Pilot project aims to make Israel's civil service more efficient

Ministry of Finance Photo: Rafi Kutz

The project, which began six months ago in three ministries, pays bonuses according to performance rather than across-the-board.

Over the past six months, the Ministry of Finance head of salary and employment agreements has been conducting a pilot program with the participation of 3,000 civil servants. As part of the trial, salary bonuses are being paid to employees, of up to an additional monthly salary per year, according to their work performance. The employees ranked towards the bottom of the table will still earn a bonus, in most cases, but a smaller bonus than they are currently used to receiving.

According to the report of the Ministry of Finance supervisor of wages, the average monthly salary of a civil servant in Israel is currently above NIS 17,000.

The pilot program will run for two years, ending in June 2023, and includes employees of the Ministry of Economy and Industry, Ministry of Transport and Road Safety, and the Israel Tax Authority's customs duties and VAT department. The aim of the trial is to switch to differential remuneration for civil servants and creating incentives for excellence. This is compared with the current mechanism, which often encourages mediocrity. In the event that the trial succeeds, it will gradually be expanded to include all government ministries and related units and will be included in the collective agreements of the employees.

In the current situation, civil servants included in collective salary agreements are entitled to 'encouragement bonuses.' In other words, a fixed bonus of 25% of their annual salary if they reach high 'percentages of efficiency.' However, the targets are so low or loosely defined that almost all civil servants are entitled to the maximum grants for excellence.

In the Ministry of Economy and Industry, for example, an employee who reaches 100% of the targets does not receive the bonus and only after reaching a performance of 133% would they receive a 20% premium. The average percentage of efficiency of employees in the Ministry of Economy is between 150% and 160%. In other words, the encouragement salary designed to reward excellence has become an integral part of the salary of all employees.

The pilot project is being conducted in cooperation with the Histadrut trade union, after protracted negotiations with the Ministry of Finance supervisor of wages. Although the new grants for excellence in the pilot project does not replace the encouragement pay to which employees are entitled but as part of the agreements between the sides, it was decided to toughen the conditions for receiving the encouragement bonus. Following the agreements, there will be an annual review for raising the threshold of the targets related to bonuses and the method for calculating the percentages of efficiency will be automatically updated, without the need for separate agreements each time between the Histadrut, workers committees and management. The expectation is that the average encouragement pay bonus per employee will fall from its current 19-20% to 13-14%, after the changes.

In the current situation, the state pays out NIS 600 million every year to its civil servants in encouragement bonuses. Raising the targets for achieving the bonuses could save the state NIS 200 million annually. The first automatic revision of the targets was conducted after the start of the pilot project in May and the next revision will be in February 2022. In the short term the pilot project won't save money in state expenditure for civil servants but rather the reverse. Implementing the new model of remuneration incentives, alongside the existing bonus payments, will mainly increase expenditure at this stage. The employees entitled to the new bonuses will receive them every six months, with the first payment expected in their salary slip for July 2022.

Each one of the units participating in the pilot project is using a different method of remuneration. In the Ministry of Transport and Road Safety, the 717 employees with collective salary agreements will be ranked according to their performance curve. At one end the 10% of employees with the best results will receive a salary bonus of 8% n average. The next 40% will receive a 5% bonus and the bottom 50% will receive a 2% bonus.

Why pay employees for a lack of excellence? The explanation is that this is to prevent resentment among employees ranked in the lower echelons who will continue to be entitled to a salary bonus of 20% plus the new differential bonuses.

The Ministry of Economy and Industry has preferred to abstain from individual rankings and is conducting the pilot by ranking its different units, once every six months. The ranking sets the bonus premium for the following six months. Employees of units will earn bonuses of between 2% and 8%, according to their output.

So far it seems that the pilot project is deploying more carrots than sticks. But the method is different for civil servants in the Israel Tax Authority's customs duty and VAT department. The 1,967 employees there, in contrast to those at the Ministry of Economy and Industry and Ministry of Transport and Road Safety, have something to lose in the pilot project. In the Israel Tax Authority units, the encouragement bonuses are anyway higher than elsewhere, with a ceiling of 25% of the basic salary compared with 20% at the Ministry of Economy and Industry and Ministry of Transport and Road Safety. At the Israel Tax Authority, it was decided to cut the encouragement bonus to 20% and convert the remaining 5% into differential payments. In other words, the bonuses received by less efficient employees is set to shrink.

Monitoring the output of employees providing services will be examined - for example the number of enquiries handled. In more administrative positions, the nature of the work sometimes make it more difficult to measure in quantitative terms. In these jobs, the assessment will be based on evaluations by managers, with those in charge of the pilot project making efforts to ensure that the ranking is not influenced by the civil servants relationship with the manager.

How will units be evaluated?

At the Ministry of Economy and Industry where there will be competition between the different units, each unit manager will choose a flagship project by which the unit will be ranked. The managers will need to relate to the influence of the project on the unit's target population and the involvement in it of all the unit's employees and the cooperation undertaken outside of the unit. In addition, the managers will refer to how much the project improves services as well as to matters like timetables and budgets.

At the moment the pilot project mainly rewards employees and s not saving the state money in the short term. But in the longer term, the changes in the bonus model should lead to streamlining work in government ministries and increasing work output. At the same time, the pilot should lead to toughening criteria for excellence and preventing a situation in which everyone is excellent and receives bonuses - regardless of the quality of their work and the effort put into it.

Ariel university expert in economic and political public policy said, "Adding differential remuneration is desirable but on the other hand what is really needed is a change in the employment model itself in the public sector so that it will be more efficient.

"The change leaves the employees' bonus and even if it changes its size a little, those who are not efficient will still continue to work in the public sector. The problem is structural because they have tenure. There needs to be a system that genuinely incentivizes them to work, in the sense that there is also the threat that if they are not good, they won't progress and they won't even stay in their job. The change currently being undertaken will mainly add an extra burden to the public coffers. Maybe it will slightly improve the output of some of the workers but it will still continue to keep workers that aren't good."

Ministry of Finance deputy head of the department of salary and employment agreements with responsibility for remuneration and incentives, said about the pilot project. "We see major important in encouraging efficiency, productivity, effectiveness and improving service of civil servants through operating the latest, flexible and differential incentive models. For this purpose the unit is cooperating with the Histadrut on a pilot project to improve the incentive mechanism practiced in government ministries. The pilot has begun in three ministries - and if it succeeds will be expanded the rest of the civil service."

The Histadrut said, "The pilot project in three government units was formed in full cooperation with the Ministry of Finance. The aim of the plan is to improve work relations and promote methods the latest and most effective work methods, while paying suitable, appropriate and equal remuneration to all workers."

Published by Globes, Israel business news - en.globes.co.il - on December 9, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Ministry of Finance Photo: Rafi Kutz
Ministry of Finance Photo: Rafi Kutz
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