Introducing New Public Management in Pay Determination

Since 1997 pay determination in the public sector in Denmark has entered a new and decisive phase. After 10 years of experiments with centrally fixed wage pools for decentralised renegotiations, 1997 saw a breakthrough in terms of a pay reform, which creates a serious possibility for using performance-related pay in the public sector. The centrally controlled local pay has, in two bargaining rounds, been abolished in favour of a completely new pay system, comprising a basic salary combined with locally fixed pay additions related to job functions, qualifications and performances. According to the strategy of the public employers the new types of pay will function as an incentive system for streamlining, managerial efficiency and flexibility in public agencies and service institutions. In this sense the new types of pay are seen as the starting point of a so-called “company-based” and locally fixed pay determination as an alternative to centrally fixed pay. It is the counties and municipalities who are leading the way, while the central state administration has mainly agreed limited trial schemes for about 10 % of the employees. In 1997 the central parties to the agreement in the municipal sector agreed a permanent transition to a new pay system for approx. 56% of the 640,000 employed in counties and municipalities. And at the central agreements in 1999 practically all the remaining employees joined up. The individual trade unions have entered into separate agreements along similar lines on a reconstituted system for basic pay scales for particular professions or occupational groups supplemented by a new local pay.