Pay and perks under pressure

Salary adjustment method

The annual change in the pay of EU officials is calculated in line with the evolution of salaries of civil servants in eight member states (Belgium, France, Germany, Italy, Luxembourg, the Netherlands, Spain and the UK). An average is defined, taking account of the size of each national administration, and a cost of living index is applied. Pensions and allowances are adjusted accordingly. The method was agreed in 2004 as part of the last round of reforms.

Member states have complained that the method fails to reflect reductions in salaries at national level. They are uncomfortable at the spectacle of continued pay rises for officials in the EU when their officials at home are seeing their remuneration cut. In 2009 they refused to approve a 3.7% increase calculated using the method. However, their refusal was over-ruled: the Commission, at the urging of unions, took the Council to the European Court of Justice, which decided that staff were entitled to the full increase.

The letter from the eight member states seeks a review of the automatic application of the method, so as to make it possible to “deviate from the adjustment proposal” in the face of budgetary constraints and economic conditions.

The unions defend the current method. They say it accurately reflects the economic situation in member states, with an inevitable delay because it depends on collection of data from national administrations.

They point out that in 2011 the earnings of officials were cut by 2% in real terms, since the increase was only 0.4%, while the Brussels cost of living index rose by 2.4%.

The letter also criticises the use of a special index for the cost of living, the so-called Brussels International Index. This index is higher than the usual consumer price index, as it is intended to reflect the higher spending of international staff on travel, communications and rented accommodation. A special index cannot be justified, say the critical member states, as EU officials are, on average, better paid than those in Belgium. They also challenge the assumption of an automatic salary rise in line with rising prices at a time when Belgium and Luxembourg are being asked to review their wage indexation systems in the interests of greater competitiveness.

The advantage of the current method is that it has provided a predictable formula for calculating annual changes in pay and pensions. It removes the need for time-consuming confrontational annual negotiations, with all the attendant risks of strike action and disruption to the running of the institutions. If member states were to be granted greater flexibility to reject the results generated by the method, the risk of confrontation would increase. So any workable system is likely to resemble the current one because of the need for predictability and a degree of objectivity.

Allowances

EU officials are entitled to allowances for the cost of moving and working abroad, and to taking family members along. The most substantial of these benefits is the expatriation allowance, which amounts to 16% of basic salary. In addition, officials are eligible for a household allowance – designed to compensate a spouse for leaving a job to move with his or her partner – a children's allowance up to the age of 18 (or 26 if children pursue educational or vocational training), an education allowance for children, and an annual flat-rate travel allowance for a journey to the country of origin. Most of these allowances are at fixed rates.

The letter from the eight seeks a review and wants to compensate staff for the actual cost of expenses incurred. And the expatriation allowance, they say, should diminish in line with the time officials live outside their home country.

Over time, they also recommend that the expatriation allowance should be phased out entirely, so that basic salary levels and working conditions determine whether the institutions are an attractive place to work.

The expatriation allowance makes a significant difference to an official's income, and is already a cause of dissatisfaction within the institutions, because the criteria for determining entitlement are unclear and open to manipulation.

Pensions

The eight member states say that the pension costs of the EU institutions are “unsustainable”, and that “significant pension reforms” are needed to ensure they are affordable on a long-term basis. An analysis by Eurostat, the EU's statistical office, projects that pension costs are rising so rapidly that they could exceed active staff costs in the near future.

The funding shortfall is in part a consequence of how the pensions of EU officials are financed. Pension liabilities are paid out of the central EU budget, so instead of individual and employer contributions being paid into a fund that meets pension liabilities, staff pay their contributions into the EU budget, and member states are responsible for paying the remainder – approximately two-thirds. The burden increases as more officials attain retirement age, while the contributions from active staff cover a lower proportion of total pension costs.

Retirement age should be linked to life expectancy, urges the letter from the eight member states. The Commission increased the average retirement age for officials from 61 to 63 as part of the 2004 reforms, but the eight want to go further. They cite conclusions agreed by the Council of Ministers in 2010 on the sustainability of pensions, and they draw comparisons with Commission recommendations to member states to bring retirement ages into line with demographic developments as part of efforts to improve competitiveness.

In addition, the eight favour a reduction in the rate at which pension rights are accumulated – currently fixed at 1.9% of basic salary per year of service, up to a maximum of 70%. They also call for an end to early retirement without financial penalties. But the letter recognises that existing acquired pension rights would have to be respected. As a result, these changes would produce savings only in the future, – limiting their potential for “substantial savings”.

Special levy

The first special levy, an additional tax on officials' salaries, was introduced in the 1970s in response to the oil crisis. The current levy is 5.5%, an increase this year from the 2.5% level set in 2004. But it expires in 2012. The eight regard the levy as no longer “special”, but as an “established part of EU revenue” for almost 30 years, and they want it not only increased, but also applied to pensions.

Career structure

The member states' letter challenges the current system for promotions, in force since the reforms of 2004, which is based on a combination of seniority, duties and responsibilities.

Grades and remuneration should be “more clearly linked to performance, responsibility and management functions”, says the letter. It says promotion and progress should no longer be career-based and automatic.

Unions have singled this out as “the most dangerous part” of the eight's plans, saying it could open the way to favouritism and would “break solidarity” among officials.

But others argue that a merit-based system is needed to ensure that talented, hard-working officials are rewarded for their efforts and can see a career path that is based on taking on extra responsibilities, including personnel and budget management.