TALLINN, 28 May 2002 - Audit carried out by State Audit Office to assess the utilization of funds allocated for the payment of performance wages was completed with a conclusion that in most cases the work schedules and action plans used as the grounds for paying performance wages bear no relations whatsoever to the national development plans and strategies and are not based on specific and measurable results. Performance wages have been paid to almost all the institutions and in most cases, neither the amount of wages paid nor persons receiving the wages are not related to the implementation of the work schedule.

Both in 2001 and 2002, the Parliament allocated to the Government of the Republic approximately 100 million kroons for paying the state agencies performance wages aimed at motivating the institutions to obtain better results with the resources available, acknowledging the state agencies with excellent performance and finally, at achieving more efficient public administration through more effective fulfillment of tasks and objectives. State Audit Office audited the utilization of funds allocated for 2001, analyzing both the system established for the payment or performance wages and the criteria used as the basis for making the payment.

State Audit Office is clearly in favor of objectives kept on mind as the performance-based management of public sector was initiated, but it should also be stated that the objectives have not been achieved. Based on the evidence gained during the audit, State Audit Office would like to point attention to some general disadvantages of the system established.

In accordance to the opinion of the State Audit Office the failure is closely related to the inability of state agencies to establish measurable objectives that could be compared to the objectives established for previous years, but also that fact that the payments were not made in accordance to the implementation of the work schedule and achievement of the outcome described in such schedules. The Ministries audited decided to pay performance wages to almost all the agencies in their jurisdiction regardless of their real performance and achievements.

The establishment of the performance wage system has also been hindered by the limited knowledge and skills of the institutions in the given area but also the rush to get the system going – the time provided for the establishment of the system was only a couple of weeks. The agencies audited have considered the assistance provided by the Ministry of Finance as the institution responsible for the elaboration of the public sector wage reform and initiator of the system as insufficient. State Audit Office has the come to the same opinion and concludes that the work done by the Ministry of Finance in course of preparation and implementation of the system has been of poor quality.

The conclusion made by State Audit Office – public sector of Estonia is not ready to implement the system of performance wages – is based upon the fact that the results expected from state agencies are not related to the objectives of the state and nothing is done to gather information about the objectives achieved that could be used as pre-requisites for paying performance wages. State Audit Office has adopted a position that the establishment of objectives should form a comprehensive circuit that should state with the verification of the state budget and the most important national development plans at the Parliament and could be broken down into the objectives of each institution and official. This means that the existing planning, budgeting, reporting and accounting systems should become performance-based. In addition, transparent and well-working wage systems is one of the inevitable pre-requisites of performance-based management and therefore, main attention should be given to the systematization of wage system.

Therefore, State Audit Office has recommended to suspend the payment of performance wages in the agencies that have failed to define measurable results, the results bear no relations with the main activities of the respective agency and that have not introduced staff evaluation system accompanied by related wage system.

In general, the Minister of Finance consented with the evaluation given to the implementation of performance wages but still rejected the idea of suspending the payment of performance wages this year; nevertheless, in 2003 the system shall be reorganized. At the same time the Minister of Finance has adopted a position that most of the problems shall be solved after the passing of the new Public Service Act that should enter into force on June 1, 2003.

Nevertheless, in accordance to the estimation of State Audit Office the amendments made to the Public Service Act (PSA) provide no grounds to be confident that the problems pointed out here will be solved and the wage system becomes more transparent. In addition: while the current performance wages payment scheme allowed to develop a chain beginning from the strategic objectives of the state going down to individual’s level, the new draft of PSA decreases the opportunities for the emergence of such a chain to a minimum as the criteria for the payment of performance wages are to be established by the head of the agency alone.

State Audit Office has sent the decision of the Chief Auditor to the Parliament for forming an opinion.

Audit under the general title of “Utilization of Payroll Funds Allocated for the Payment of Performance Wages” was carried out in four Ministries – the Ministry of Justice, the Ministry of Defense, the Ministry of Transport and Communications and the Ministry of Finance – that were chosen based on the amounts allocated to the Ministries from the state budget in 2001 for the implementation of performance management system. Also, the performance of the Ministry of Finance as the initiator and coordinator of the system was assesses. You can find the full text of the decision of the Chief Auditor concerning the respective audit at the website of State Audit Office www.riigikontroll.ee


Sven Soiver
Press Representative of State Audit Office
Telephone: (372) 640 0787
GSM: (372) 53 414464
E-mail: [email protected]

• Posted: 5/28/2002 12:00 AM
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