MINISTERS’ DEPUTIES

CM Documents

CM(2020)169

13 November 2020[1]

1391st meeting, 8 December 2020

11 Programme, Budget and Administration

 

11.2 Co-ordinating Committee on Remuneration (CCR)

a. Annual adjustment of salaries for staff of the co-ordinated organisations at 1 January 2021 –

272nd report

Item to be considered by the GR-PBA at its meeting on 24 November 2020

 

Introduction

1.            The Co-ordinating Committee on Remuneration (CCR) report on the 2021 salary adjustment has been distributed in document CM(2020)141. Its recommendation for the 2021 salary adjustment for France is +3.4%.

2.            When making this recommendation, the CCR noted that whilst the recommendation was entirely in accordance with the Salary adjustment method agreed within Co-ordination[2] and any decreases in real terms in the salaries of national civil servants of the eight reference countries as a result of the Covid-19 pandemic would very likely be reflected in due course in future salary adjustments of the Co-ordinated Organisations, the recommendation did not reflect the urgency of the general economic situation caused by the pandemic. The CCR urged the Co-ordinated Organisations to examine carefully whether their Affordability Clauses could be applied.

3.            The adjusted budgets for 2021[3] contains a reserve for price increases corresponding to a 1.3% inflation rate[4]. The purpose of this reserve was to cover inflation on all types of expenditure, including remuneration of staff. In general, in the Ordinary Budget, the reserve is split 2/3 for staff expenditure and 1/3 for non-staff expenditure, in line with the staff/non-staff expenditure ratio.[5]

Affordability clause

4.            According to Article 6 of the currently applicable remuneration adjustment procedure (“Affordability clause”) (see Box 1 below), the Committee of Ministers may decide not to award a salary adjustment recommended by the CCR, to award it only in part or to postpone it, in the event specific budgetary or economic circumstances so warrant. As objective conditions that can justify such a decision, the clause refers, inter alia, to “an unforeseen event entailing exceptional financial damage, among others, following an international economic crisis”.

5.            The OECD Economic Outlook considers “the Covid-19 pandemic has triggered the deepest economic recession in nearly a century” and that practically all economies will have suffered recession in 2020 to varying degrees. In the Euro area for example, GDP is projected to contract by -7.9% in 2020.[6]

6.                The pandemic and its severe economic effects throughout Europe and beyond may be considered to constitute an unforeseen event and justify the application of the affordability clause, in which case it will be for the Committee of Ministers to decide whether to award the 2021 adjustment in part or not at all or postpone it to a later date.

7.                In this context, it is recalled that a decision not to accept the CCR recommendation could lead to an appeal before the Administrative Tribunal. As the adjusted budget includes a reserve for price increases reflecting the inflation rate applicable for 2021 of 1.3%, a decision not to award any salary adjustment at all, i.e. not using the reserve for the purpose of adjusting the salaries to inflation, would increase the legal risk and possible appeals could have a realistic prospect of success.

Box 1

Article 6: Affordability

“6.1    The Committee of Ministers reserves the sovereign right to take special measures concerning the implementation of the adjustment resulting from the application of this salary method, if specific budgetary and/or economic circumstances so warrant, in particular:

to decide that the annual adjustment recommended by the CCR be awarded in part or not at all, and to decide also on the timing for the payment of any adjustment.

6.2     The objective conditions which could define those specific budgetary and/or economic circumstances allowing for action under Article 6.1 to be taken include, but are not limited to, the withdrawal of, or default of payment by, one or more member countries of the Organisation, producing a significant reduction in its budget; or an unforeseen event entailing exceptional financial damage, among others, following an international economic crisis; or a prolonged incapacity to function for the Organisation; or where the financial impact of a CCR recommendation would cause a variation in the total staff expenditure of such magnitude that it would jeopardise the function or mission of the Organisation.

6.3     The Committee of Ministers also reserves the right to determine whether, in the context of the annual adjustment, any other measures should be taken.

6.4     Action under this article shall be taken in accordance with the applicable general legal principles.”

8.            With a view to mitigating the legal risk, the Secretary General considers it to be reasonable to propose that should the Committee of Ministers apply the affordability clause, the decision should be to award the adjustment in part, corresponding to the inflation rate of 1.3% applied to the adjusted budget in 2021.

9.            The rate of 1.3% would apply to staff based in France and, for the sake of parity, this rate would be adjusted to take account of the levels of inflation in the various countries. This would result in adjustments of 2.2% in Austria, 1.3% in Belgium, 4% in Hungary, 0.7% in Italy, 0.7% in Luxembourg, 1.3% in Portugal and 6.4% in Turkey.[7] The budgetary impact of the application of rates higher than 1.3% for the duty stations concerned on the various budgets would be marginal (Ordinary Budget: € 23K; European Centre for Modern Languages (Graz): € 6K).

 

10.          The proposal to award a salary adjustment of 1.3% for 2021 would also, at least partly, be in line with the position of the Staff Committee. The latter has informed the Secretary General that, given the current sanitary and economic crisis, it could accept a salary adjustment of 1.3% from January 2021, provided that the remaining 2.1% of the recommended salary adjustment be awarded to staff for periods after 2021 according to modalities that are still to be determined.

11.          If the Committee of Ministers follows the Secretary General’s proposal, the provision for price increases would be allocated as appropriate (cf. Appendix 2).

Application of the “moderation clause”

12.          Lastly, the application of the moderation clause, approved by the Committee of Ministers[8] concerning the calculation of the reference index, requires a specific decision by the Committee of Ministers in the case where the evolution of the reference index is below 98.0 or above 102.0. The part beyond these thresholds “shall be delayed to either the last day of the year when the salary adjustment calculation in question would have taken effect or the first day of the subsequent year”.

13.          The reference index for 2021 was 102.1 (cf. Annex 2 of CM(2020)141), above the threshold of 102.0. In practical terms, this meant that the reference index used for the purposes of calculating the salary adjustment for 2021 was capped at 102.0 (cf. Annex 1 of CM(2020)141) and the Committee of Ministers must decide when to apply the 0.1 part beyond the threshold.

14.          It is proposed that the 0.1 be delayed to the first day of 2022 for the calculation of the salary adjustment for that year.

Appendix: The co-ordination system and the salary adjustment method[9]

A.         Where does the salary adjustment come from?

1.         The salary adjustment is presented to the Committee of Ministers on a yearly basis in the form of a recommendation to the six co-ordinated organisations[10] by the Co-ordinating Committee on Remuneration (CCR). The CCR is composed of national representatives of member States, principally experts from Ministries of Finance.

2.         The salary adjustment is calculated by the CCR using a mathematical formula. The method currently in force was adopted by the Committee of Ministers in October 2016.[11] This method runs until end 2021. The CCR has commenced work on a revised method with a view to its adoption by the governing boards of the co-ordinated organisations by the end of 2021.

The method is based on the following elements:

Reference index

- weighted average of the evolution of net real remuneration in the national civil services of the eight reference countries (Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain, the United Kingdom) over the reference period.

- a “moderation clause” applicable to the reference index was introduced in 2017: the final reference index takes into account two reference periods with a weight of two thirds for the current reference period and a weight of one third for the preceding reference period (cf. § 4 below).[12]

Consumer price index

- the average change in prices (Harmonised Consumer Price Index) over the reference period in the country for which the salary adjustment is calculated.

Purchasing power parities

- index calculated to ensure that staff in different duty stations maintain equivalent purchasing power.

The method reflects changes over the past year; there is thus a “time lag” effect.

3.         The application of the method can and does result both in increases and decreases in salary. For 2011 and 2014 the method indicated a negative adjustment of respectively -0.2% (-1.7% in real terms) and -0.8% (-1.8% in real terms).

4.         The moderation clause aims at limiting volatility in the salary adjustment. Should the evolution of the reference index be below 98.0 or above 102.0, the part beyond these thresholds shall be delayed to either the last day of the year when the salary adjustment calculation in question would have taken effect or the first day of the subsequent year as decided by the Committee of Ministers.

B.         Is the recommendation of the CCR binding?

5.         The recommendation of the CCR is presented to the GR-PBA and then to the Committee of Ministers, along with the Secretary General’s proposal on how to deal with the salary adjustment recommendation.

6.         When taking a decision on the salary adjustment, the Committee of Ministers is bound by the salary adjustment method which it adopted. According to Article 6 (affordability) of the method, the Committee of Ministers reserves the sovereign right to take special measures concerning the implementation of the adjustment resulting from the application of the salary adjustment method, if specific budgetary and/or economic circumstances so warrant, in particular to decide that the annual adjustment recommended by the CCR be awarded in part or not at all, and also on the timing for the payment of any adjustment. This clause specifies the objective conditions under which this Article could be invoked (cf. box 1 above).

Appendix 2: Use of the reserve for price increases for the 2021 salary adjustment

Ordinary budget

(1)    Includes an allocation of inflation (€0.17 M) on the grant to investments.

Partial Agreements and other budgets


[1] This document has been classified restricted until examination by the Committee of Ministers.

[3] Adopted at the Deputies’ 1386th meeting on 21 October 2020.

[4] Eurostat (annualised) inflation rate for France at the end of February 2020.

[5] The application of the salary adjustment of 3.4% in France would imply significant reductions in the different budgets. In the Ordinary Budget savings would have to be found which would lead to the suppression of around 35-40 posts. Such a level of reduction in staff would likely impact the implementation of the Programme in 2021.

[6] Source: OECD (2020), "OECD Economic Outlook, Interim Report September 2020", OECD Economic Outlook: Statistics and Projections (database).

[7] Adjustment after deduction of the special adjustment of 7% applied on 1 February 2020 (CM(2020)77) in accordance with the remuneration adjustment method.

[9] Cf. also GR-PBA(2020)6 on the Co-ordination system.

[10] Co-ordinated organisations refers to several international organisations (Council of Europe, NATO, ESA, OECD, EUMETSAT, ECMWF) that have a common system of remuneration and pensions, and who are members of the Co-ordination System. The principle aim of the Co-ordination system is to provide recommendations on issues concerning salaries and allowances to the Governing bodies of the co-ordinated organisations, in order to remove separate detailed discussions on these issues from each of them, as well as from their budget committees. A summary of the main features appears in GR-PBA(2020)6.