The goal of the reforming remuneration system of state administration launched in 2022 was a single, transparent and competitive remuneration. The audit conducted by the State Audit Office of Latvia shows that the legal framework for the reform has been established, including a procedure for determining a monthly salary, but the goals of the reform have not been achieved in practice. Although total remuneration costs have increased significantly, the inequality of remuneration among ministries and institutions persists. Employee remuneration is still determined by historically established base funding, not by the value of a position and the content of the work.
IN BRIEF
- The reform of the state administration remuneration system, which was launched in 2022, has not achieved the set goal, that is, to safeguard equal and competitive remuneration in state administration.
- The 32% increase in remuneration expenditure in 2024, compared to 2022, has not reduced the inequality of institutional remuneration funds among state institutions. For 2023–2025, 55.4 million euros have been allocated for the implementation of the reform; however, there are still “rich” and “poor” departments and institutions in state administration.
- In equal or equivalent positions, monthly salaries in different state institutions can still differ by up to a third, and historically established base funding dominates over the value of the position.
- Some institutions can already reach the midpoint of the monthly salary scale, id est, 80% of the monthly salary paid in equivalent positions in the private sector while others need up to 62% additional funding.
- The variable part of the remuneration (bonuses and cash prizes) is used regularly and systematically in several state institutions, and not as an exceptional motivational tool by replacing the increase in monthly salary in practice.
- Inequality in state administration cannot be solved by additional funding for individual institutions. It is necessary to review the base funding of the remuneration fund, introduce a solidarity approach and equalize resources in state administration by ensuring equal pay for positions of equal value.
“The reform of the remuneration system was necessary, but the established system does not provide for equal and competitive remuneration if the objectives of the reform are not consistently observed throughout the state administration when implementing it. The audit results show that the problem is not in the amount of money available to the state administration as a whole, but in its distribution. As long as remuneration is determined by the historically established base funding, equal remuneration for equal work in the state administration is not possible. Moreover, the audit report is not only about numbers, but also about values – fairness and respectful attitude towards everyone,” emphasised Mr Gatis Litvins, Council Member of the State Audit Office of Latvia.
Equal positions, but unequal remuneration
A positive step in the implementation of the remuneration system reform should be noted as the developed catalogue of positions with an updated structure of positions and a clear classification, in which position ratios are determined in relation to the base monthly salary. The ratios of the monthly salaries of the top state officials have also been specified taking into account the principle of the branch of power and hierarchy, which strengthens the internal consistency of the system. However, inequality of monthly salaries for similar positions in state administration persists. Salaries differ by up to 30% in the same or very similar positions with comparable work content and responsibility among state institutions. In some cases, an employee in a lower monthly salary group with an equivalent or even lower job performance assessment might have a higher monthly salary than an employee in a higher monthly salary group, and a position in a lower monthly salary group in one institution is paid better than a position in a higher monthly salary group in another. The government, as an employer, evaluates equivalent work differently.
Although the total remuneration expenditure in the state institutions included in the audit sample has increased significantly in 2024, the inequality of resource distribution among state institutions has not decreased. Historically established base funding has proven to be resistant to reform, as some institutions can already reach the midpoint of the monthly salary scale with existing funding while others lack up to 62% of funding.
Since funds must be found for national defence, the Cabinet of Ministers decided to limit the remuneration fund significantly in the 2025 budget by stipulating that the increase should not exceed 2.6%. At the same time, several exceptions were established, mainly in the field of national defence and internal security.
The State Audit Office of Latvia outlines that the effectiveness of the increase in remuneration expenditure can only be assessed in conjunction with the financing structure. Questions about how the increase in remuneration is reflected in consolidated state expenditure and their distribution among institutions will be assessed in a separate audit on the accuracy of an annual consolidated financial statement of the Republic of Latvia for 2025.
“The solution is to review the remuneration fund based on zero-budget principles by recalculating the base funding in state institutions according to the structure of positions and the number of positions, as well as linking it to the target remuneration level. It would allow identifying funding surpluses in “rich” institutions and redirecting them to institutions with a structural deficit by providing more equal and fairer remuneration for equal work," stressed Mr Gatis Litvins.
The audit has found that the variable part of the remuneration is used systematically in several state institutions rather than as an exception. In 2024, an average of 31% of employees received bonuses for significant contribution to the achievement of strategic goals and more than half of the employees in some institutions, and over a long period of time in 31 of the 40 state institutions included in the audit sample. It shows that bonuses in practice replace the equalization of monthly salaries. In 10 state institutions out of the 40 institutions included in the audit sample, the proportion of recipients of cash bonuses was above 70% of the average number of employees.
If the majority of employees receive bonuses for significant contribution to the achievement of strategic goals or cash prizes, in fact, the insufficient monthly salary is compensated instead of rewarding for excellent work results.
Staff turnover in state administration is increasing and exceeds the permissible level
Comparing the situation before the reform and at the end of 2024, it was found that the number of positions remained almost unchanged, that is, from 49,658 to 49,532 positions. The number of vacancies has also decreased only slightly, and both the proportion of vacancies and the number of long-term unfilled positions remain high in several state institutions.
Audit data show that uncompetitive remuneration continues to affect staff retention. In the absolute majority of institutions included in the audit sample, staff turnover exceeds 15%, which is considered high in human resources management theory. Comparing to 2022, staff turnover has increased in more than a third of state institutions, including the Ministry of Health, the Procurement Monitoring Bureau and others. Moderate staff turnover (below 15%) was found in only two institutions, that is, the Rural Support Service and the Civil Aviation Agency (an institution not financed from the state budget).
High staff turnover and the inability to fill vacancies are also cited as the main justification for requests for additional funding to increase remuneration. This indicates a systemic risk because it is difficult for state administration to attract and retain qualified employees without sufficiently competitive remuneration. In the long term, this threatens the quality and effectiveness of the institutions’ operation.
The State Audit Office of Latvia is aware that changes have occurred in the application of bonuses and the structure of positions in certain state institutions after 2024; however, the audit findings regarding the different opportunities of institutions to ensure competitive and equal remuneration remain unchanged.
Employee performance evaluation system and bonuses
Bonuses of up to 75% of the monthly salary are awarded based on an annual performance evaluation. The amount of the bonus is determined by a state institution in accordance with the evaluation of an employee and the funding available in the state institution. The audit analysed the results of performance evaluations. It was found that the top score “exceeds requirements” was awarded to more than half of the employees in many institutions.
In addition, a significant proportion of employees also received the score “exceeds requirements partially” in several state institutions. It shows that the score “exceeds requirements” or “exceeds requirements partially” are the daily standard rather than an exception, as required by the principles of best practice.
The audit concluded that such a practice reduced the reliability of the performance evaluation system and the connection with real work results. In state institutions, an average of 72% of employees received bonuses every year. 41% of bonus recipients received them in the maximum amount and 47% of recipients received them in the amount of 65–74% of their monthly salary.
Single state administration but unequal additional motivational elements
The audit has detected significant differences in the availability of additional motivational elements for employees in state administration. The health insurance policy premium ranged from less than 375 euros to the maximum allowable 750 euros in 2024. In six state institutions, or 15% of the institutions included in the audit sample, the policy premium reached the maximum limit while it did not even reach half of it in three institutions.
The situation is similar with compensation for the purchase of vision correction devices. Their amount varies up to five times from 50 to 340 euros in different institutions, and the regularity of granting compensation also varies.
The audit concluded that the availability of motivational elements was related directly to the budget capabilities of a state institution and not to nature of a job or workload.
“The different availability of motivational elements means that the government as an employer does not ensure equal treatment of all employees in state administration in practice by causing a sense of injustice, reducing motivation and increasing staff turnover,” concludes Mr Litvins.
Recommendations of the State Audit Office of Latvia #PēcRevīzijas
Based on the audit findings, five recommendations have been provided to the State Chancellery, and two proposals have been provided to the Cabinet of Ministers to address systemic problems. By implementing the recommendations:
- State administration will become more transparent, as data on remuneration will become available and comparable;
- The sustainability of the remuneration system will be strengthened by providing that the increase in remuneration will not increase inequality among state institutions in the future, but will reduce it consistently;
- Dependence on the variable remuneration component will decrease by strengthening a monthly salary as the main remuneration component;
- The reliability of the performance evaluation process will improve and a common understanding of the evaluation of employee performance will be promoted;
- A single amount of compensation for the purchase of vision correction devices and a single amount of health insurance policy premium will be determined in state institutions;
- The remuneration base funding will be equalized among ministries by moving from a historically determined distribution to impartial criteria such as the structure of positions and the number of positions;
- Staff retention will improve by reducing employee turnover and the associated risks of loss of competencies and additional costs.
The State Audit Office of Latvia stresses that without a political decision on the equalization of remuneration funds among state institutions, the goals of the reform will not be achieved and the existing differences in state administration will persist in the future.
In the audit report, the data on remuneration (monthly salary and variable parts of remuneration) are collected in the data analysis tool Power BI.
Additional reading: audit report summary, infographics.
About the State Audit Office of Latvia
The State Audit Office of the Republic of Latvia is an independent, collegial supreme audit institution. The purpose of its activity is to find out whether the actions with the financial means and property of a public entity are legal, correct, useful and in line with public interests, as well as to provide recommendations for the elimination of discovered irregularities. The State Audit Office conducts audits in accordance with International Standards of Supreme Audit Institutions of the International Organization of Supreme Audit Institutions INTOSAI (ISSAI), whose recognition in Latvia is determined by the Auditor General. Upon discovering deficiencies, the State Audit Office of Latvia provides recommendations for their elimination, but it informs law enforcement authorities about potential infringements of the law.