Adverse Selection and Targeting
Many enterprises provide a range of benefits, including medical, transportation, housing, food, and other allowances. These benefits are often set out in the administrative rules or regulations for each public enterprise or in collective agreements or labor contracts. The implementing agency will risk industrial unrest and legal challenges on breach of contract grounds if agreed benefits are not provided. Unlike statutory payments, however, the implementing agency does, in theory, have the option to negotiate these payments.
At separation, workers will usually have to be compensated for these contractual benefits as part of the overall severance package through one of two mechanisms:
Enterprise benefits are defined by the administrative rules and regulations of the enterprise.
At the Mexican National Railroad Company (Ferrocarriles Nacionales de México, FNM), salary for the purposes of the severance scheme was identified as the Rdaily integrated salary.R It was calculated by adding the monthly amount of the base salary to the amounts of a wide range of enterprise benefits and dividing by 30 days of the month. Here is a list of the potential factors in that equation:
This formula was used to calculate the salary that applied both for workers eligible for an enhanced early retirement plan (with different retirement ages for men and women), and for those workers who were not eligible for retirement but offered instead a severance plan. Depending on their daily integrated salary, age, tenure, and gender, workers received, on average, between US$10,000 and US$25,000 as a severance payment (based on the average exchange rate in 2000).
Source: López-Calva 2002.
In Nepal public enterprises set their own rules and regulations for treating such nonsalary benefits as medical coverage, housing, loans, and food allowances at termination. These allowances have varied greatly, and the government found that it had to engage accountants and consulting firms to undertake detailed assessments for each enterprise in order to estimate the costs of labor adjustment for its public enterprises. In Uganda the rules on termination payments vary among enterprises. Some include standard allowances received with pay as a basis for calculating terminal benefits; others do not include these allowances but do provide formulas that compensate for them (Campbell-White and Bhatia 1998).
Contractual benefits can be complex. The labor contract for workers in the Mexican national railway (Ferrocarriles Nacionales de México [FNM]) contained more than 3,000 clauses. In such cases renegotiation and simplification of the labor contract and payment rules are effectively essential prior actions to privatization and may include simplification of the rules on compensation for the loss of benefits for redundant workers. In Mexico a temporary contract was agreed to during the restructuring process for FNM–one that simplified the contract to 211 clauses. Following the private investment in infrastructure (PPI), the new railway operators negotiated separate labor contracts (López-Calva 2001).
Many governments have chosen to treat housing as a noncore asset and to sell it. Workers may have first refusal or receive discounted prices.
López-Calva 2001 (a PPIAF case study).
Housing is often an important benefit that needs separate treatment. Two issues must be addressed in this regard:
Allowances for travel to home may be part of the normal statutory, enterprise, or contractual benefits or may be provided as a special ex gratia end-of-service benefit for workers. Either (capped) reimbursable costs or, more commonly, a defined allowance is paid toward the costs of transportation to a designated home location for the employee and his or her family and for the transfer of household furniture and possessions. The designated home location is often the location recorded in the employee's service record at the date of joining the PPI enterprise. These allowances are most relevant where there are traditions of migration to work or where ethnic group or family links to the home area are important.