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Brussels, 29 June 2011

Q&A: Staff Reform

Please note this Memo has been replaced and updated by MEMO/11/907

Why are you proposing these reforms?

Three reasons. First and foremost: the need to make efficiency gains and savings in administrative expenditure during difficult economic times. The Commission has lived up to this responsibility from the start of the crisis by following a policy of zero growth in posts, by meeting new political priorities through internal redeployment of staff, by putting in place tools and procedures to improve its internal organisation and efficiency and most recently by the proposal to freeze its administrative expenditure for the year 2012.

The administrative expenditure of the EU is less than 6% of the current budget of the European Union, which itself represents just 1% of EU GDP. A major staff reform in 2004 has already allowed the EU to save approximately €3 billion, and will save another €5 billion between now and 2020.

Nevertheless, it is important to show that the institutions and their staff are not out of touch with developments in many public administrations in Europe. That is why the Commission is coming forward with these draft proposals, which will save more than €1 billion on top of the existing savings outlined above.

Second: sunset clauses in the Staff Regulations require new solutions for the annual adjustments of salaries, pensions and pension contributions. During the 2004 reform, the mechanisms for the annual adjustment of remuneration and pensions and the annual adjustment of the pension contribution rate were revised. Both mechanisms include a sunset clause. The former will expire on 31 December 2012, and the latter will expire on 30 June 2013.

Third: to provide answers to concerns expressed by the Council and the Parliament. Over the last couple of years, the Council has expressed different concerns on three main elements - pay, pensions and career-related issues. In some cases it has called on the Commission to come forward with legislative proposals that address its concerns by 2011. In addition, the Parliament (a demand from COCOBU, the budgetary control committee) has invited the Commission to table a proposal on the revision of the Staff Regulations.

The Commission wanted to respond to all these concerns in a comprehensive way, taking account of the interlinked nature of different elements of Human Resources management. That is why it is tabling a single package of proposed changes to the Staff Regulations.

What happens next?

The draft proposals will provide the basis for internal discussions and consultations with different stakeholders, including staff representatives. A formal proposal of the Commission will be submitted to the Council and Parliament later this year.

These proposals lack ambition. The EU budget is far too high and most of it is being wasted on administration!

The EU budget represents around 1% of the EU's GDP (as opposed to Member State government budgets of 30% to 50% of GDP - or even more in some Member States).

Of this 1%, around 6% is spent on administration (Heading 5 of the budget). This expenditure has been kept under control and stable for several decades. The other 94% is invested in Member States and third countries.

The salaries and pensions of European officials account for little more than half of that 6%. These serve to pay high-calibre staff delivering and managing valuable EU policies that have a direct and positive impact on citizens.

The rest of the 6% that goes on administrative expenditure finances indispensable services such as:

  • IT services, which enable automation of processes, increase the organisation's efficiency, and help provide better service for citizens;

  • External translators and interpreters - inevitable given the institutions' 23 working languages, but also ensuring proper respect for Europe's rich linguistic diversity,

  • The institutions' buildings, and security;

  • Work-related travel, which is essential in the context of external relations, relations with citizens and stakeholders, financial control and audits, etc.;

  • Publications.

But these proposals will only provide a fraction of the savings delivered by the 2004 reform. Why bother?

The major 2004 reform of the Staff Regulations did not take place so long ago, and its effects (including the savings it brings) are spread over a long period of time. In fact, savings in the field of personnel always increase over time. The 2004 reform has already saved €3 billion, but it will deliver another €5 billion in savings by 2020. So the more than €1 billion in savings these latest proposals would secure between now and 2020 go hand-in-hand with the savings of the 2004 reform. And the impact of the proposed measures will also increase over time.

That said, in the area of Staff Regulations, savings are not the only objective of any reform. A solution needs to be found which strikes the right balance between the EU's needs as an employer to attract and retain multilingual professionals of the highest calibre, and the need for efficient use of budgetary resources.

The objective of the proposed changes to the Staff Regulation is to adopt a comprehensive package which not only provides further savings in administrative expenditure, but also a stable framework in terms of salary and career, appropriate answers to the concerns expressed by the Council regarding some elements of HR management, and further modernisation of the EU civil service.

What happened during the 2004 reform?

The short answer: modernising the career structure; lowering entry-level salaries; reforming the pension scheme; introduction of contract agents; better conciliation between professional and private life; new method for adjusting salaries and pensions.

This reform was in several ways ahead of its time, and many Member States are only now making similar changes in their national administrations.

Why not just reduce the number of officials. There are far too many of them!

We are proposing to reduce the number of staff: by 5% across all institutions. But let's put this into perspective.

There are some 55,000 EU civil servants and other agents across all EU institutions, bodies and agencies, in Brussels, Luxembourg, across Europe and around the world. They serve some 500 million Europeans across 27 Member States, as well as countless people around the world, particularly in Africa and other developing areas.

By comparison, Birmingham City Council has 60,000 employees, and the administration of Paris employs 50,000.

In any event, the EU institutions cannot be directly compared to a national administration. Their particular working conditions need to be kept in mind when assessing staff numbers and their deployments: the multi-site presence all over Europe and the world, the 23 working languages, the unique inter-institutional set-up, to name just a few.

Within the European Commission, continuous efforts have been made in recent years to increase the efficient use of staff. As a result of the annual screening exercise, jobs in administrative support and coordination have been rationalised, so that staff can be moved to operational frontline activities and support the delivery of Europe's challenging political agenda.

The efforts of continuous redeployment from old to new priorities and the reduction of overhead functions have enabled the Commission to present a 2012 draft budget which, for the third year in a row, requests no new posts. This means that the Commission has remained faithful to its commitment to meet all its staffing needs with constant resources – despite the new competences imposed by the Lisbon Treaty.

However, one should bear in mind that Commission staff represent fewer than 55% of the total staff of all institutions.

Officials are paid too much. Why not reduce salaries?

The Commission chose another option. It is proposing to increase the minimum weekly working time to 40 hours and reduce staff numbers. Fewer staff means lower costs. But individual staff members will have to work more to get the same salary, because there will be no financial compensation. As a result, EU civil servants will work longer hours than their counterparts in many national administrations.

Second, secretaries and clerks will no longer be recruited as officials in the future, but as contractual staff with open-ended contracts. The salaries and career perspectives for contract agents are attractive, but they are at a lower level than the salaries for officials.

Third, the net purchasing power of EU officials, after taxes and pension contributions, already decreased in 2004, 2005, 2007, 2008 and 2010. Overall, the purchasing power of EU officials' salary decreased by 4.2% between 2004-2010 while for national civil servants (on average) it decreased by only 1.8%.

The calculation includes eight Member States: BE, DE, ES, FR, IT, LU, NL, UK.

Fourth, the 2004 reform already had a major impact on salaries. As a result, the monthly entry salary for university graduates (AD5), for example, was reduced by €500. Many jobs are no longer carried out by officials, but by contract agents who have lower salaries and, later, lower pensions as well.

EU institutions have to compete for high quality staff with other international organisations, national diplomatic services, multinational companies, law firms and consultancies. The kind of staff the EU institutions are looking for is specific: employees of the EU institutions must be experts in their field, they must speak at least one foreign language at professional level – and usually more, they must be able to work in a multicultural environment and usually they must be willing to move with their families to another country (which often means spouses giving up their career).

Unfortunately, successfully competing for this talent is now getting difficult. The European Commission takes part in studies which show that the EU institutions tend to pay less than other international organisations for entry-level salaries. In rare cases even national civil services of Member States offer better remuneration packages, as EU institutions do not offer benefits in kind which are common in diplomatic services or international companies: provided or reimbursed accommodation, car, phone, etc. In certain cases this has proved to be an obstacle in attracting qualified staff to work for EU institutions in Brussels.

EU institutions are also having increasing difficulty in securing geographical balance, as required by Article 27 of the Staff Regulations. For example, in recent recruitment competitions for administrators, the participation rate of French, German, Dutch and especially UK citizens fell far below numbers that would reflect their size.

Agencies - especially those in Member States where salaries are adjusted downwards to reflect the lower, local cost of living - are also facing real challenges in attracting qualified staff. Frontex, the agency established in Warsaw to help co-ordinate border security co-operation between Member States, is one of many examples.

The Commission criticises national indexation of salaries in its Annual Growth Survey but applies its own indexation of salaries. Isn't it time to scrap 'the method' for annual adjustments to salaries and pensions?

The method is not a salary indexation system: it follows the evolution of purchasing power of national officials in central government in the Member States, it does not compensate for inflation.

For example, the remuneration of European officials increased by only 0.1 % in 2010, while inflation in Brussels, where the majority of EU staff works, was 2.4 %. This means that European officials got a pay increase well below inflation.

In addition, it is in everyone's interest to keep a method. The first method was adopted by the Council in 1970 to avoid annual, drawn-out salary negotiations and social tension. It has now applied for 40 years and has proved to be an efficient, transparent and simple tool for adjusting remuneration and pensions.

The proposal for a revised method builds on the principles of parallelism and a comparable development of purchasing power in Member State administrations and for EU civil servants:

Method for adjusting salaries and pensions

Current method

New method

Eight Member States are used in the sample (DE, FR, UK, IT, ES, NL, BE, LU).

The adjustment of EU staff salaries and pensions is based on real salary evolutions in the eight Member States (after deducting national inflation).

It is adjusted by the cost of living in Brussels for EU officials, i.e. Brussels International Index.

It is assumed that the cost of living in Brussels is the same as in Luxembourg, and Luxembourg is not taken into account.

Ten Member States would be used in the sample: the existing eight plus Poland and Sweden.

The adjustment of EU staff salaries and pensions would be based on nominal salary evolutions in the basket of Member States (without deducting national inflation).

No more Brussels International Index, rather national inflation in Belgium and Luxembourg is used.

In the beginning a correction coefficient for Belgium and Luxembourg is fixed at 100. If inflation in BE and LU is different to inflation in the sample Member States, the correction coefficient is increased if BE and LU inflation is higher, and decreased if it is lower.

Salaries are paid according to the grade and step in the salary grid and multiplied by the correction coefficient.

Why has the exception clause never been triggered during the crisis? What are you going to do about it?

Over 40 years, the method has applied during economic recessions as well as periods of economic growth. Through the principle of parallelism, it has always taken full account of any developments in purchasing power of national officials in Member States, whether positive or negative, in good times and bad. Therefore, it was never necessary to trigger the exception clause, for which the criteria were always somewhat vague, and the procedure heavily bureaucratic and time-consuming.

It is true that the austerity measures announced by many Member States in 2009 and implemented in 2010 were not immediately reflected in the remuneration of European officials at the end of 2009. But this was due to the time needed to record what occurs in the Member States. As a result, the current method has always worked with a small time lag of maximum one year.

The measures were therefore fully reflected in the remuneration of European officials in 2010, when the annual increase amounted to just 0.1 %. Due to the increase in contributions, namely pension contribution and the special levy, this actually translated into a 0.3% cut in net salaries of EU staff.

Nevertheless, to respond to Member States' concerns about the exception clause, modifications are proposed which would make its application more automatic, less bureaucratic – and hopefully easier for everyone to understand. It is worth noting that the proposed clause would have been triggered in 2009:

Current exception clause

New exception clause

Current exception clause refers to a sudden and serious deterioration in the economic and social situation within the Union.

The measures to be taken are not defined.

If it is to be used, the Commission has to launch an ordinary legislative procedure and submit an appropriate proposal to the European Parliament and the Council, which would act after consulting other institutions concerned.

The application of the exception clause would be made automatic. It would apply if the following conditions are met:

- the forecasted GDP of the Union is negative;

- the annual adjustment is positive and exceeds the change in the GDP by two percentage points.

In this case the annual adjustment would be split into two equal parts and paid over two years.

This would not require an ordinary legislative procedure, but would be directly applied by the Commission.

Perhaps more money could be saved if officials paid tax?

A range of myths has been created about EU staff not paying any tax. The reality is: they do. Tax bands range from 8% to 45%. The current minimum rate of 8% applies to the part of the monthly taxable income ranging from €109.85 to €1,938.92. The maximum marginal rate of 45% is applicable to any part of the monthly taxable income over €6,938.39 (for the minority who earn this much).

Unlike in many national public tax systems, there is no possibility for tax deductions (of mortgages, child care spending etc). Taxes of EU salaries are deducted directly.

In addition, EU civil servants currently contribute 11.6% of their salary to their pension scheme – a higher proportion than civil servants in every EU Member State. They also contribute to their sickness and accident insurance (1.8% of basic salary) and pay a special levy (now 5.5 %). Finally, they also pay taxes at the place of residence, unrelated to income from the EU: local taxes, property taxes, VAT etc.

A recent independent comparative study by Matrix/Ramboll commissioned by the Directorate-General for Human Resources and Security stressed the fact that the tax regime for EU officials is less favourable than other international institutions.

What about pensions? Surely more could be done to control soaring pension costs.

If pension costs are rising, it is simply because all the extra European civil servants recruited 20 or 30 years ago through various enlargements or to help create the Internal Market, for example, are now reaching retirement age. In the early decades of the European Union, when there were no or very few retired officials, there was a pension surplus!

Nevertheless, the draft proposals include a series of measures which will have a substantial impact on pension expenditure over coming years. They include:

  • increasing the retirement age further, from 63 to 65 - and even 67 on request;

  • raising the age threshold for early retirement, whether with or without reduction of pension rights, from 55 to 58;

  • reducing the already extremely limited scope for early retirement without reduction of pension rights (around 80 people/year across all institutions) by 50%;

  • in addition, the 5% staff cut will logically lead to fewer people receiving a pension in the future;

  • the recruitment of secretaries and clerks as contract agents instead of officials leads to lower salaries and consequently lower pensions when they retire;

  • finally, the proposals would also make it more difficult for a proportion of the staff to be promoted to the highest grades in their career. This again means a lower salary and consequently a lower pension than expected.

Of course, like any changes to any pension system, these measures will only start to have a major impact in the mid to long-term.

The reason why other elements of the pension system remain unchanged is that they already underwent a radical change in 2004. The new pension system was one of the pillars of the 2004 reform of the Staff Regulation, and pension-related elements of this reform produced – and will continue to produce to an increasing degree - a substantial part of its overall savings. The main impact of the 2004 changes will start to be felt around 2020.

As a result, total pension-related savings from 2009-2059 are expected to be nearly €25 billion. After that, €1 billion will be saved annually, compared to a situation where the 2004 reform hadn't taken place.

So the development of its pension scheme (2004 reform and 2011 draft proposals) is in line with the Commission's Green Paper on adequate, sustainable and safe European pension systems of 7 July 2010, which called for the extension of working lives by increasing the retirement age and by reducing early retirement schemes.

Why do the proposals talk about flexitime? Officials should be working more, not having extra holidays!

First, EU officials are dedicated staff whose first preoccupation is their output and their contribution to the European interest, not flexitime recuperation. Proof of this is that almost half of all hours worked in excess of standard working time are never recuperated, in any form whatsoever.

Second, many national (e.g. Denmark, France, Germany, Netherlands, United Kingdom) and regional (e.g. Bavaria, Baden-Württemberg) administrations make extensive use of flexitime schemes - and rightly so, because it is a modern and family-friendly management tool.

Third, flexitime recuperation gives staff the possibility to partially claw back the excess hours they have worked, it is not extra holidays.

A total of 14,000 Commission officials and temporary agents, equivalent to 57% of eligible staff in these categories, applied flexitime in 2010. Only part of the accumulated working hours above the standard working hours were taken as recuperation, resulting in a total of 88,000 days of excess work delivered but not recuperated. These extra hours correspond to 400 posts.

Flexitime is not about working less, it is about working better, in a more flexible manner that better matches organisational needs. A large body of research and the experience of numerous private firms show how employers benefit from providing flexibility in when and how work gets done.

That is why the Commission does not want to modify the flexitime scheme in general. It does, however, propose to exclude management from the formal scheme. Managers already often work significantly longer hours than other staff in the organisation and a small "management allowance" is paid to recognise the additional commitment and responsibility that goes with the role. The current flexitime system is not coherent with the demands of everyday management tasks, where managers are expected to be available outside the standard working day to ensure the delivery of Commission services.

Why are you increasing the minimum working week to 40 hours?

The proposed staff cuts will require everyone to pick up a share of the additional work burden if the same policy objectives are to be achieved. An increase of almost 7% in everyone's working week will ensure that we maintain the same level of capacity.

The Commission's intention is to ensure that EU working hours are at least in line with current practice at the national level - and at 40 hours, the institutions will be at the upper end of the scale.

The 40 hour minimum will apply to all the institutions, and the amount of compensatory leave currently taken under the flexitime system will of course be significantly affected by the new working hour requirements

In reality, though, a substantial majority of staff already work more than the required 37.5 hours, and the Commission is simply translating the current reality into the Staff Regulations.

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