The State Audit Office of Latvia has sent a letter to the Saeima (Parliament of Latvia) calling for a review of the restrictions on state administration remuneration provided for in the draft State Budget Law, which envisages the abolition of bonuses for performance evaluation. In the opinion of the State Audit Office of Latvia, such a solution precisely restricts the constituent of remuneration that is most closely related to the individual performance of employees and the achievement of the institutional goals, in contrast to additional payments and cash prizes, the criteria for granting which are less transparent and uniform.
“The State Audit Office of Latvia understands the need to reduce state administration expenditure to cover state priority expenditure; however, we call for an assessment of whether the planned changes regarding remuneration in state administration comply with the purpose of the Remuneration Law and are the most appropriate at the same time. By abolishing bonuses, the only impartial financial instrument that links an employee’s contribution to work results directly is limited. Priority should be given to reviewing those elements of remuneration such as cash prizes and additional payments that create the greatest inequality among state institutions currently and have a greater financial impact,” emphasised Auditor General Edgars Korčagins.
The reduction in expenditure in 2027 stipulated in the draft Law by abolishing bonuses for performance evaluation, would create a very different amount of the reduction for different state institutions. It would range from 0% to 105% of the funds actually spent in 2024 on bonuses and cash prizes. Such an approach creates an unfair situation among state institutions. For example, the reduction in funds would exceed 105% for the State Audit Office of Latvia.
Simultaneously, the State Audit Office of Latvia points out that the Informative Report does not assess the expenditure on cash prizes and additional payments, which constitute a significant part of the total remuneration expenditure. These payments remain unchanged although they contribute most to inequality among state institutions.
The study of information shows that 25.3 million euros were spent on cash prizes and 13 million euros on additional payments for significant contributions to the achievement of the strategic goals of a relevant institution in 2024, which total to 38.3 million euros. 28 million euros were spent on performance bonuses.
Thus, cash prizes and additional payments together constitute a greater burden on the state budget than bonuses, and the greatest inequality among state institutions is caused by the awarding of cash prizes and additional payments for significant contributions to the achievement of the strategic goals of the relevant institution. State institutions that have access to financial resources continue to award cash prizes and additional payments to a significant number of employees while other state institutions do not have such opportunities.
In their turn, bonuses are awarded to employees in accordance with the annual performance evaluation and their results. In most state institutions, this is the only financial motivational element that is related to the assessment of the employee’s performance.
“In addition, the planned reduction in bonuses for some state institutions, including the State Audit Office of Latvia, is proportionally significantly higher than for other state institutions. In the State Audit Office of Latvia, bonuses are granted only in accordance with the annual performance evaluation, moreover it is done from the savings in remuneration due to employee turnover and not by initially planning funds for bonuses in the institution budget. We call for maintaining the possibility of paying bonuses for performance results at least partially, especially in those institutions where they are the only employee motivation tool, as well as ensuring an equal approach to reduction for all state institutions,” stressed Mr Edgars Korčagins.
The State Audit Office of Latvia has indicated repeatedly in its audit reports that there is still no unified and fair remuneration system in state administration. The financial capabilities of ministries differ, which creates competition for labour and inequality in remuneration in the long term. To ensure the sustainability of the system and trust in state administration, one requires reviewing the base expenditure for remuneration in all institutions and introduce unified, clear principles in the implementation of remuneration policy.
The State Audit Office of Latvia calls on the Saeima to evaluate these aspects and make appropriate changes to the draft law in order to promote a fair, transparent and motivating remuneration system in state administration.
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.