The four major challenges in the salary reform of public institutions

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The four major challenges in the salary reform of public institutions: The reform of public institutions is an important issue within China’s economic system reform, and it has received considerable attention. Recently, the Ministry of Human Resources and Social Security, the Ministry of Finance, the Ministry of Civil Affairs, and the Ministry of Labor and Social Security jointly provided a comprehensive and systematic analysis of the reforms related to income distribution for the first time. The wage reform in 1.3 million public institutions has begun, with a move to decouple these wages from those of civil servants and to establish a performance-based wage system; this issue has once again become a focus of widespread attention in society. Reform of public institutions has always been a core research topic for YouTai Consulting, a domestic firm specialized in management transformation research. Through its consulting practices and research on human resource reforms in public institutions, YouTai Consulting has identified four main technical challenges in the wage reform process within these institutions in China at present. The four major technical challenges are mainly the design of organizational structures, the system of competitive recruitment, the valuation of professional skills and its reflection in salaries, and the career planning for professional personnel. First, organizational structure design: There are many institutes, centers, and departments focused on surveying, design, technology, and research in public institutions; some of these have been transformed into companies or operate on a corporate basis. For example, Sichuan Communication Research, Planning, and Design Co., Ltd. is the successor to the former Sichuan Communication Research, Planning, and Design Institute. The operations of these units are primarily project-based. In addition to the regular functional management departments, their organizational structure typically includes specialized sections/departments organized according to technical specialties or types of work. Project teams are formed based on newly signed contracts, and projects are then carried out or production begins under organizational models such as project owners, project teams, or project departments. When a project is large, has a long duration, or is carried out in a different location, the project team must also establish a secondary functional management platform of its own. In terms of market development and sales as well, the unique operating model can lead to internal coordination issues; for example, it is difficult to divide tasks and coordinate efforts between market-related activities and sales activities. The interrelated business processes, authority structures, and allocation mechanisms in this context represent quite challenging problems ； For example, public institutions with local branches also face issues such as related-party transactions between the sales headquarters and its branches, as well as internal accounting problems. In related-party transactions, the criteria for distributing benefits between the headquarters and branches are not clear, and internal pricing is not reasonably defined. Therefore, when carrying out salary reforms in such public institutions, the design and transformation of organizational structures also need to be taken into consideration, as the mode of organizational operation directly affects performance evaluation and the establishment of bonus distribution systems. Youtai’s experience shows that the matrix organizational structure commonly used in project-based organizations requires adjustments based on strategic, organizational, and human resources considerations in practice; it is not appropriate to simply apply the standard matrix structure, as the existing organizational structures, authority allocations, and evaluation systems cannot be changed in the short term. For example, in some organizations, the design departments can also take part in sales bidding processes, and there are market-based incentives as well; this leads to conflicts with the marketing department. It is very difficult to make complete changes in such situations, so salary reforms need to take into account the actual organizational structure, and it is not sufficient to rely solely on the salary structure specified in documents – adjustments must be made according to specific circumstances. Regarding the rewards and accounting for project departments, differences exist due to varying organizational models – some are strong matrix structures while others are weak matrix structures. There are significant differences in the organization, processes, and allocation of authority between functional departments and project departments. In some organizations, project departments have procurement authority, even in the case of large-scale project contracting, whereas in others such authority is not granted; instead, procurement tasks are handled by the organization’s procurement center or materials department. Therefore, the assessment methods for project units, as well as the vertical authority over business and human resources between the headquarters and project teams, directly affect the methods for distributing salaries and bonuses. In short, establishing and improving an organizational operation model that suits one’s own characteristics and the industry specifics of public institutions is of great significance for the successful implementation of wage reform plans. Second, competitive recruitment: For many years, most public institutions have operated according to the organizational model of government agencies, and their human resources management still bears strong traces from the planned economy era. To effectively implement wage system reforms, reforming the employment system is a challenge that must be addressed. In its practical experience, YouTai Consulting has found that competitive recruitment is a highly effective approach for reforming the employment systems in public institutions. By fully implementing competitive recruitment and employment systems, the personnel management mechanism in public institutions is transformed, eliminating the concept of official status. This leads to a shift in personnel management in such institutions from one based on status to one based on job positions, from purely administrative management to managed according to legal frameworks, from an administrative dependency relationship to equal relationships between personnel and institutions, and from employment determined by individuals to employment determined by the institutions themselves. These fundamental principles are clear and the future looks promising, but the path ahead is tortuous. In every previous reform of public institutions, the reform of the employment system has always been an insurmountable obstacle. With addressing the practical challenges faced by public institutions as its core objective, Youtai Consulting has developed a series of reform techniques based on Chinese culture. These include practical methods such as competitive recruitment systems that offer great practical value, job and staffing planning, talent assessment, cultural transformation, and cluster analysis, all of which have been successfully applied in various reforms of public institutions. During the reform of the information technology center at a certain **level, since this unit had both corporate characteristics and those of a certain type of **government agency, there was a mix of personnel with various affiliations, and the relationships between administrative, institutional, and corporate entities were unclear. As attempts were made to implement wage reforms time and again, these efforts failed to yield any results, resulting in embarrassment for the management and complaints from the employees. Later, the center hired a reputable foreign consulting firm to design a new plan. In theory and logically, this new plan seemed flawless. However, the salary reform still couldn’t be implemented, because many of the assumptions underlying the plan simply didn’t hold true. Finally, Foxconn believes it is necessary to abandon those seemingly scientific and logical theoretical frameworks; instead, innovation should stem from an understanding of reality, by adopting practical technologies guided by the principle of \"satisfaction for management and acceptance by employees.\" First, make efforts in communicating with and persuading all employees ； Next is to re-establish job positions and staffing levels ； Once again, we employed a series of organizational change techniques centered on the competitive recruitment process of \"everyone standing up while those selected sit down\". In doing so, we took into account the psychological state of employees after experiencing multiple changes, as well as the common tendency among employees in state-owned enterprises to have high standards; they would always question, \"Why should he get the position if I’m not any worse than him?\" ”Later, the project team introduced talent assessment techniques, using a series of transformative procedures and technologies to alleviate employees’ psychological concerns. Ultimately, the implementation of the wage reform was successfully completed, which also effectively promoted cultural change. Therefore, practice has shown that to effectively implement wage reforms, it is a very important foundation to first introduce the necessary concepts and gradually incorporate the management philosophies of companies that practice best practices. Through competitive recruitment, it is possible to **effectively advance the reform of salary systems in public institutions and inject new vitality into the stagnant organizational culture. Otherwise, if the staffing and personnel systems are not reformed, there will be even greater obstacles to salary system reforms, and such reforms will end up being a waste of effort. Third, the value assessment of professional skills and salary distribution. When reforming salaries in research institutions and similar public organizations, three main issues typically arise: whether it is possible to control the total salary amount, and how to do so ； How to evaluate the value of professional skills ； Professional and technical personnel are responsible for determining the salaries for different jobs. General theory suggests that the criteria for salary distribution mainly include job value, technical skills, and performance; in fact, these are merely the basic factors used for internal structure-based allocation. At present in China, the total wage bill for many state-owned entities is determined by higher-level State-owned Assets Supervision and Administration Commissions, in accordance with management regulations that link the total wages to economic performance. Moreover, many public institutions rely on government funding to operate. All these factors constitute insurmountable constraints when designing compensation systems. Of course, many public institutions have hired external consulting firms to develop plans and persuaded their higher-level authorities for approval, thereby ensuring that, based on the principle of linking salaries to performance, compensation can better motivate employees. How to evaluate the value of professional skills, including assessing the technical competence of individuals such as their professional titles, and determining the value of certification documents related to their industry or position, as well as how to reflect this in salary grades. This is a technical challenge commonly faced by research institutes. For a long time, the distribution system in China’s public institutions has had a strong egalitarian character; it was based on a hierarchical salary system with very small differences between levels, ignoring the variations in the value and contribution of each employee’s work. Even any bonuses that were available were distributed equally, resulting in no difference between those who worked hard and those who did not, as well as no distinction between those who performed well and those who performed poorly. At the same time, there are issues such as insufficient incentives for senior management, unfair external compensation for key employees, and a lack of oversight over secondary distribution, which leads to either equalitarian treatment for everyone or opaque decision-making processes. This distribution system does not facilitate the true reflection of the principle that more work leads to greater rewards, nor does it reflect the value of knowledge and technology; in particular, it demotivates professional and technical experts. In consulting practice, YouTai has concluded that when designing salaries for such technical professionals, five additional steps can be incorporated on top of the standard procedures for salary plan development. First, a framework for technical career paths should be established, taking strategic and cultural factors into account; criteria for classifying different job roles within these categories need to be defined. Special attention should be given to designing career paths for roles in research and development, testing, application implementation/production technology, after-sales maintenance, and other related fields. It is also necessary to determine the number of such career paths, the levels within them, and their distribution across various departments within the company ； II. The development of competency standards involves forming or establishing internal expert teams within the company, with the support of technical committees, in order to focus on creating competency standards for various professional roles at different levels. These standards include occupational and technical requirements for employees at all levels, such as definitions of role levels, knowledge requirements, skill requirements, and experience requirements; sometimes they also encompass key behavioral norms and standards ； III. Evaluation and determination of individual job levels: Generally, based on the standards established earlier, different methods are used to assess the job level of each technician. Some experts suggest that job type values should be evaluated by referring to the value of corresponding positions. In practice, technical level certification is a process that requires a high degree of professionalism and technical expertise. In China, technical vocational qualification standards have not yet been systematically established; the qualification requirements vary greatly among different organizations; there may be issues with the structure of assessment questionnaires; and local databases and benchmarks still need to be developed. All these factors pose significant constraints on this process. As a result, many organizations prefer to use simple, easy-to-operate, and low-cost assessment methods, such as written exams, oral interviews, multi-dimensional evaluations, talent assessment questionnaires, scenario-based simulations, and technical competitions. These methods prove to be effective and practical in consulting practices. Compared to those seemingly scientific but complex evaluation methods, the simplicity of operation is more favored by customers. After all, relying solely on \"solving standardized math problems\" to assess the value of technicians and their technical skills has its problems; qualitative assessments, akin to \"language-based questions,\" also have their merits. For example, when evaluating engineer levels in a design institute, before carrying out standardized evaluations based on specific criteria, we first determine the basic proportion of engineers at each level across different categories; for instance, there should be no more than 2 senior engineers, and senior-level engineers should account for no more than 20% of the total. Of course, in some departments where the skill level of technical staff is generally high or low, appropriate adjustments need to be made to the distribution of levels beforehand. It should be noted that these procedures are applicable only to personnel or enterprises with strong technical expertise. For organizations and individuals that primarily focus on position management and adhere to a “hierarchy-based” approach, it is advisable not to adopt this method. IV. Individual compensation calculation: Based on an individual’s technical level and corresponding salary grade, and taking into account the salary structure designed earlier, specific compensation figures for that individual are determined. This involves simulating various scenarios regarding the overall performance of the organization, the performance of the department, and the individual’s own assessment results, in order to calculate the actual wage amount. At the same time, it is necessary to determine what percentage of employees’ salaries have increased or decreased compared to before the reforms, to assess whether the total salary amount will exceed certain limits, and to gauge employees’ acceptance of these changes as well as potential directions for adjustment. V. Standards and procedural design for dynamic adjustments: While the third step aims to address the historical technical value, skills, and capabilities of technical personnel, this step primarily determines the basis for future dynamic adjustments and changes. It is generally believed that the results of performance evaluations are the main factor affecting salary grade adjustments; however, in reality we need to treat different individuals differently. For technical professionals, we recommend conducting regular assessments of their technical level, for example, once every six months ； For functional managers, creating a designed \"salary accumulator\" in practice is a promising approach: it involves selecting several fixed factors among those that influence the dynamic adjustment of job salaries, thereby forming a \"salary reservoir\" that includes, in addition to performance evaluation results, other fixed factors such as significant rewards and penalties, further educational qualifications, new professional titles, and length of service – factors that are unlikely to give rise to disputes. In practice, there are two approaches: one is to provide a certain amount of salary separately as additional pay, which is accounted for independently ； One approach is to assign scores to all rigid compensation factors; once the total score reaches a certain level, the compensation grade is adjusted automatically. This method is highly effective in addressing the persistent problems of a single promotion pathway and unchanging salaries for the same position over many years in design research institutes. The third issue is that, although they are all professional technicians, their salary structures and levels should vary depending on the different tasks they perform. Generally, there are 4 scenarios: Participation in research and development projects: This refers to technical personnel who are involved in basic research or development work that does not generate direct revenue. Their fixed salary can be determined using the salary structure outlined earlier, but their main source of income comes from project bonuses. Their salary structure and level are closely tied to the project’s organization model and evaluation methods; the progress of the project, as well as its cost and quality metrics, all have a direct impact on their bonuses. Projects involving design and construction: These generally refer to technical personnel who are involved in generating direct revenue and serving clients. Their main responsibility is to complete the tasks specified in the project contract. Their fixed salary can be determined based on the previously established salary scales, while their primary source of income comes from project bonuses. Project bonuses are closely linked to the salary structure, project organization model, and evaluation methods. The factors that influence project bonuses, or in other words, the evaluation criteria, typically include the project’s net profit, cash inflows, progress, quality, customer feedback, and technological innovation. Engaging in market and sales support activities: In some organizations, the income structure and level of technical personnel differ significantly between periods when they are not working on projects and periods when they are. During non-project periods, there are two scenarios: one is participating in market and sales-related tasks, such as attending technical conferences, forums, and exhibitions for marketing purposes. In many organizations, technical personnel may or must also take part in project bidding processes, providing technical support and preparing tender documents. During such periods, their fixed salary can be determined based on their skill level corresponding to their technical rank; they may also receive a small amount of bonus. For those who participate in project bidding, a small commission bonus is sometimes given. Of course, if the technical complexity is very high in sales or project bidding, and close collaboration and joint participation between the sales department and the technical department are required, then a separate bonus distribution system must be established. Engaging in knowledge management tasks: Another scenario during periods when no projects are underway is participating in administrative support activities related to knowledge management, such as organizing and compiling technical documents, submitting project results, handling final settlements, participating in academic discussions, publishing articles, and editing academic journals. During these tasks, the fixed salary of technical staff can be determined based on their skill level, while bonuses may be minimal or even non-existent. For example, when providing human resources consulting services for a design institute, we structured its technical staff hierarchy as Chief Engineer, Lead Engineer, Project Manager, Project Supervisor, Specialist In-Charge, and Designer. Within this technical staff category, employees can be further classified into project-related personnel and non-project personnel. Skill-based salary is a type of wage determined based on the performance in engineering projects, professional title, educational background, etc.; it remains relatively constant over a certain period. The base amount of this skill-based salary is determined by the employee’s position in the technical rank scale, and this base amount changes as the employee’s skill level evolves. Skill-based salary is paid monthly together with the basic salary. As long as an employee participates in an engineering design project for 20 days, the skill-based wage is paid in full ； If the employee does not participate in any projects during that month, only 1/3 of the skill-based salary will be paid ； If the participation in the project is less than 20 days, the amount of skill-based salary to be paid will be calculated proportionally. Fourth, the career of technical personnel: Closely related to the third question is the career planning for technical personnel. At present, in China’s traditional public institutions, although the approach to compensating technical personnel based on their skills and capabilities is somewhat simplified, it is still considered quite thoroughly. However, regarding how to encourage technical personnel to develop their expertise and to continuously pursue in-depth technical knowledge and professional research, there is still essentially a lack of guidance in terms of career development and talent cultivation, with a great deal of basic management work that needs to be addressed. Career planning and management refers to the integration of individual development with corporate goals; it involves analyzing, summarizing, and assessing the subjective and objective factors that influence employees’ careers. Through design, planning, implementation, evaluation, and feedback, it ensures that each employee’s career objectives are aligned with the strategic goals of the organization. The system design for career planning generally includes four subsystems: the career development pathway subsystem, the organization and operations subsystem, the employee development subsystem, and the related applications subsystem. The focus is on developing the pathway subsystem, including the design of career tracks for technical positions, the classification of different types of tracks, as well as the development and design of qualification standards; in addition, there are professional certification systems and standard requirements for the competency models of personnel in technical fields. Next is the employee development subsystem, which ensures their technical growth and sustainable development through mechanisms such as career counselor programs, training, performance management, job rotation practices, the development of constructive interpersonal relationships, and management succession plans. Organizing and operating subsystems primarily address the organizational management, operational systems, processes, and standards related to career planning. The associated application subsystem primarily defines the interdependencies and interface relationships among all other work modules related to career planning and management. It addresses issues such as how the application systems that are closely connected to career and training system planning, salary adjustments, welfare benefits, career progression and transitions, corporate culture development, selection, appointment, and dismissal of managers, technology research and development strategies, and key business processes should work together, where their interfaces lie, and in what order they should be established. The purpose of career planning is to encourage scientific research and technical personnel to make a living through their skills, relying on their business acumen and professional expertise rather than on managerial positions. Although in our consulting practice we observe that \"experts lack leadership and their contributions go unnoticed,\" society as a whole still needs to foster an atmosphere in which it is considered honorable to make a living through expertise. After all, in an environment shaped by deep-rooted traditional Chinese concepts of hierarchy, it is extremely difficult to change employees’ mindset that they can only become wealthy by rising through the ranks. Technical institutions, in particular, must pay close attention to providing solid foundational management in various areas such as organization, personnel appointments and dismissals, authority allocation, compensation, performance evaluation, and training, so as to support the research and development work as well as the career planning of technical staff. For example, it is very important for theater troupes and cultural, artistic, and sports organizations to attract, encourage, and support young people in continuously improving their professional skills, thereby extending their professional adolescence. The school’s establishment of a career path is necessary to support and encourage teachers to focus on academic research, as well as to address the current trend of impatience in university academic climates. At this year’s National Conference on Science and Technology, it was emphasized that we must adhere to the path of independent innovation with Chinese characteristics in order to build an innovative country. Under such circumstances—where efforts are being made to establish a sound mechanism for selecting scientific and technological talents and to provide better services for those engaged in research and development—the career planning of professional and technical personnel becomes particularly important. The entire society, especially institutions such as research institutes, needs to pay more attention to the working environment and conditions for the development of scientific research talent and intellectuals. It is important to value and respect technological innovation, providing them with a tolerant academic environment. At the very least, we must prevent another tragedy like the suicide by jumping from a building by Mao Guangjun, a postdoctoral researcher at the age of 36. Finally, it should be noted that the wage reform in public institutions involves more than just these four technical issues. In fact, the policy aspects related to the reform of public institutions are the key factors that influence wage reforms; policies such as those concerning the reform of property rights systems and the transformation of employees’ status are particularly important.