifies a comprehensive performance management framework across the public sector. This framework consists o f a hierarchical set o f annual performance agreements - for example, between individual departmental staff and the division/department director, the director with the state secretary, and the state secretary with the concerned minister - specifying staff accountabilities to their superiors, and serves as the basis for staff promotions and discipline. The C i v i l Service Council i s responsible for determining the procedures for these performance agreements. The P S M F L also allows for the payment o f performance-related bonuses for employees based o n the overall financial performance o f the particular budgetary organization and the particular staff's individual contribution. 11. Discipline and redress: Core c i v i l servants can be removed from the c i v i l service for repeated - twice or more - unsatisfactory performance or for a conducting a criminal offense (Article 25 o f the CSL). Core c i v i l servants can also face one o f the following disciplinary sanctions - reduction o f basic pay o f up to 20% for a period o f up to 6 months, or dismissal without the right o f re-entering the civil service for a period o f 1 year - for a breach o f the prohibitions against c i v i l servants or an abuse o f power (Article 26). The appointing authority for the particular c i v i l servant also serves as the disciplinary authority. Core c i v i l servants cannot be dismissed from the c i v i l service for any other reasons. In the case o f the reorganization o f the 8 concerned government authority or abolition o f the c i v i l servant's position, the core c i v i l servant i s to be transferred to another j o b according to hidher qualification and specialization without reduction in salary or be retrained for the period o f up to 6 months, and be paid during such period the previous position salary. 12. The C i v i l Service Council has the main responsibility for dispute resolution and redress in personnel matters, specifically those pertaining t o recruitment, performance evaluation, disciplinary actions, and dismissal. Core c i v i l servants, who deem their dismissal not well- founded, shall complain within 1 month to the council, and the council will have the powers to overturn any such decision o f the disciplinary authority. The appointing authority i s mandated to follow this decision o f the council, with an option to appeal the council's decision with the administrative courts within thirty days. 13. M o b i l i t y Core c i v i l servants may be transferred with their consent to another position from one government authority to another, or may be rotated between government authorities at their consent, by agreement between the management o f the t w o authorities, with the specific procedures for transfer and rotation established by the C i v i l Service Council. 14. Pay and grading: The Civil Service L a w specifies that the grading and ranking o f administrative, as w e l l as supporting c i v i l servants will be done by the government based o n the proposals o f the C i v i l Service Council. On pay, the Council i s given broad powers on providing recommendations o n all c i v i l servants, and i s mandated to conduct annual research benchmarking c i v i l service pay with marker comparators, and with inputs from w i t h the o f National Statistics Committee and the C i v i l Labor Service Committee o f the Ministry o f Social Welfare and Labor. Article 28.4.5 states that when the approximate salary amount o f civil service employee gets lower by 5 percent or more than that o f private sector employees, the 9 recommendation for raising the salary amount shall be made to parliament by C i v i l Service Council in consultation with the Ministry o f Social Welfare and Labor. 15. General prohibitions o f core c i v i l servants: The C i v i l Service L a w prohibits core c i v i l servants from being elected as a representative o f the aimag, capital city, soum assmeblies and from being members o f political parties. This provision was introduced in the amendments to the law with an aim o f reducing political influence on senior c i v i l servants. 16. The Structure o f the C i v i l Service Council: The Council i s an independent body that reports to the parliament and i s outside o f the executive. It i s made up o f seven members, three o f whom are full time and four part-time, with the Secretariat o f the State Great Hural, Secretariat of the Cabinet, and General Council o f Courts nominating one o f each o f the full time members for a once renewable period o f six years. The general secretary o f the parliament's secretariat, the deputy head o f the office o f the president, the first deputy head o f the cabinet secretariat, and the secretary o f the General Council o f Courts constitute the part time members. The chairman of the council i s appointed by the parliament from among the full-time members, in consultation with the president and o n the proposal o f the prime minister. Parliament also has the power to remove a full-time member, but can only do so o n the basis o f an inquiry by a court that determines that a council member has violated the l a w 17. The administrative rules for the council are approved by the parliament. The council i s empowered to have branch councils, with the organizational structure, staffing, and budget determined by the parliament. The powers o f the council, as elaborated above, are considerable and include responsibilities for determining the grading and classification system for administrative and support staff, conducting pay research and making proposals on pay increases, maintaining statistics on the c i v i l service, conducting human resource planning for core c i v i l servants, overseeing recruitment o f senior core c i v i l servants, and dispute resolution and redress on personnel management. 18. The more detailed analysis o f this framework o n pay and grading, recruitment and personnel management, will be taken up in the following t w o chapters. Here we make some observations o n the overall macro regime for c i v i l servants. 19. In general, the legal framework i s quite clear in making distinctions between the different groups within the c i v i l service and what rules and institutions govern human resource management practices for these groups. However, the fact that there are two laws governing core civil servants i s unusual from a cross-country perspective, and creates certain ambiguities and tensions. For example, the PSM F L employs the concept o f a General Manager - a civil servant with budgetary accountability - rather than that o f the core c i v i l servant defined in the CSL, which has at times resulted in differing interpretations in the application o f the provisions o f the CSL. The most salient tension i s between the centralized control model laid out in the CSL, and the more decentralized system implied, though not stated, in the PSMFL.6 The performance contracts stipulated in the P S MF L would be ineffective without significant personnel management authority delegated to the individual departments, which goes against the provisions o f the CSL. In the developed countries where they have been implemented, performance contracts give significant authority over recruitment, promotions, dismissals, and post classification to individual departments or implementing agencies. N o t e that this decentralization i s limited to the HR components o f the PSMFL. With respect to fiscal and financial management, the PSMFL introduced a high degree o f centralization. 10 20. Unlike many other countries, Mongolia does not have a centralized personnel management agency with ready access to the highest levels o f the executive, with day-to-day management i s the responsibility o f the respective budget entities. The Civil Service Council fuses oversight, policy, and certain key personnel management functions, which i s unusual as the norm in most countries i s to have separate bodies be responsible for setting overall personnel policies, for providing oversight to ensure fair treatment o f employees, and for monitoring the civil service system to assure adequate control o f i t s functioning and enforcement o f i t s rules.' Instead the Council's status as a parliamentary body creates a disconnect with the executive which while necessary for an oversight body i s a handicap for one with policy and management responsibilities. An example o f this disconnect i s that the personnel data maintained by the council i s rarely shared with the line agencies and appears t o have minimal impact on agency human resource planning. It also raises serious questions o n h o w the Council's vital role in recommending grading and pay reform can be operationalized, an issue that will be turned to in chapter 2. 21, The legal framework rightly addresses the need for merit-based recruitment o f core c i v i l servants, and makes explicit the requirement to regularly benchmark c i v i l servant salaries with the private sector. However, the details o f the recruitment modalities are not entirely clear, the complexity o f the grading and compensation structure make benchmarking very difficult, if not impossible, and the protections afforded core c i v i l servants from political pressure have not proved to be adequate and tenure instability i s a major problem. Given Mongolia's position- based system and lack o f a central personnel agency, there i s also the absence o f a country-wide or civil service wide career for c i v i l servants with limited options for horizontal mobility. These issues are all discussed in detail in the following two chapters. 2.2. The Legal Regimefor Teachers 22. There i s n o umbrella law for supporting c i v i l servants akin to the CSL. Instead the laws and regulations pertaining to each sector - and there are 33 relevant laws - create a highly fragmented and complicated regulatory regime for these c i v i l servants. In general, and as stated earlier, this regime approximates the private labor market in many ways, with personnel management at the discretion o f the appointing authorities and only limited by the provisions o f the labor code that apply to all Mongolian citizens. The structure o f grading and pay however, and as discussed in the next chapter, varies considerably across the six support services, and by different sectoral groups within these services. 23. The organization o f the education sector in Mongolia i s unique among line departments. The Public Sector Financial Management L a w (PSFML) re-centralized budget management in the . Mongolian government, with the overall responsibility for education policy-making and budget preparation shifted from the aimag administration to the Ministry o f Education, Culture, and Science (MECS). Day-to-day management o f schools however, i s almost completely decentralized to the schools themselves, i s the responsibility o f school directors, and i s largely unregulated. School directors have the authority to run their school, appoint and manage teachers, and utilize their school budget (including teacher compensation) according to guidelines established by the central government. In theory the education sector has vertical personnel management controls, particularly through hierarchical performance contracts. In practice, however, vertical personnel performance controls are weak. Nunberg (1 992) 11 3. The Structure o f the Civil Service 3. I . Size and wage bill 24. As noted, the size o f the public sector in general and the c i v i l service in particular, has remained generally stable over the past decade following the large reductions during the transition from socialism. The c i v i l service however, remains large in comparative terms and, more importantly, in terms o f i t s claim on government resources. While noting the considerable limitations o f cross-national comparisons o f civil service size given the varying definitions o f the civil service across countries, Mongolia's c i v i l service, excluding the military and police for more accurate comparison, at 4.4 c i v i l servants per 100 population i s significantly larger than some o f the other countries in the East Asia region (Figure 2,).* C i v i l servants form 12 percent o f the total labor force. In part this large size i s a reflection o f the country's geography and the high unit costs o f service delivery t o a sparse and dispersed population. It also underlines the point that given that the c i v i l service will necessarily have to be relatively large because o f these geographical constraints, it i s crucial that it i s high-performing. Figure 2: Mongolia's civil service i s Figure 3: Trends in the composition o f significantly larger than other countries in East government expenditures Asia ~ ~ ~- 50 Civil servants per hundred population* Percentage of GDP I 45 j PNG P I 13 1 40 I Capital I I I 35 expenditure 1 82 China - 1 j 30 I 3 Purchase of goods 25 and services , I I 20 15 ` 1 Subsidies transfers and I 10 IWages 44 I ~ I O 2003 2004 2005 2006 2007 L ___ * Excludes employees o f state-owned enterprises, military and police, and contract staff Sources: Ministry o f Finance, Civil Service Council, Bank staff calculations 25. The c i v i l service wage bill declined steadily from 7 percent o f G D P in 2003 to 5.3 percent o f GDP in 2006, before jumping to almost 9 percent for 2008 (Figure 3). In nominal terms, given the high growth in government revenues and expenditures during the copper price boom, the total wage bill increased more than six-fold between 2000 and 2008, with average c i v i l servant real wages (2000 prices) rising from 53,000Tg per month in 2000 t o 155,000Tg per month in 2008 due to regular across-the-board salary increases, especially since 2006 (Figure 4). These increases, together with the massive expansion in the untargeted social transfer schemes, have come at the expense o f expenditures on operations and maintenance, categorized as "purchase o f goods and services'' in Mongolia's budget classification system, which shrank from 10.5 percent o f GDP in 2003 to 8 percent in 2008 (Figure 3). The issue o f whether or not these increases were warranted and the competitiveness o f c i v i l servant salaries i s deferred to the next chapter. The only point to emphasize here i s the considerable fiscal impact o f the c i v i l service in Mongolia, and therefore the urgent need to ensure that grading and pay regime, and the personnel 8 Unlike in Mongolia, in most countries the military and police force are excluded from the civil service and are therefore excluded from the comparative analysis . In many countries health and education employees also are classified differently but are included in these data. 12 management regime, create the necessary incentives for a productive and efficient public sector work force. 26. The c i v i l service census conducted in Figure 4: C i v i l service wages increased 2007 revealed that the overall system o f c o n s i d e r a b l y v e r the p a s t three years personnel controls works quite we l l in Ir - - Trends in the civil service wage bill and Mongolia and that there i s no real problem o f average wages ghost employees. O f the 122,016 employees 1 ,70 - 170000 on the payroll in 2007, the census did a 160 physical headcount o f 116,547 or about 96 percent, with only 745, or 0.6 percent o f total 50 employees absent without a proper 40 justification - such as maternity leave, 30 annual leave, study or training - at the time 20 o f the enumeration day. Absence in the 110 aimags and soums were even lower than 100 those in central government organizations. i 2000 2001 2002 2003 2004 2005 2006 2007 2008 ~~~~ 1 However, and importantly. the census did not cover contract workers so it i s unknown if these personnel controls extend to them as well. I Employees Employees on enumerated in Employees absent Employees absent payroll l(2007j census (2007) with justification withoutjustijcation Central Government 23,258 20,838 1,964 456 Capital City 24,28 1 23,371 860 50 Aiinags and soums 74,477 72,338 1,900 239 Total 122,016 116,547 4,724 745 27. These overall controls are a reflection o f the tight expenditure execution exercised by the Ministry o f Finance through the Government Financial Management Information System (GFMIS), which i s the treasury's expenditure control system. As elaborated in the next chapter, civil servants do not get paid unless the aggregate personnel expenditures for the particular budget entity reconcile with the limits set in the GFMIS. However, and importantly, these are only aggregate controls and the absence o f a centralized payroll and the complex structure o f pay do have significant budget implications. 3.2. Skill mix and geographic distribution 28, The c i v i l services o f many l o w income countries are characterized by a very large proportion o f unskilled skill staff in the lower grades and a relative dearth o f professional and managerial posts. Given that the Mongolian c i v i l service i s bifurcated into political, administrative, special, and support services, each with their o w n grade structures, a simple analysis o f the distribution o f staff across grades does not provide adequate information o f this skill distribution. Instead, Figure 5 provides two indicators o f the skill mix drawing on the data from the c i v i l service census. The left panel summarizes data from a question in the census that asked ci v i l servants to classify their position as per one o f seventeen categories, which include 13 high political positions, managerial positions, advisors and researchers, general executive staff, sectoral specialist staff like teachers and doctors, and "support and service'' staff. While these categories are not entirely precise, support and service staff, account for 23 percent o f the c i v i l service in Mongolia, managerial and executive positions make up 16 percent o f the service, and education and health service staff make up 49 percent, by far the largest group. In terms o f educational qualifications (right panel), 39 percent o f the service has a bachelors or higher degree, while 26 percent has a secondary education or below, with 8 percent having a partial secondary or primary education. position \u Support and service staff 23% Other professional staff Education 12% and health service positions 49% Source: Civil Service Council (2008) 29. In terms o f the skill mix, clearly the 8 percent o f staff who have not completed secondary education are likely to be in l o w skilled service positions in the c i v i l service. The majority o f the 26% with a maximum o f secondary education are also likely to be in these support positions. These data, together with the information o n position classification, suggests that roughly a fifth to a quarter o f the Mongolian c i v i l service can be termed l o w or semi skilled, a significant Educational qualifications of civil servants by I I 30. The geographic distribution o f c i v i l servants appears to be reasonably equitable, again in contrast to many developing countries. Including the uniformed services, in 2007 Mongolia had 14 4.6 c i v i l servants per hundred population, with Khangai region having the fewest per capita civil servants (4.0), followed by Western region (4.6), Ulaanbaatar, and Eastern and Central regions (Figure 6, l e f t panel). At the aimag level, per capita c i v i l servants varied from a l o w o f 3.7 in Uverkhangai to a high o f 6.8 in Gobisumber, but in general the variation i s not particularly striking. The Western region ranks the lowest in.terms o f remoteness and developmental level, and the government should be commended for i t s ability to successfully place civil servants there. More generally, there i s a weak negative correlation (correlation coefficient o f -0.11) between the developmental level o f an aimag, as measured by G D P per capita, and per capita civil servants. Proximity to Ulaanbaatar appears to play a role in the geographic distribution o f the skill level (Figure 6, right panel), with Ulaanbaatar and the Easter region having a higher proportion o f advanced degree holders and the lower proportion o f staff with secondary education or below as compared to the Western, Khangai, and Central regions. 31. Overall, while the horizontal distribution o f the civil service i s broadly Ministry o f Education 58,329 fairly equitable, the government does need Ministry o f Health 24,057 to track this statistic on a regular basis, Nat'l Agency o f Meteorology, Hydrology, & 1,626 given the significant movement o f Environment Monitoring population in Mongolia, to ensure that State Professional Inspection Agency 1,661 inequities do not emerge in the future. National Tax Administration 1,509 General Customs Office 1,077 32. By contrast, the functional Ministry o f Environment 900 distribution o f civil servants i s inequitable. State Committee o f Physical Culture and 596 As Table 2 shows, the Ministries o f sports Education and Health are the largest Ministry o f Food and Agriculture 570 employers, and justifiably so given Ministry o f Foreign Affairs 400 Mongolia's emphasis on, and Ministry o f Construction and Urban 305 achievements in, the social sector. Development National Audit Department 23 7 However, some key agencies are clearly Ministry o f Finance 111 grossly understaffed, most conspicuously the Ministry o f Finance (1 11 staff) as well Ministry o f Fuel and Energy 95 as some other line ministries, and the main Ministry o f Road and Transportation 68 oversight agencies such as the National Anti-corruption Agency 87 Audit Department (237 staff), the C i v i l Civil Service Council 20 Service Council (20 staff), and the Anti- corruption agency (87 staff). By comparison its difficult to justify the large number o f staff in some other agencies, namely the ; State Committee o f Physical Culture and Sports (596), the State Professional Inspection Agency (1661), and the National Agency o f Meteorology (1626). These data point to the need for functional reviews and staff reallocations to overcome the serious staff shortages that some o f the ministries face despite the relatively large number o f total civil servants in Mongolia. 3.3. Basic demographic characteristics 33. Finally, a brief word on some basic demographic characteristics o f the civil service pertaining to age and gender. Mongolia's civil service i s fairly youthful, with 38 percent under the age o f 36 and less than 5 percent above the age o f 55. Females form a majority o f the civil service, accounting for 53 percent o f the administrative service and 73 percent o f the support services. However, they disproportionately populate the lower grades (Figure 7, left panel), 15 forming less than 15 percent o f the higher administrative service. Clearly, gender equality remains a significant challenge in the public sector. Figure 7: Basic demograDhic features o f the civil service Age distribution (percentage) Percentage of females in the civil service by grade 20 17.5 - 18 1 Support services 16 14 14.8 15.5 - 15.4 I 12 60 10 '1 50 8 40 6 4 Administrative sewices 10 2 0 --\ , e21 21-25 26-30 31-35 36-40 41-45 46-50 51-55 >55 Increasing Pay Grades Source: 2007 data from the Civil Service Census 16 CHAPTER 2: GRADING, COMPENSATION, AND PAYROLL ADMINISTRATION I " worked for 38 years in the civil service and Inever understood how my salary was calculated and what was included or excluded from it." A retired civil servant . 1 Introduction 1. Reward structures are central to the performance and motivation o f c i v i l servants. Mongolia has one o f the most complex c i v i l servant pay regimes in the world and this complexity has created considerable inequities in compensation, seriously impacted staff morale, and weakened centralized control over the establishment and the payroll. Reform o f the c i v i l service grading and compensation structure i s required for both fiscal sustainability and for improving public sector productivity. The new compensation regime should be simple and transparent, provide equal pay for equal work, and adequately compensate employees through their careers. 2. This chapter provides a review o f the c i v i l service post classification (or grading) system, the structure o f basic pay and allowances - focusing primarily o n the administrative service and, to a more limited extent, on teachers - and the system o f payroll management. It highlights the main problems with the present system, and outlines a strategy and a process for reforming the pay and grading structure. The proposed reform i s quite comprehensive as the distortions in the present system are considerable and an incremental, piecemeal approach - or a `second-best solution' - i s likely to only add to these problems. Annex 1 sequences the recommendations in a three-year policy matrix. 3. The main messages o f this chapter can be summarized as follows: C i v i l servants' compensation consists o f basic pay, allowances, and extra payments. The types and magnitudes o f allowances varies by service, and within the support service by sectors, and, for the support services in particular, i s largely at the discretion o f the general managers o f budget entities and does not require approval by a central authority. F o r the administrative service, allowances and extra payments contribute roughly 30 percent o f overall monetary compensation; for support c i v i l servants the proportion i s higher, and up to 50 percent. Mongolia's compensation system therefore combines a) complexity o f pay, b) non-uniformity o f pay across the c i v i l service, and c) for the support services, managerial discretion in setting pay. The grading structure results in significant horizontal inequities. Mongolia's grading system can be classified as one in which the allocation o f grades to jobs appears to be based primarily o n the status o f the organization employing the post-holder, with status a function o f organizational distance from the center o f administrative power (Ulaanbaatar). Similar jobs are graded differentially, and therefore compensated differently, depending o n the organization to which the j o b belongs. Allowances and extra payments exacerbate these inequities as they are based on the personal characteristics o f the c i v i l servant rather than features o f the j o b being performed, and are at the discretion o f the general manager. They also create a non- transparent compensation regime that demotivates staff and undermines fiscal controls. Pay scales are very compressed, with a compression ratio o f 1:3 for the administrative service, and even higher for key service delivery staff like nurses and teachers whose careers are essentially confined to one or two grades. 17 Payroll administration in Mongolia i s decentralized to the individual budget entities, which together with the complexity o f pay structure and pay policy, weakens expenditure controls. The post classification and compensation structure o f the c i v i l service needs to be reformed in order to provide the appropriate incentives for recruiting, retaining, and motivating skilled staff, through the principle o f equal pay for equal work. The reform would entail moving, in a sequenced manner, to a job-based system in which employees are paid according to the responsibilities o f the j o b they perform and receive equal work for equal pay regardless o f the institution in which they are employed. 4. This chapter limits i t s e l f to pay and does not analyze the pension system. Since in Mongolia all monetary compensation i s pensionable the proposed reforms do not have any significant pension implication^.^ 2. The Civil Service Post Classification and Compensation System 5. As outlined in Table 3, each o f the three categories o f political, administrative, and special services have their own post classifications (grading) while support services have a further six categories - general support services, science support services, professional education, primary and secondary schools, health, and culture and arts. Administrative services have 14 grades (TZ1-TZ 14), special services 18 grades, general support services 12 grades, health support services 9 grades, culture and arts 11 grades, science sector 7 grades, preschool and secondary education 8 grades, and professional education 9 grades. 6. Overall monetary compensation for c i v i l servants in each grade i s given by a combination o f base pay, a number o f allowances calculated as a percentage o f basic pay, extra payments, and rewards. The nature o f the allowances and extra payments varies by services, and for the support services also varies by sector. While the C i v i l Service L a w guides the compensation structure for administrative c i v i l servants, the legal regime for pay for the support civil servants consists o f thirty three government laws and resolutions, with pay often determined by ministerial resolutions that do not require any central government approval. Historically, adding new allowances was a means o f increasing c i v i l servant compensation for the particular sector without impacting the base pay and therefore setting a precedent that would have to be matched across the civil service. As each sector added i t s o w n set o f allowances the compensation regime became more complex over time. Given this complexity, it i s next to impossible to accurately capture the key elements o f compensation for the entire Mongolian c i v i l service. In fact it would not be inaccurate to say that no one in the government has a comprehensive and accurate picture o f what these components o f pay are, which for one creates huge problems for the Ministry o f Finance in budgeting wage increases and in monitoring compliance and enforcing expenditure controls. 7. In general, the following are the main elements o f c i v i l servant compensation, also illustrated in Table 3 : 8. Base pay: The detailed basic pay scales per service for 2008 are provided in Annex 2. Each grade has five levels o f basic pay. Importantly, for the support services the basic pay scale only defines the minimum reference pay for each level per post, with the responsible budget entity having the discretion to set higher pay levels if they have the available resources. For the 9 Pensions have been studied extensively in World Bank (2008) and ADB (2007) 18 administrative, special, and political services base pay levels are fixed. Graduation from one basic pay level to the next within a grade i s at the discretion o f the line manager and i s de facto determined by the length o f service o f the c i v i l servant. 9. Allowances: The structure o f allowances varies by the type o f service. For the administrative service, there are three major allowances: i) A "length o f service" allowance that increases in increments o f five percentage points from 5 percent o f basic pay for five to ten years o f service to 25 percent o f basic pay for more than 26 years o f service;" ii) An allowance for the possession o f higher academic degrees, at 15 percent o f basic pay for c i v i l servants with a doctorate and 10 percent o f basic pay for an associate doctorate degree;" iii) A "rank" allowance, comprising four tiers namely prime officer, deputy officer, third deputy officer, and fourth deputy officer, with a c i v i l servant's rank determined by a combination o f years o f service and recognition o f good performance. C i v i l servants are eligible for the first tier rank allowance - fourth deputy officer - only if they have been in the service for more than a certain number o f years (depending on their grade), with graduation into higher tier ranks based on performance assessments. Ranking allowance can vary from 10 percent to 35 percent o f basic pay. The total amount o f these allowances cannot exceed 40 percent o f total monetary compensation. Post classification Determinants o f pay per grade Service Grades Base Pay Monetary allowances I Extra payments I Rewards Administrative TZ1- TZ14 1 5levels I ,`:z:f AcademicDegree Rank I yzt;: I Cashawards I 5 levels; Each sector Quarterly Each service and positions within the has i ts own performance reference Support (6) * service have their own unique allowance unique bonuses for minimum structure payments teachers and structure doctors Political AAI- AA11 1 levels 1 SpeciaL;mndigions of Academic Degree Years Special Special TTl- TT18 4 levels Academic Rank Food and of conditions Cash awards Degree transport Service o f service 10 Time off for training, maternity leave etc. i s included in calculating the length o f service allowance These degree allowances are higher and more detailed for civil servants who work in universities and academic research institutions 19 10. Extra payments: These consist primarily o f overtime for working beyond the daily 8 working hours stipulated in the labor law, for performing additional duties, and food and transport subsidies. In practice only medical workers have access to overtime payments, although these can form a significant proportion o f overall compensation for these workers. The size o f food and transport subsidies are determined by the relevant budget entity and are generally paid at a fixed daily rate o f roughly 200 to 300Tg per day for every working day, and i s not paid during absence from work for any reason, such as leave. Again, given the discretion that budget entities have in setting these extra payments, there are significant variations in the rates at which these are paid, even within a particular sector. 1 1. Rewards: In addition, c i v i l servants are also eligible for performance bonuses, awarded quarterly and up to 40 percent o f the monthly salary. There are also other lump sum monetary awards specified for outstanding performance. Performance bonuses are rarely given to administrative c i v i l servants, but are a regular component o f the compensation o f teachers and medical professionals. 12. For teachers, the compensation structure was simplified in 2007 (Government Resolution #219) with a number o f the salary supplements - overtime hours, grading and checking textbooks and exams - that were integral to the responsibilities o f a teacher merged into base pay (Figure 8). As a result the allowance structure for teachers n o w resembles the administrative service. The rank o f a teacher i s determined through a specified set o f procedures: Promotion from regular teacher status to methodologist (leader o f a subject at a school) i s based on review by the school administration and the aimag Education and Culture Department (ECD) must be informed o f the process. Promotion from methodologist to lead teacher (mentor o f the methodologist) must be reviewed by the provincial ECD, based on evaluation o f the teacher's portfolio and a school visit including in-class observation. Promotion from lead teacher to advisor (the highest honor, signifying the teacher i s an expert in the field) requires submission o f the teacher's portfolio to MECS in Ulaanbaatar, and reviewers from the central ministry must evaluate the candidate on- site (Le., they must come from Ulaanbaatar to the candidate's school). Salary supplements pre-2007 Changes Specified in Res # 219 (2007) I I I I I I I 1 4 I* Additional teaching hours Gradingkhecking student notebooks Consolidated into base salary Relevant skills Grading exams (rural schools only) Class teacher-leading a class through Retained as allowances (specified as the school percentage o f base salary): Managing a cabinetflab (subject Class teacher 10 percent specialist) Cabinevlab mgmt 5 percent Leading a methodology unit at the school 4 Methodology chief 5 percent Rank allowances Rank allowances: - Methodologist 5-15 percent - Methodologist 10 percent - Lead teacher 10-20 percent - Lead teacher 15 percent - Advisory teacher 15-25 percent - Advisory teacher 20 percent 20 13. The rank allowances are fixed at the rates shown above, while the percentage rates associated with the other allowances are maximums, and the school director (in consultation with a school training manager) determines the exact percentage supplement given to teachers. It i s important to note that an individual teacher's allowances (and hence total compensation) can change from month-to-month, depending on the training manager's evaluation. The school administration thus retains some discretion over compensation through allowances, although less than before the pay simplification. 14. Our estimates, based on the salary scales and the proportion o f allowances in actual payroll date, are that average total monthly compensation in the administrative service ranges from 220,000tg to 640,00Otg, with allowances and extra payments comprising between twenty to thirty percent o f overall compensation (Figure 9 ) . Anecdotal evidence suggests that for support services the proportion o f allowances and extra payments in overall compensation i s even higher. For example, prior to the simplification o f teacher pay, allowances and extra payments made up 50 percent o f total compensation, and are n o w down to 20 to 30 percent. For medical personnel, where the compensation regime remains unreformed, allowances are likely to form the bulk o f compensation. Given the complexity o f the allowances, these averages hide significant variations in compensation for staff in each grade, an issue that will be examined more closely below. This compensation range implies an overall compression ratio o f roughly 1:3 for the administrative service, which i s quite high by international standards, and suggests that it may impact the attractiveness o f the service as a career.I2 There are very few in-kind benefits - for example, as Figure 10 shows, only a very small proportion o f administrative or support c i v i l servants receive government housing -unlike the case in many other developing countries. Figure 9: Allowances are roughly twenty to Figure 10: Most civil servants do not receive in thirty percent o f overall compensation in the kind benefits like government provided housing administrative service - Average monthly compensation (in tugregs) , Housing condition of government civil by grade in the Administrative Service servants (percentage) 700 000 1 600 000 1 Allowances \ , Government housing. 400 000 - 300 000 - I ~ + < p p <, < < ?* + @ p p < + + a , <.\ 8 yrs 100% > 8 yrs 90% 90% 80% 5 to 7 80% 5 to 7 70% YE 70% Yrs 60% 60% 50% 2 to 4 50% 2 to 4 40% Yrs 40% Yrs 30% 30% 20% 20% c2 yrs < 2 yrs 10% 10% 0% o n ,/" ". Increasing grades Increasing grades ___- Source: Civil Service Census Figure 23: There i s an increase in dispute cases 20. Turnover o f senior management and senior level selections in the aftermath of an after elections i s not unusual in many electinn 1160 Dispute cases and senior level appointments countries, most notably the USA. In I Mongolia however, as numerous I140 2 .. stakeholders repeatedly stated, the scale and depth o f the changes are reflective o f more perverse political motivations, and are not unrelated to the problems o f corruption that 80 have been repeatedly voiced, and also 60 quantified.*l That such high staff turnover i s disruptive to effective management and deleterious to effective functioning o f the 20 service civil service i s obvious. It i s symptomatic o f appointments 0 some key weaknesses in the legal 2003 - 2004 -- 2005 ~-~ _2006 - ~ 2007 ~- ~ - _ - ~ framework. First, a majority o f the Source: Civil Service Council (2008) management changes are done through invoking article 27.2.3 o f the C S L which provides for the transfer o f c i v i l servants in the case o f the liquidation or reorganization o f the relevant government department or budget entity. Numerous officials stated that this clause was being abused and used frequently as an excuse for the politicized transfer o f c i v i l servants from the organization. The L a w does not provide for any direct oversight role o f the Civil Service Council on restructuring, although the amendment to the L a w adds a general clause under article 39 on dispute resolution that the Council shall resolve disputes related to the working condition and salary o f c i v i l servants which presumably would extend to restructuring and reorganization. 21 See World Bank (2007) for the results o f the Investment Climate Survey. 48 2 1. Second, the cumbersome procedures for dispute resolution disadvantage c i v i l servants who are dismissed from the c i v i l service on supposedly disciplinary grounds. The C i v i l Service L a w i s explicit o n the criteria for disciplinary action - dismissal can only be due to criminal offense, abandonment o f citizenship, and repeated (twice or more) unsatisfactory performance. However, these provisions are binding only to the extent that the procedures for redress are efficient. In Mongolia, the Civil Service Council i s the first line o f defense to aggrieved core c i v i l servants, with a right o f appeal to the administrative courts in case they are not satisfied with the Council's decision. Before the amendment to the law, the authority o f the Council's decisions was not clear, and the inefficiencies in the administrative courts meant that these cases could go on for months or even years with the civil servant out o f his or her j o b while awaiting an outcome. 22. The converse o f this problem o f tenure insecurity i s the lack o f a proper j o b rotation policy to ensure horizontal mobility and allow for careers that are both functionally and geographically diverse. Although the C S L (Article 22) states that c i v i l servants may be transferred from one position to another with their consent due to "an unavoidable necessity", and allows for staff rotation based on an agreement between the management o f the respective authorities, horizontal mobility i s a serious issue in the Mongolian c i v i l service, with most n administrative c i v i l servants spending their careers in one or at most t w o line ministries. I part this problem arises from the horizontal inequities in pay which deter staff from moving from ministries to the aimags and soums. M o r e fundamentally though, it i s a reflection o f the decentralized management arrangement in Mongolia whereby budget entities are the employers o f civil servants which, coupled with the fact that there i s no centralized personnel office, implies that there i s n o institutionalized process for j o b rotation. 23. The PDP consultants advocate the creation o f a Senior Executive Service (SES) akin to that found in many developed countries to in part address this problem, although their justifications are broader and include the creation o f a critical mass o f leadership to spearhead civil service reform, improvement in managerial skills, insulation from undue political pressures, and improved ability to attract and retain high quality staff. The SES i s meant to solve the problem o f the present absence o f a service-wide corps o f administrative c i v i l servants in Mongolia. This paper however, would caution against this approach. 24. The most serious flaw in the application o f a SES model in Mongolia i s that it would add to the complexity o f an already overly complicated grading and compensation system. The SES would necessarily have i t s o w n grading and compensation structure, adding to the several layers that already exist. It would also risk compromising the present recruitment flexibility o f the system and closing o f f senior management positions to only members o f the SES. As evident in many developing countries, the long term risk o f this measure i s that it would create a powerful interest group that would seek to protect high level positions for itself. 25. Improved horizontal mobility in the administrative service i s certainly a reform objective but it can be achieved through simpler measures than a SES, which are discussed below. 4. Performance management 26. Chapter 2 noted the problems in applying the principle o f performance pay in Mongolia. The CSL specifies that performance appraisal shall be the basis for promotions and changes in salary, award o f ranks, and disciplinary actions, specifically the reduction in salary or, for repeated under-performance, dismissal without right o f re-entering for a year. In reality however, 49 performance appraisal i s largely a perfunctory exercise in Mongolia, as evidenced by the fact that 33 percent o f the support service and 24 percent o f the administrative service have not had a performance appraisal, and o f those who had the overwhelming majority get an "A" (Very Good) or "B" (Good) rating, while virtually none get a D (Reasonable) or an E (Non-satisfactory) rating (Figure 24). This pattern o f scoring i s not unusual as many bureaucracies seek to avoid potentially conflicting situations. It also implies that promotions are likely t o be largely driven by seniority, as well as subjective criteria, than the results o f performance appraisals. Figure 24: Very few staff are assessed as poor As discussed earlier, performance bonuses performers are paid regularly to teachers, doctors, and 120 Performance assessment nurses, yet these are not based on systematic i loo performance evaluations but are used as a 1 way o f ensuring that the allocated facility I 80 budgets are fully spent. At the beginning o f 1 BDor E each year teachers sign performance 60 `7 c OB contracts with school directors; school I 40 A directors with soum governors; soum 1 i Not assessed l governors with aimag governors; and aiinag governors with MECS. Yet these contracts, in practice, are pro forma documents issued ' I2 1 - : - Support service Administrative service by MECS and, as reported by aimag and - soum officials, do not help to measure Source: Civil Service Census performance outcomes and yield little insight into which schools are performing well versus poorly. 27. Most importantly, there appears to be a fundamental misalignment o f incentives for effective accountability at the school level. Under the PSFML, the funds come to schools vertically from MEC S at the center. Yet performance contracts are signed horizontally between the soum government and the budget entity, in this case the school, and horizontal monitoring i s weak at best. If a school performs badly, the SPIA Education Inspector at the soum level can report it to the aimag Education Department, which can then raise it with M E C S at the center. Based on the cascading set o f performance contracts, then, the soum governor can attempt to take disciplinary action to the school director, who can in turn take disciplinary action on the teaching staff. There are, however, n o budgetary implications for the school. Previously, the soum or aimag governor could dismiss a poor-performing school director-but that potential accountability mechanism n o longer exists n o w that school directors are protected as administrative c i v i l servants. 28. The 2002 Education L a w abolished school governing boards, which had been given decision-making authority for the hiring and firing o f principals, and replaced them with school councils, which have more limited authority and play little role in school operations. Hence principals and teachers bear little civic accountability for the quality o f education provided; this i s especially this case in rural areas. 29. There i s a large international literature elaborating the difficulties in designing Performance appraisal systems that accurately measure an individual's contribution in large bureaucratic organizations. These problems do not suggest that Mongolia should not aim to improve the current process, and the PDP consultants provide some useful recommendations to the Civil Service Council in establishing guidelines for managers in the budget entities to improve the current process. However, they should caution against an aggressive push o n the performance 50 management provisions o f the P S MF L and suggest a recognition that practically, in the near term, seniority would continue to be the basis for promotions and pay increases. 5. Recommendations 30. The Government o f Mongolia recognizes many o f these problems with the c i v i l service and the legal changes introduced to the C i v i l Service Law, some o f the main features o f which were summarized in B o x 1 in chapter 1, are meant to address these. T o reiterate the most salient changes with respect to personnel management include: 0 School and hospital directors have been moved from the support services to the administrative service and n o w fall under the ambit o f the CSL. The more rigorous criteria for recruitment and the tenure protections are expected to improve the quality of school and hospital management The C i v i l Service Council's powers in dispute resolution have been enhanced by giving it the authority t o overturn any personnel decision by an appointing authority if found to be in violation o f the law, and requiring the concerned government organization to abide by the council's decision, with an option to complain to the courts Prohibition o n core c i v i l servants from being members o f political parties These are welcome changes that have generated a lot o f hope among c i v i l servants. The recommendations below are in the spirit o f ensuring that this improved legal framework can be more effective as w e l l as identifying additional areas. 5.1 Increased capacity o the Civil Service Council f 31. The staff strength o f the C i v i l Figure 25: T h e Civil Service Council's staffing Service council has to be increased if it i s to and budnet have increased recentlv adequately perform i t s oversight role. As Civil Service Council budget and staffing Figure 25 shows, although the Council's 250 T N--5 , --- 720 budget and staff strength have increased in I . m +- * . , ? m +*+ I recent years, the current staff o f 20 i s grossly 200 c insufficient to perform the many functions stipulated by law, particularly given the need for permanent staff in the branch councils. Given that the 45 branch councils require at least two permanent staff (the chairman and secretary) total staff strength o f the Council ideally would need to increase to 1 10. 2003 2004 2005 2006 2007 2008 32. Source: Civil Service Council With the current economic crisis and the fiscal adjustment, such budgetary increases would realistically need to be phased over a few years. If the fiscal space allows, the 20 10 budget can be increased to enable the Council to hire permanent staff for a select number o f branch councils. Actions required: 0 2010: The 2010 budget o f the C i v i l Service Council increased to enable it to hire permanent staff for select branch councils 51 0 201 1: The 201 1 budget o f the C i v i l Service Council increased to enable it to hire permanent staff for select branch councils 5.2 Improving the recruitment modalities for administrative staff 33. The PDP reports make a number o f sensible suggestions on improving the recruitment modalities for core c i v i l servants. T o reiterate: 0 Ideally the recruitment provisions o f the P S M FL should be removed from the PSMFL and incorporated into the CSL. Short o f this, the C i v i l Service Council should issue a schedule that details exactly which positions are most senior and subject to open competition as per article 45 o f the PSMFL, which fall under article 17 o f the CSL, and which more junior provisions do not require the Council's overview. 0 The Council's selection panels should include representatives from the employing organization to build ownership o f the process, and should also be informed by a panel of independent experts. 0 The reserve l i s t should be abolished. The Civil Service Council should be able to undertake a l l o f the above actions in 2009. 5.3 Tackling the problem o the instabiliq o tenure and improving horizontal mobility f f 34. The amendments to the C i v i l Service L a w have not closed the loophole o f the restructuring clause being used for transferring c i v i l servants. It i s not entirely clear that the Council's enhanced oversight gives it the authority to challenge staff transfers made through this provision. I t would therefore be advisable that this problem be addressed explicitly, in conjunction with the policy to manage the horizontal movement o f c i v i l servants. 35. Increasing horizontal mobility requires both incentives for staff to rotate between ministries and localities, and a central institution that manages the process. On the former, the discussion on locality pay i s relevant. In many countries, rotation requirements are also used as a condition for career advancement, but given the limitations o f the performance appraisal system in Mongolia going this route may be premature. On the latter, the absence o f a central personnel office i s a handicap for Mongolia as logically inter-agency movement o f c i v i l servants would be best performed by a small personnel management unit in the Prime Minister's office. Another option would be for this function to reside with the C i v i l Service Council, given that the Council fuses oversight and certain management functions, and given that the CSL mandates it to create the rules and procedures for transfers and rotations (Article 22). However, the status o f the Council as a parliamentary body would be a handicap for such a clearly executive function. 36. This central institution should also be tasked with ensuring that transfers only are allowed for staff who have fulfilled a minimum tenure, say three or four years, at an agency, except under exceptional circumstances. Actions required: 0 2009: C i v i l Service L a w amended to remove the current loophole that enables staff to be transferred under the agency restructuring clause 0 20 10: A small personnel management unit established in the Prime Minister's Office 52 5.5 Improving the intensity and quality o monitoring f 37. Good c i v i l service management practices require that there i s a regular audit by an authorized central agency o f the recruitments, promotions, transfers, and departures within the civil service, and that an up-to-date information database i s maintained on these statistics. This monitoring i s particularly important in a decentralized management system such as in Mongolia, but i s currently lacking, in part due to the capacity constraints in the C i v i l Service Council, but also due t o weaknesses in the information systems. O n the latter, while the Council maintains an employee database, this relies on ad hoc updating by ministries and budget entities as and when they decide to provide data changes. There i s no established procedure for regular comprehensive updating, and no stringent data management controls to prevent unauthorized data changes, or to provide an audit trail o f the changes made. 38. Teacher recruitment in Mongolia i s subject to no formal criteria, other than basic education credentials, and i s essentially at the discretion o f the school director. This leads to both problems in teacher quality as well as the potential for appointments to be made for political and other non-meritorious reasons. Improving teacher monitoring could rely o n vertical or horizontal checks. The M E C S i s in favor o f greater vertical controls, increasing the regulation o f teacher qualifications, particularly by establishing criteria for recruitment and specifying these criteria by government decree, and developing explicit processes for teacher recruitment - including the advertising o f vacancies, the holding o f interviews, and the selection process - to be followed by school directors. These processes could incorporate a specific monitoring and quality-control role for provincial ECDs beyond their simple current duty o f verifying teacher credentials; for example, the presence o f an E C D representative on an interview or selection panel could be mandated. 39. The alternative, horizontal method o f community monitoring may be more effective given the social context o f Mongolia with i t s ethnic homogeneity, high level o f literacy, and relatively strong community bonds. Parents did play a significant role in school management in the past, but there has been a gradual centralization o f education management in the last ten years. In 1995, the L a w o n Education established local School Boards, which were given a wide mandate to manage and monitor school operations. These boards originally comprised teachers, students, parents, and community representatives; but in 1998, soum governors were extended representation and given majority power on the boards. In 2000, M E C S adopted regulations specifying the authority o f school boards to hire and dismiss school principals; approve and amend school budgets, including salary funds and number o f employees; and approve the development o f policy, curriculum, and business plans. Finally, in 2002, a new L a w on Education reduced the role o f the by then highly politicized school boards into a much more limited advisory school council role. These changes were adopted in the context o f P S M F L recentralization, which stripped the councils o f their fiscal responsibility; school councils also lost their power to hire or dismiss principals. 40. With the stronger treasury controls n o w in place, Mongolia should again consider devolving oversight responsibilities to parents and local communities. For school based management to be successful, it i s important to clearly define which powers are vested where and how decision-making authority i s to be coordinated. The ultimate success o f a school-based management program depends on the support o f all the stakeholders involved - central and local government authorities, who surrender some authority to the school level; principals and teachers, who cede some management control; and parents and community members, who often have t o be trained to properly fulfill their roles in enhancing accountability and performance. 53 Actions rewired: 2009: C i v i l Service Council develops methodology for sample-based audit o f recruitment practices o f budget entities 2010: Audit conducted by the Council o f select budget entities 20 10: Resolution re-establishing School Boards with authority for school monitoring; responsible agency: MEC S 54 CONCLUSION 1. The Mongolian c i v i l service has undergone a rapid and deep transformation since the transition from socialism in 1990. The number o f c i v i l servants has been reduced dramatically with the withdrawal o f the state from private economic activity, and a whole new legal framework has been introduced. And there are many achievements that the c i v i l service can be proud of. The education and health bureaucracies have been able to deliver a standard o f service that i s higher than many countries at similar levels o f development, overcoming the challenges posed by Mongolia's geography. The legal framework has emphasized merit-based recruitment, and the skill level in the c i v i l service i s higher than in many developing countries. 2. C i v i l service reform needs to remain a priority o f the Government if Mongolia i s to have the high performing public sector that i s crucial for translating i t s natural resources to sustainable economic development. The Government has made some progress in this area by adopting a c i v i l service reform strategy and action plan, and introducing some good changes to the legal framework. Many o f these changes are in the right direction and identify the correct strategic priorities over the medium term. This report has attempted to support this on-going process by providing a diagnosis o f the key challenges that the Government must confront, and identifying the select, feasible actions that the Government can take over the next three years. 3. T o summarize, the report has identified three priority areas o f reform. First, the c i v i l service grading and compensation system requires significant changes in order to be able to attract and retain high caliber staff. The present grading structure creates horizontal inequities as similar jobs are graded differently depending on the status o f the organization to which the j o b belongs. The pay structure i s highly complex and this complexity exacerbates the grading inequities and, combined with the considerable managerial discretion in setting pay, results in a non-transparent compensation regime. Pay scales are very compressed, in particular for key service delivery staff. The proposed reforms entail the simplification o f pay through merging the allowances and extra payments into basic pay, and the development o f a new grade structure and basic pay scale based o n j o b evaluations and a pay survey. 12. Second, Mongolia needs to move in a phased manner towards centralized payroll administration in order to enhance establishment and expenditure controls. Decentralized payroll administration combined with the complexity o f the pay structure significantly limits the controls o f the Ministry o f Finance. It also renders impossible accurate simulations o f wage increases, thereby weakening budgetary planning. A feasible first step in the sequenced transition to centralized payroll administration i s the creation o f a centralized human resource database with information on posts, personnel, and pay for all budget entities. 13. Third, the personnel management regime needs to be improved as it presently does not fully protect c i v i l servants from undue political interference, there i s a lack o f clarity over the precise recruitment modalities for the senior administrative c i v i l service positions, and limited horizontal mobility that negatively impacts career development. 14. The report has provided a number o f recommendations in each o f these three reform pillars, which are summarized in the policy matrix in Annex 1. With these practical, sequenced actions, Mongolia will be w e l l placed to achieving a high performing public sector and translating i t s considerable natural resource wealth into sustained improvement o f the lives o f i t s citizens. 55 e m a e e e e e e e e e e e W 8 L e -0 C m W E ecl e E 5 .g 8 L e v) r a, w- 0 L P 0 W REFERENCES Government o f Mongolia. 2008. 2007 Civil Service Census o Mongolia: Main Results f Government o f Mongolia. 2007. Mongolia: Medium-Term Civil Service Reform Strategy and Implementation Action Plan. Ulaan Baatar. Government o f Mongolia. 2003, Pubic Sector Management and Finance Law Government o f Mongolia. 2002. Civil Service Law Nunberg, Barbara. 2007. "What LDCs can Learn from Developed Country Reforms." Policy Research Working Paper WPS945. Washington DC: The World Bank. PDP Australia & Government o f Mongolia. 2007. "Modernizing Public Administration and Civil Service." Ulaan Baatar. World Bank. 2006. 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