sector and SOE wageworkers to government administration workers is closely parallel to the 1.8 to 1.9 ratio of private to public pay emerging from the jobs approach. It must be noted, however, that these pay ratios do not exhibit the dramatic earnings differentials that are sometimes cited anecdotally. Moreover, when pay experts offer opinions as to reasonable public-private differentials, these estimates tend to state that public sector pay levels of 65 to 75 percent of private sector pay are appropriate, given the other benefits of public sector employment.<sup>27</sup> The current compensation practices of the Lao civil service fall squarely within this range. The larger private to public differential of about 2.8 at the director general level, as seen from the jobs approach, was based on a very small private sector sample of only three pay records, so the finding is only anecdotal.

Full parity with private sector comparators should not necessarily be the goal of civil service compensation systems—because civil service employment offers job security, due process protections, and significant additional benefits; and because governments simply often cannot afford to pay all their civil servants at parity with private sector comparators. A wise target is rather _consistency_ in the ratio of public-to-private compensation across different types of positions. In this respect, the regular compensation practices of the Lao civil service look to be quite rationally structured. In terms of concerns about a greater gap at the top of the pay scale, moreover, senior government officials worldwide tend to earn less than their private sector counterparts. They benefit instead from a ‘compensating differential’ from greater employment security, their status and ability to exercise influence, and the opportunity to serve their country.<sup>28</sup> Such motivational factors were corroborated in the incentives assessment, detailed below.

Both the worker and jobs approaches find that the private to public compensation ratio stays relatively constant across all ranks of the civil service (with the exception at the director general level). This relatively constant ratio across all grades may be a sign that the public sector is actually the ‘wage-leader’ in Lao PDR. As described above, about one-third of all formal sector employment is in the civil service and, due partly to the relatively recent nature of Lao PDR’s transition from socialism, it could be that private sector enterprises are essentially benchmarking their salary structures upon official civil service compensation practices. The civil service may in fact be the predominant salaried labor market in the country—such that private companies and SOEs are conceivably taking their cues from the civil service on HRM issues such as compensation and even benefits. It is important to note a caveat to this supposition—reasonably adequate levels of government pay in Lao PDR coexist with a relatively abundant supply of labor, especially unskilled workers. Hence, while larger private employers might follow the government’s lead on wages, smaller enterprises might be able to satisfy their employment needs at lower wages.<sup>29</sup> The pay comparator analysis indicates that, in terms of regular monthly compensation, private pay in Lao PDR is for some positions and some workers, somewhat greater than public pay—but not by any degree of magnitude. Taking into the account the supplementary compensation and additional benefits enjoyed by civil servants, and factoring in such issues as hours worked and work environment, the differences between public and private sector compensation in Lao PDR are likely quite small. This conclusion does not even factor in the additional non-duty-related income sources available to government employees as a 27 See, for example, Gary J. Reid, “Public Administration Salary Setting: Principles and Mechanisms for Satisfying Them,” Note prepared for Azerbaijan Government (The World Bank: Washington DC, November 2007).

28 As noted in Filmer and Lindauer, “Does Indonesia Have a 'Low Pay' Civil Service?” 14.

29 See Lindauer, “Government Pay and Employment Policies,” for a discussion of the ‘government as wage-leader’ phenomenon in African countries. He elaborates upon the logic presented briefly here.

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