some way toward emphasizing merit and job performance in career progression. The government could also, for example, reduce the discretionary ability of provincial governments to bypass establishment controls—which they currently do by hiring contract workers who are then made permanent civil servants—by instructing MOF’s Treasury Department not to process payment for any payroll records that do not include MOF approval for the post being created or filled. Taking such steps in establishment control would yield a three-fold benefit. First, they would help to reign in aggregate wage bill growth by focusing on the employment side of the equation rather than simply compensation itself. Second, they go some way toward addressing the growing perception, on the part of the younger generation of civil servants, that traditional career advancement routes are unfair. Third, to the extent that they can move some way toward compensating employees for the job performed rather than the position held, they help to build toward a culture of performance in the civil service.

_Rationalizing compensation._ Overall, the current civil service compensation system is complex and often opaque, leads to inequities in compensation, and prevents the possibility of rational pay setting for civil servants. Desirable reforms would lead in the direction of monetizing, as far as possible, in-kind allowances and benefits, and converting the bulk of all non-salary forms of compensation (including monetary allowances) into base salary. A move toward the principle of ‘equal pay for equal work’ would help the GOL to provide the appropriate incentives for recruiting and motivating civil servants. To this end, the GOL may also consider reforming elements of its career-based civil service regime to a more performance-oriented job-based system, where government employees are ranked and compensated according to the content of the job they perform rather than on the basis of their education qualifications. This recommendation is oriented by a belief in the value of relatively simple, undifferentiated pay scales that motivate civil servants on the basis of long-term career incentives over the short-term performance incentive approach. A potential sequence of steps for achieving these goals is outlined in the _Lao Civil Service Pay and Compensation Review_ .

_Ensuring compensation adequacy._ At present, our findings do not indicate that Lao civil servants are systematically under-compensated, or that performance-focused recruitment and motivation in the civil service is threatened by compensation levels. Nevertheless, a more comprehensive analytical exercise that proceeds on the basis of detailed job evaluations and establishes a benchmark set of private sector and SOE jobs could help to put in place a system equipped to ensure continuously that the private to public compensation ratio stays relatively constant across all ranks of the civil service. Such an exercise, at least in the early stages, does not need to produce detailed descriptions and evaluations of all positions—often a time-consuming and onerous task; an abbreviated sequence of tasks is suggested below. Full parity with private sector comparators should not necessarily be the goal of the civil service compensation system—both because civil service employment offers job security and significant additional benefits and because the government may simply not be able to afford to pay all civil servants at parity with private sector comparators. A wise target is rather _consistency_ in the ratio of public-toprivate compensation across different types of positions, in which respect Lao civil service compensation appears to be quite rationally structured.

_Making total income transparent._ In addition to monetizing in-kind allowances and incorporating all allowances, where possible, into base salary, an important step toward ultimate transparency and rationality in pay would be to construct a comprehensive picture of the total income that civil servants accrue based on their public employment status. Anecdotal evidence points to the significance of nonregular duty-related pay (especially per diems) and additional informal income streams. A complete assessment of civil servants’ incomes would enable the government, if it so chose, to implement a policy that more systematically delineated legitimate and illegitimate earnings. This would help to ensure that civil servants are properly motivated, through the formal compensation system, to perform their jobs; and to prevent the conflicts of interest or risks of poor public service provision that emerge when civil servants seek to supplement their official compensation elsewhere.

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