32 Accommodating cost-of-livingdifferences amonggeographical regions through locality pay" is another form of differentiation. Locality pay is used on a<sup>limited basis in the U.K. (for</sup> selected agencies and through the London-weighting system), and in<sup>Sweden and Japan. Pay</sup> flexibilities to attract hard-to-recruit skills have also been tried<sup>on a limited basis in the U.S."</sup> Methods of pay determination also affect the degree of<sup>flexibility governments enjoy</sup> in setting civil service wage levels. In many countries centralized<sup>mechanisms &et public sector pay</sup> according to the "fair comparison" principle; iLe., surveys of private<sup>sector pay inform service-wide</sup> wage settlements, usually negotiated with organized labor. Lately,<sup>governments have been attempting</sup> to build more maneuvering room into these pay determination<sup>arrangements. In the Netherlands,</sup> for example, the Ministry of Home Affairs continues to negotiate<sup>national pay settlements with the</sup> unions, but pay is no longer tightly linked to private sector wage<sup>movements through the previous</sup> system of semi-annual adjustments. France has established a new<sup>formula for improvements in salary</sup> structure when economic growth exceeds three percent in a<sup>given year. Similarly, Singapore now</sup> administers a "fled-wage" system, adjusting pay with the economy's<sup>performance. In good years, the</sup> government pays middle and end-of-year bonuses to all civil servants.<sup>It also pays one-off incentive</sup> bonuses when economic growth exceeds threshold levels.

The locus of public pay determination also has implications for the<sup>correspondence</sup> between civil servants' salaries and local market conditions.<sup>Increasingly, civil service pay is set at</sup> more decentralized levels, resulting in more heterogeneous<sup>pay outcomes. In some cases, this</sup> decentralization reflects the increased autonomy of agencies to<sup>hire at market rates. Sweden, for</sup> instance, has undertaken local market pay experiments in a<sup>few agencies. In other instances,</sup> decentralization signifies the erosion of labor's ability to engage<sup>government in centralized, across-the-</sup> board wage settlements; thus such settlements are negotiated at<sup>more disaggregated, decentralized</sup> levels.

While countries such as the U.K. and Australia are moving<sup>gradually toward</sup> decentralized pay determination, New Zealand has moved even<sup>more decisively down this road. With</sup> the State Services Commission's assistance, lower level staff<sup>salaries are now negotiated between</sup> Chief Executives and relevant unions at the departmental level.<sup>Managers' salaries are negotiated</sup> individually, with guidelines (and, for SESers, wage ceilings) provided centrally.<sup>Some anomalies have</sup> occurred: chief executive salaries and fringe benefits are on<sup>average higher than those of ministcrs.</sup> They do not yet match private sector comparators, however.

# Lessons:

The following considerations emerge from this discussion<sup>of LDC pay and</sup> classification systems. First, for many developing countries<sup>a powerful rationale for traditional,</sup> unified, fixed-increment classification and pay systems is that<sup>they appear to require less administrative</sup> intensity to install and maintain. Administrative simplicity is an important,<sup>perhaps overwhehning</sup> consideration for developing country public sectors with extremely severe<sup>human resource constraints.</sup> Nonetheless, the reality in most LDCs is that unified classification and pay<sup>structures are undermined</sup>

> 39The new 1991 Federal Pay Law **authorizs** agencies to set up **"triple.R** bonus programs for the recruitment, relocation, or retention of key personnel. Within OPM guidelines, agendces can establish<sup>their own procedures for the ailocation of bonuses which can amount</sup> to as much as 25% of **base** pay. **TripleR** recipients must **agree**<sup>in writing to stay on the job for at least one year.</sup>