33 and distorted by a range of informal circumventions<sup>(including allowances, grade creep, double</sup> employment, etc.) reflecting the naturally<sup>occurring differentiation in government bureaucracies.</sup> Moreover, innovations such as broad-banding<sup>can actually reduce the number of job classifications</sup> and simplify the grading structure in addition<sup>to providing needed flexibility in rewarding difficult-to-</sup> attract professional skills -- a major problem<sup>in many developing countries. Similarly, multi-skilling</sup> may use scarce skills more efficiently by allowing<sup>broadly trained staff to move easily among a range</sup> of tasks.

In countries with highly mobilized labor<sup>movements, the relaxation of standardized</sup> norms and the decentralization of pay determination<sup>may meet poliical resistance. But Australia's</sup> experience suggests that close consultation with<sup>relevant trade unions can overcome this difficulty.</sup> The costs of nationally negotiated pay settlements<sup>to financially strapped LDCs make this experience</sup> worth examining more closely.

As the New Zealand case suggests, decentralized<sup>classification and pay arrangements</sup> may also offer potential financial efficiencies<sup>and promote better line management. In developing</sup> countries, mechanisms such as locality pay may<sup>facilitate a more efficient distribution of civil service</sup> employees to far-flung regions which normally have<sup>difficulty attracting personnel. But relaxation of</sup> centralized controls poses h *ightened risks in developing<sup>countries where the fiscal balance is delicate,</sup> and political patronage abuses are commonplace.'<sup>Thus, flexibility and decentralization should be</sup> promoted in direct relation to the strength<sup>of personnel institutions at the center, the degree of</sup> central control over establishment management,<sup>and the quality and enforceability of central policy</sup> guidelines.

Finally, developed country wage policy models<sup>linking civil service pay and allowances</sup> with shifts in the macro-economy could be highly<sup>instructive to LDC administrations that have</sup> traditionally used bonuses and allowances<sup>to compensate for deficiencies in the civil service</sup> remuneration package, or as political patronage<sup>or social welfare mechanisms. Singapore's strategic</sup> and conservative utilization of these instruments<sup>has enabled its government to defuse civil servants'</sup> salary expectations and has provided the necessary<sup>leverage to avert future financial strain.</sup>

# Assessing Performance: Links to Pay and Promotion

A topical issue in advanced country CSM reforms<sup>is how best to relate rewards to</sup> performance in motivating civil servants. This<sup>discussion focuses on the role of performance in paying</sup> and promoting civil servants. To what extent<sup>are performance based pay and promotion conducive</sup> to improving civil service staff productivity?<sup>How are advanced countries tackling these questions,</sup> and what approach makes sense for LDCs?

Although most advanced civil services were theoretically<sup>built on a merit system,</sup> remuneration policies traditionally have operated<sup>on the basis of automatic, seniority related increases</sup> rather than performance criteria. Despite increasing<sup>emphasis on performance-related pay and</sup> performance appraisal as an important tool<sup>in both public and private human resource management</sup> 'The Bolivian experience with decentralization of public sector pay suggests<sup>that systemic inequities and</sup><sup>**fiscal**irresponsibility can result</sup> when central personnel organs relax control of government<sup>pay determination. In Bolivia, the chaotic, uncoordinated institutional set-up</sup> at the national level contributed significantly<sup>to the systemic disorder. See Barbara Nunberg, 'Bolma: A Review of Public Pay and</sup> Employment Issues", LAC divisional working paper.<sup>World Bank. 1990.</sup>