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Handbook on Setting Remuneration


United Nations Development Programme

Handbook on Setting Remuneration

for Service Contract Personnel

Office of Human Resources

Bureau of Management

Table of Contents

troduction 3

B.The Desired Market Position 5

C.Benchmark Terms of Reference 6

D. Data Collection and Analysis 6

E.Designing the Remuneration System 8

F. Promulgation and Maintenance 10

G.Transitional Measures 13


  1. Introduction

The Service Contract (SC) modality, as specified in the HR User Guide, is intended to support the engagement of personnel to service development projects and to provide non-core services where outsourcing is not a viable and/or feasible option. Individuals engaged under the SC modality are considered as local contractors. The basis for the establishment of conditions of service for SC holders is therefore found in the local labour market and must be consistent with prevailing levels of pay for similar services and comparable work in the local labour market.

SC holders are subject to all the provisions of local labour and tax law as applied to nationals generally. UNDP is not responsible for payment of tax on earnings or other taxes due on the remuneration of the SC, nor is UNDP responsible for reimbursement of taxes paid by SC holders in respect of earnings received under SC with UNDP. The payment of taxes is the sole responsibility of the individual under SC. In this regard, the remuneration package under the SC is set at the gross level and may include an additional lump sum for participation in national social insurance programmes that are mandatory in accordance with the UNDP User Guide.1 UNDP country offices should be cognizant of the fact that engagement under the SC modality, while not necessarily short term, is not intended to support extended employment. Individuals hired under Service Contracts are expected to return to the national market at the conclusion of the project or when the non-core function is no longer required by the office. Therefore, while Service Contract conditions should be broadly competitive, in no instance should conditions lead the market or impede the movement of individuals into and out of this contracting modality. Finally, and most importantly, the process for establishing Service Contract remuneration must be simple and transparent. The guidelines presented in this handbook have been designed to meet this objective. This handbook, is intended to provide structural guidance that will make the process straight forward and consistent across duty stations while preserving the flexibility needed to be effective at the local level. Furthermore, since SC holders will be integrated into the global payroll system, it is necessary to adopt a more consistent and structured approach in setting and maintaining SC remuneration.

The creation of Service Contract remuneration scales is a process and responsibility primarily managed by Country Offices. The Director of the UNDP Office of Human Resources (OHR) has therefore delegated to UNDP Resident Representatives full responsibility and accountability to collect and analyze data locally to create and update Service Contract remuneration scales in accordance with this Handbook. The Resident Representatives may delegate the responsibility for setting of SC remuneration to the “Responsible Officer”, who manages the planning and contracting of human resources necessary to meet the office goals, objectives and work plan. Country offices must report any significant engagement/retention issues regarding SCs which are linked to levels of remuneration.

HQ support and monitoring mechanisms

The OHR Headquarters unit responsible for compensation matters will provide technical advice and guidance to Country Offices in the setting of remuneration for SCs. The Regional Bureau will be responsible for ensuring the proper implementation of the guidelines for establishing SC remuneration. Mechanisms for reporting on the setting of SC remuneration will be established by HQ on a periodic basis to ensure conformity with this Handbook.

No Link with UN National Salary Scales and Conditions of Service

There is no direct linkage in approach or amounts between SC remuneration and the UN salary scales for the staff series of contracts. As mentioned above, the objectives of contracting SCs, as part of the UNDP workforce are consistent with overall efforts to increase national development and strengthen technical capacity and expertise under national execution. Therefore, the SC is distinct in nature, with finite functions and limited services that are directly related to the execution of development projects or service areas that can be outsourced. This approach is considered by UNDP as a means of greater involvement of the national partners in the development process.

To serve this purpose, the SC remuneration policy is distinct in the following areas:

  1. target market position (prevailing instead of best prevailing – 50th vs. 75th percentile)

  2. comparator sample (focusing on public instead of private sector employers)

  3. gross remuneration subject to national taxation

  4. enrolment in local social security schemes where available

  5. integrated remuneration system from junior support services through professional services organized in a broadband format

  6. no annual increments, all remuneration movement for individuals based only on revision of the remuneration scale.

  7. no retroactive adjustments in remuneration.

These primary differences should be kept in mind by Country Offices while managing SC remuneration. The essential non-career, non-core character of SC services justifies these differences. SC holders must be made aware at the outset of engagement that such differences exist and the rationale for these differences.

Approaching the Market

Service Contract remuneration is based upon prevailing conditions found in the local labour market. It is therefore necessary to gather information on local conditions of employment in a structured manner to support construction of SC remuneration scales. In keeping with the objective of simplicity, SC remuneration scales must be designed to be comprehensive, inclusive of the value of typical allowances and benefits that are found in the local labour market. The objective here is not to manage separate allowances and benefits for SC holders. Rather, the value of these should be included in the remuneration scales such that these scales are broadly competitive with the total remuneration values for the 50th percentile of the local labour market.

Public Sector Focus

To ensure competitive remuneration packages for similar services in the local labour market and to facilitate the collection and updating of remuneration information, the target market for the SC has been defined as primarily drawn from the bilateral and NGO community. These are the organizations that engage personnel with profiles most closely similar to services included in the SC. Further these organizations usually maintain clear remuneration policies and structures that ensure a reasonably accurate alignment of data.

Finally, UNDP seeks to base SC remuneration predominantly on prevailing conditions found amongst public sector and not for profit employers. While inclusion of private sector employers is anticipated to ensure coverage of the range of services included in the SC, private sector employers should constitute no more than one third of the employer sample. The inclusion of a private sector employer, as with other employers, is conditioned on the availability of clear and comprehensive information on remuneration packages offered. All employers from which data is sought should have established remuneration ranges which clearly distinguish pay for levels of responsibility.

The survey model for collecting local market information anticipates a standard sample of ten employers. In very limited labour markets, that sample may be reduced to as few as six employers. In all instances no less than two thirds of the sample must be drawn from public/not for profit employers. This means seven public-sector employers for a ten employer sample and four public sector employers for a six employer sample. A list of suggested employers for inclusion in the sample is provided in Annex 1.

Engaging organizations and employers to participate in SC surveys should be carried out on the basis of reciprocity; UNDP Country Offices must therefore emphasize the willingness to exchange information on remuneration and the commitment to confidentiality to encourage participation by outside organizations in the survey.

  1. The Desired Market Position

In subsequent sections of the Handbook, guidelines are provided regarding benchmark terms of reference for services, data collection and analysis and the construction of the SC remuneration scale. It is recognized that within these procedures, Country Offices require flexibility in targeting a desired market position. While broadly the policy for establishing SC remuneration is to target the fiftieth percentile of the surveyed employers, Country Offices will have authority to adjust this market condition based upon the need to improve the performance of the SC remuneration system in the local market context.

Within the principle of providing competitive remuneration packages that reference predominantly a public sector sample, Country Offices will have the latitude to set remuneration to fall from the fortieth to the sixtieth percentile of the data range collected. This market position must be set broadly for the entire remuneration scale and not be set band by band.

The SC remuneration structure, addressed in Section F of this handbook, is designed again to provide great flexibility in setting the pay range to enable Country Offices to respond to changing market conditions. Where though the overall remuneration structure is not performing well, Country Offices should note these deficiencies and if necessary, seek additional guidance in collecting/analyzing local market information and adjusting the remuneration scale to improve its performance.

  1. Benchmark Terms of Reference

A series of benchmark Terms of Reference (TOR) spanning the range of services from physical operations to substantive innovation in six occupations has been selected as the internal proxy for maintaining competitive SC remuneration. These TORs have been selected because they represent the services under SCs most frequently engaged by the UN system and because these TORs can be found and measured in most external labour markets. The benchmark TORs are by definition a representative sample and cannot reflect every possible service under SCs if a streamlined and cost-effective approach to setting SC remuneration is to be maintained. The six occupations represented by the benchmark TORs are:

  1. Development Programme Management

  2. Information Technology

  3. General Administration

  4. Human Resources

  5. Finance and Accounting

  6. Team Assistants/Secretaries

Please see Annex 2 for tables containing brief thumbnail descriptions of the SC benchmark TORs and their equivalent SC level.

  1. Data Collection and Analysis

As described in previous sections of the Handbook, UNDP policy stipulates consistency with conditions for comparable services in the local labour market as the main basis for establishing SC remuneration. Therefore, data on local market rates must be accurately collected to ensure that remuneration levels are appropriate. This section outlines the basic approach that should be used by Country Offices.

Data Collection Methods

Approaches to data collection in remuneration surveys have evolved significantly in the last 10-15 years with the widespread adoption of new telecommunication and information technologies. HR professionals in the comparator market are typically asked to participate in several surveys each year and are becoming increasingly selective in the surveys they choose to participate in. Furthermore, with the implementation of corporate Enterprise Resource Platforms (ERPs) such as Peoplesoft, Oracle and SAP, many multinational corporations are consolidating their compensation expertise at the regional or global level. Therefore, while traditional methods of data collection involve face-to-face interviews with participating organizations at the local level, it may be necessary to adapt to more modern approaches aimed at reducing the burden on participating organizations while maintaining the accuracy of the data collected. These methods are described below:

  1. Pre-Interview Survey Questionnaire: A streamlined survey questionnaire may be sent to participating organizations to allow them to submit base data such as remuneraton scales and tables of benefits in advance of the survey interview. Even if organizations do not actually submit the data prior to the interview, this gives them an opportunity to prepare for the interview. A sample of this questionnaire is provided in Annex 3.

  1. Remote Survey Interviews: Survey interviews may be conducted by telephone. This can save a lot of time that would otherwise be spent traveling to and from organizations and completing increased security formalities adopted by many office buildings. Remote survey interviews may be necessitated by the fact that the compensation manager for a particular local market may actually be based at the organization’s regional or global service center located in another country.

  1. Application of Global TOR Matching Guidelines: Guidelines for establishing matches with SC benchmark TORs can be established for multinational organizations with classification systems implemented on a global or regional level.

  1. Preparation of Participant’s Reports: Providing good feedback to participating organizations is an integral part of securing the flow of data from year to year. The Country Office must ensure that reports sharing the results of the survey and allowing each employer to compare their data with the other participants in the survey are prepared and sent. It is of course critical that the reports be prepared to protect the confidential information of each participant. While each participant should be able to compare their data generally with that of the other participants, a participant should not be able to identify how much another particular participant is paying.

While the use of pre-interview survey questionnaires is recommended to collect data prior to the interview, this questionnaire should not be used as a substitute to the interview. The Country Office should normally conduct an interview, either by telephone or in person, to confirm the data reported and to validate the TOR matches. In order to ensure consistency and reliability of data, the TOR matches must always be established by the Country Office and not by each participating employer.

Quantification of Salaries and Benefits

In order to simplify data collection and analysis, the remuneration at the midpoint for each TOR will serve as the single reference for ensuring appropriate SC remuneration. The midpoint remuneration is the midpoint or average of the minimum remuneration and the maximum remuneration. The minimum remuneration represents an organization’s minimum hiring rate while the maximum remuneration is the highest normally attainable remuneration within each organization’s TOR. For organizations that don’t have a structured remuneration scale or defined minimum and maximum remuneration levels, the organization’s average actual remuneration or market reference point for that TOR may be used. Quantification of benefits and allowances should be consistent with general practices in the salary survey industry.

Matching Terms of Reference

The single most important component of a reliable remuneration survey is accurate matching of TORs. Without accurate matching a remuneration survey is of limited value. It is therefore important that the individual collecting the data has a solid understanding of the benchmark TORs and of the progressions of services that they represent. The following four factors should be evaluated in establishing SC TOR matches: A sheet for recording matches for the benchmark TORs is provided in Annex 4.

  1. Structure: Understanding the structure of the organization is critical to establishing accurate TOR matches as each TOR must be examined in the context of the other functions it interacts with. Examining the roles of all the TORs in a functional team enables a more accurate evaluation of each individual TOR. External TOR at levels above and below the benchmark TORs should also be examined to determine context.

  1. Content: Scope and depth of responsibilities should be examined in order to measure the substantive contribution of each TOR. Examine whether the functions of a TOR typically fall under well-established guidelines or whether origination of new perspectives or approaches is required. The complexity of analytical functions performed should also be examined.

  1. Progression: While the organization structure and TOR content provide most of the information necessary to establish accurate TOR matches, experience and training requirements at various levels should also be examined in order to understand movement between the levels.

  1. Qualifications: Finally, identify any educational requirements or the degree of specialization that may be required in a particular field for each TOR. While educational requirements alone can not be used to establish TOR matches, this information can be useful as the last piece of this four-step approach. The importance or weight given to the qualifications required may also vary across occupations with higher weights given in more technical occupations, but generally speaking this factor has the least weight in determining a TOR match.

  1. Designing the Remuneration System

The SC is intended to provide great flexibility in engaging and recognition for high quality services. The design of the remuneration system is based upon broad bands in an integrated remuneration structure. While data is collected for specific benchmark TORs as detailed in the previous section, this remuneration data is integrated into the SC remuneration system to provide for wide remuneration ranges which support flexibility in engagement and movement through service quality evaluation measures.

Broadband Options

To ensure comprehensive data collection, remuneration data as described in the previous section has been collected for six service occupations across the eleven levels of responsibility typically found in a UNDP development project and Country Office setting. The SC remuneration structure though will integrate remuneration into five broadbands. These broadbands are aligned against the standard TOR levels as illustrated in the table below.

Contribution Value

SC Levels

Service Bands

Substantive Innovation

SC-11

SB-5

Adaptive Delivery

SC-10

SC-9

SB-4

Basic Conceptual Comprehension

SC-8

Integrated Service Execution

SC-7

SB-3

Comprehensive Process Support

SC-6

Specialized Process Support

SC-5

Basic Process Support

SC-4

SB-2

Repetitive Support

SC-3

Mechanical Operations

SC-2

SB-1

Physical Operations

SC-1

Setting the Remuneration Scale

This is essentially a three step process:

  1. aggregate individual TOR data to the band level,

  2. smooth the raw band data to provide for an internally consistent yet market influenced progression between bands;

  3. set the min/max span of remuneration for each band.

The midpoint raw TOR data may be used to set raw band market references. Following the smoothing of the SC pay scale, the raw band data should be retained for future reference as a measure of changes in the comparator organizations. The initial point of departure in constructing the remuneration scale is to use the raw TOR data for the surveyed organizations targeted to the fiftieth percentile of the market.

Since the SC remuneration system is broadbanded, it is not useful to provide global guidelines for the range of spans and differentials in levels which should guide construction. These ranges would need to be so wide as to provide little practical guidance.

Once the remuneration scale has been developed, the Country Office should examine the utility of the scale from a resource and competitive market position perspective. If necessary, the raw job data market extract should be adjusted to a higher or lower market position to improve either the competitiveness or budgetary aspects of the scale.

Finally, the SC remuneration scale should be established in local currency. Only when it is the practice of all of the surveyed organizations to denominate remuneration and make payments in a currency other than local currency should this be considered. However, to the extent possible, payment of remuneration should remain in local currency. If the remuneration scale is denominated in a currency other than the local currency and paid in local currency, the UN prevailing operational rate of exchange must be applied. Payments of remuneration to SC holders in currencies other than local currency should be based upon documented evidence of similar practice by all of the surveyed employers and confirmation of legality by the appropriate national authorities.

  1.