By Lia Avagyan
Armenia’s planned overhaul of public-sector pay would deliver some of the largest salary increases to senior political and administrative officials, while many civil service salaries already compare favorably with private-sector pay, according to a study by economist Vache Gabrielyan.
Gabrielyan, dean of the Manoogian Simone College of Business and Economics at the American University of Armenia and a former deputy prime minister and finance minister, examined a legislative package currently before parliament that would reshape how public officials and civil servants are paid.
The nearly 200-page study, which Gabrielyan shared on LinkedIn, uses Armenian wage data, international comparisons and modeled scenarios. It includes 17 appendices.
The study raises questions over whether a broad increase in public pay is the most efficient way to improve the government’s ability to recruit and retain staff.
Gabrielyan’s comparisons show that civil service salaries already exceed comparable private-sector pay across much of the wage distribution. The private sector’s advantage becomes clearer mainly among the highest-paid workers.
Under one scenario modeled in the study, about half of the additional spending could go to positions where public-sector compensation is already comparable to or above that in the private sector.
That matters because one of the main rationales for raising government salaries is to make public employment more competitive with private companies.
Biggest increases at the top
The proposed increases are far from uniform.
Gabrielyan’s calculations show some of the largest percentage increases going to political officeholders and senior administrative positions. For some senior categories, increases reach or exceed 100%, with examples in the study of rises of 102%, 117%, 120% and 140%.
Lower- and middle-ranking positions generally receive smaller percentage increases.
Gabrielyan estimates that implementing the reform could require around 35 billion drams, or about $97 mn at current exchange rates, in additional annual budget spending.
That makes the distribution of the increases an important part of the policy debate: the issue is not only how much Armenia spends on public salaries, but which positions receive the largest share of the additional money.
Bonus cap, but a new performance payment
The legislation would also change the structure of variable pay.
It would cap the bonus fund at 2% of the payroll, addressing one of the weaknesses previously identified in Armenia’s public-sector remuneration system, including in assessments by SIGMA, the OECD-EU initiative that evaluates public administration.
At the same time, however, the package introduces a performance-related supplement that can amount to as much as 60% of an employee’s salary.
Gabrielyan points out that the rules governing how those supplements will be distributed have not yet been fully defined.
The result is a potentially important trade-off: one discretionary component of public-sector pay would be tightly limited, while another potentially much larger component would be introduced.
Some existing safeguards removed
The study also highlights changes to safeguards built into the current remuneration system.
Among them is the removal of the formal link between the public-sector base salary and Armenia’s minimum wage. Gabrielyan also examines changes to the procedures governing performance assessments and appeals against those assessments.
Those questions become more important if a larger share of an employee’s income is tied to performance evaluations and other variable payments.
Gabrielyan does not present the reform as wholly negative. The study notes that the package addresses some longstanding weaknesses, including the size of the bonus pool.
But his analysis also suggests the reform's benefits would be distributed unevenly and that some new mechanisms could leave significant discretion over how additional compensation is awarded.
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