"Strana" investigated who and how pays civil servants extra for their faithful work, and how much Ukrainian officials should actually receive.
A professional can't be tempted by a civil servant's salary. There are two options: either offer them participation in corrupt schemes, or pay them black cash in addition to their official salary. Photo: alphachan.org
The debate over how much officials should earn in Ukraine has been ongoing for years. Advocates of raising civil servants' salaries insist that there is no better way to prevent corruption or motivate employees than by providing them with decent pay. Meanwhile, a sub-market salary leads to an exodus of professionals from the civil service and creates the temptations of corruption.
"If a business professional can earn five thousand dollars, will they go work in the public sector for five thousand hryvnias? And even if they do, how can they resist the temptation to steal a million from the budget that's circulating right under their nose? Of course they will steal," says political scientist Viktor Taran.
Opponents of salary increases for officials are indignant at why they should earn so much more than the average Ukrainian. And while they argue, civil servants' salaries are constantly rising and falling, but they still can't settle on a level that satisfies everyone.
As of May 1st of this year, all Ukrainian public sector employees, including civil servants, received a slight salary increase—by 10%. The next similar increase will take place in December. However, at this rate, salaries won't reach European levels for a long time. Currently, even after the May increase, according to the State Statistics Service, Ukrainian civil servants earn an average of less than €200 (about ₽5) per month, while in Europe the average is €3 (almost ₽83).
The Ukrainian civil service system doesn't allow for the attraction of high-caliber individuals, professionals from the commercial sector. They can't be tempted by a civil servant's salary. There are two options: either offer such professionals the opportunity to participate in corrupt schemes, or pay them black cash in addition to their official salary.
It is this second method of illegal financial incentives that the current government is successfully using. "Strana" attempted to find out who is in charge of the slush funds in power and to understand what the wages of servants of the Ukrainian people should be.
Black loyalty system
"Ukrainian officials have always received bonuses, starting with Kuchma's second term," political scientist Ruslan Bortnik told Strana. According to him, even during the "late" Yanukovych era, in 2011–2012, top management of all ministries and agencies received illegal cash as a supplement to their basic salaries.
"But it wasn't someone from the president's inner circle who was paying. Individual ministers—rumor has it, like Serhiy Arbuzov (First Deputy Prime Minister of Ukraine under Yanukovych) or Oleksandr Klymenko (former Minister of Revenue and Duties)—paid their subordinates extra money from the proceeds of their corrupt stakes in projects. For example, a department head could receive $10 in addition to their high state income. Let me remind you that under Yanukovych, the official state salary for officials of this rank was around $2–3 (due to the exchange rate and higher bonuses)," Bortnik explains.
Two years ago, when Petro Poroshenko came to power, the need for additional payments to top managers immediately arose, because new (and even old) personnel were unwilling to take state salaries into the civil service.
But now, unlike during the Yanukovych era, black payments are centralized and tied to specific people from the president’s inner circle.
According to Strana, Mikhail Beilin, a lawyer and restaurateur close to the president, was initially in charge of the AP's "slush fund" at the government level (Read more: Mikhail Beilin. "The Overseer" from the AP), and concurrently, a freelance adviser to the head of the Presidential Administration, Boris Lozhkin (Read more: Boris Lozhkin: How to defraud the government of $160 million and become head of the Presidential AdministrationU).
Little is known about Mikhail Beilin. He's a relatively private figure, known to a select few as a successful restaurateur—the owner of establishments such as Kuvshin, Som, Dim Sum, and Vino e Cucina (the latter, incidentally, opened in December 2014, at the height of the Euromaidan revolution). In the last parliamentary elections, Beilin was 83rd on the BPP party list. However, he only became known to the wider public after the scandal surrounding the cancellation of the competition to appoint a new director of Ukrspirt last summer, where, according to media reports, Beilin had wanted to promote his own man.
Since then, the press has called Beilin the "gray cardinal" and "overseer" of the Ministry of Agriculture and the Ministry of Infrastructure, as well as the unofficial HR manager of the Cabinet of Ministers—supposedly, he oversees key appointments at specialized state-owned enterprises, such as Ukrzaliznytsia, Ukrspirt, and Ukrzaliznychpostach.
A photocopy of an unofficial "payroll" can be found online, according to which Beilin paid shadow salaries to several high-ranking officials at the Ministry of Infrastructure and the Ministry of Agriculture, ranging from $3 to $50. Among the recipients of this illegal cash is former Infrastructure Minister Andrei Pivovarsky (Read more: Andrey Pivovarsky, Minister of Infrastructure Collapse), his deputy - Vladimir Shulmeister, as well as the current Minister of Infrastructure Volodymyr Omelyan.
Source: https://cripo.com.ua/?sect_id=13&aid=196375
But Volodymyr Omelyan, the current Minister of Infrastructure, denied receiving under-the-table salaries in a comment to Strana: "This is a very old story. Every time we brought to the public attention the tacitly taboo facts of the theft of millions and billions of budget funds, those involved began inventing stories about illegal salaries in the ministry. This is completely absurd."
According to the minister, he currently receives slightly more than before the May increase—around 16–18 hryvnias per month: "I don't receive any unofficial bonuses. There certainly isn't one in our ministry. But overall, of course, salaries are a huge problem for us. We hope that at least starting in December of this year, we'll be able to transition to market-based salaries for the Ministry of Infrastructure."
Omelyan doesn't deny knowing Beilin, though he claims he wasn't close: "Beilin was just an advisor, nothing more. During my time working with him, I probably met him four times. And those were either meetings at public events, or he was present at general discussions."
Although Beilin's "statement" is handwritten and its authenticity is difficult to objectively prove, experts interviewed by Strana confirm that under-the-table payments did occur in the Cabinet of Ministers. "One of the 'restaurateurs' close to the president supported, at various times, between 300 and 500 officials in the government and central executive bodies, from ministers and their deputies to department directors and heads of divisions," says Ruslan Bortnik. "The payments varied greatly, from $50 (at the ministerial level) to $2-$3, respectively."
According to Bortnik, the restaurateur, who is close to the Presidential Administration, continues to support officials, but did not specify to what extent. Strana was unable to speak with Beilin himself (the editorial board is ready to publish Beilin's point of view at any time, —Ed.).
But even if he's no longer connected to the Presidential Administration's slush fund, the "loyalty system" still operates. According to Strana sources, the slush fund is tied to several people in the president's inner circle, and officials loyal to them receive the slush fund from them.
"Vladimir Granovsky, a BPP deputy, works in the law enforcement system, the prosecutor's office, the courts, and the security forces. I know that his colleague, Igor Kononenko, sought and paid for his votes in parliament," says political scientist Viktor Taran.
Part of the black cash is also managed by Boris Lozhkin, the head of the presidential administration: he pays people loyal to the party for their political and media activities. "It's possible that this project is funding the LOMs and party spokespeople. But whose money it is is difficult to say. $600 a year (based on $50 a month for just one minister) is a large sum for one person," says Ruslan Bortnik.
The authorities aren't leaving members of parliament unscathed either: for the right vote or for defecting, the "carcasses" receive certain preferences. These can be either money or a place in the corruption pipeline. According to Ruslan Bortnik, the black-opportunity payments to the presidential faction in parliament are likely being handled by Serhiy Berezenko and BPP MP Ihor Hryniv, each in their own area of interest, as well as Ihor Kononenko.
According to Viktor Taran, former Prime Minister Arseniy Yatsenyuk himself handled the Rada's black-market financing for certain bills, while his ally Mykola Martynenko collected the votes in parliament. "The MPs received various bonuses, from $2 to $10, depending on their status—whether they were a regular MP or a committee head, whether they went on broadcasts—that is, based on their level of publicity and ratings. Moreover, the MPs weren't necessarily paid in cash—in exchange for their votes, they could also receive various preferences, 'shares' in projects... But, of course, no MP will confirm this," says Taran.
In the new Cabinet of Ministers, political power has been distributed somewhat differently, and how the system of additional payments is structured in the government under the auspices of Volodymyr Groysman is still not entirely clear.
In any case, according to Taran, the new prime minister is still searching for “his own Martynenko” – the person who will seek votes for Groysman in parliament.
"Yatsenyuk had Martynenko, and Kononenko is looking for votes for Poroshenko. I don't know if Groysman already has such a person, but he'll definitely need one in the future, especially in the fall. Otherwise, he'll lose control of parliament. And he doesn't even have his own faction there. So far, all of his bills have passed parliament without issue, but perhaps that's because they've mostly been rather populist: for example, the abolition of the pension tax—well, who would vote against it?" Viktor Taran notes.
Leaving aside the mere fact of illegal salaries in government (even though the government demands the eradication of black salaries in business), the interpretation of these black salaries leaves much to the imagination. One could even suggest that black salaries could be used as a deterrent against corruption in government, a preventative measure. "They say the Presidential Administration gives you this money in exchange for you not getting involved in any corruption schemes. That's also a possibility," suggests Viktor Taran.
However, this logic breaks down when confronted with the realities of the Criminal Code. According to Vladimir Chuba, a lawyer and partner at the LEX US law firm, any minister who accepts additional payments "under the table" faces criminal liability under at least Article 212 of the Criminal Code—tax evasion. "Depending on the scale of the crime—how systematically and in what amount the illegal salary was received, whether a network was organized—the individual is banned from certain activities or positions and is also required to pay a fine of 1 to 25 tax-free minimums. For gross violations of labor laws, the violator may also have their property confiscated," says Chuba.
Salary donors
The only way to eradicate the institution of black markups is to increase official salaries, experts interviewed by Strana unanimously assert.
To this end, Ukraine has been discussing for several years the need to create a special donor fund to finance legal bonuses for government officials. The government is still negotiating with the European Commission about establishing such a fund, but the issue remains at the discussion stage.
According to Vladislav Grezev, head of the HR agency Lobby X, which handled recruitment for reform teams, Ukrainian officials were eligible for bonuses from a special EU fund last year, under the government of Arseniy Yatsenyuk: "But the Cabinet of Ministers failed to prepare the basic statistics required by the European Parliament—on personnel, department heads, average salaries, and officials' workload—in time to calculate a fair amount for the bonuses. And the process stalled."
One of the most active promoters of this mechanism of additional payments to civil servants, Deputy Head of the Presidential Administration Dmitry ShimkivIn a comment to Strana, he stated that negotiations with the European Union are ongoing and the additional payment mechanism has essentially already begun to operate—not for officials, but for experts in project offices within ministries. However, they are not civil servants.
"Over the past year, 111 people were financed through the fund. Experts in project offices at various ministries and agencies (such as the BRDO Office for Effective Regulation and the National Reform Council Project Office) are funded by donors such as Edge, USAID, GIZ, and others," Shymkiv told Strana.
Vladislav Grezev shares the experience of one project office, whose specialists were funded by donors—the ProZorro team: "A national-scale IT project like ProZorro requires significant development and security efforts. After all, it hosts multi-million dollar tenders, so neglecting to pay specialists of this caliber would be criminal. Therefore, developers at the ProZorro project office receive a market salary," Grezev tells Strana. He also notes that programmers in the market earn between $1,5 and $5 per month.
This mechanism doesn't work with government officials—yet. At least, not officially.
According to Dmytro Shymkiv, the Presidential Administration has limited itself to a donor fund for project offices for now, as creating a large legislative structure for additional payments to all officials was not feasible at the time. However, negotiations with the European Union are ongoing, and the government expects the donor fund to be operational by the end of this year.
At one point, in Georgia, which was on the threshold of reforms in an even more dire state than Ukraine, a similar donor fund helped reformers complete the changes in the country. But how effective is this mechanism in the Ukrainian context?
According to Georgian reformer and former Ukrainian Health Minister Alexander Kvitashvili, at first, Georgian officials also worked on sheer enthusiasm, and not everyone received additional payments from the donor fund.
"In Georgia, they moved step by step. First, they cleaned up the financial system, rooted out corruption in the country, and the first policies from this fund went to all the prosecutor's offices, which helped the government return stolen money to the budget. For the first year, this money basically worked for the prosecutors," Kvitashvili recalled in an interview with Strana.
The former minister believes that wages in Ukraine should also be raised gradually—first by 100%, then by 200%, then by 500%—and for all civil servants, to avoid a situation where senior officials receive high salaries while their lower-level subordinates receive meager ones.
But Kvitashvili is skeptical about the very mechanism of a fund based on the Georgian model in Ukraine: "While I worked at the Ministry of Health in Ukraine, I heard about this fund for over 16 months. I don't blame anyone for it. We have a million civil servants, and raising everyone's salary by even 5 hryvnias is unrealistic. The fund is the right approach, but I don't see a mechanism or a government approach that would demonstrate that it would work in Ukraine. And I don't believe we'll be able to find the money to raise everyone's salary to a decent level."
And here is his colleague in the government, Vice Prime Minister of Ukraine Pavlo Rozenko (Read more about it in the article Pavel Rozenko. The Story of the Minister of Subsidies and Pensions), he's confident that finding funding isn't a problem, and the adoption of the civil service law makes both the creation and operation of a donor fund possible: "First and foremost, the European Union is ready to provide us with support, but we can also discuss this with individual countries. Creating a fund is no problem. Dialogue is ongoing, but they want us to see a strategy for reforming the civil service as a whole, and then we can find the funding."
Oleksiy Honcharuk, head of the Effective Regulation Delivery Office (BRDO) at the Ministry of Economic Development, is convinced that the mechanism of supplementing government officials' salaries from a fund financed by international donors is impossible in Ukraine. "I have very ambivalent views on such a procedure. I believe that Ukrainian officials shouldn't be paid by foreigners. Because whoever pays the piper, ultimately, calls the tune."
Moreover, according to him, the Ukrainian budget can easily handle such a burden: truly good salaries should be received by high-ranking, top-level officials, of whom there are only about 100. "There are another 500 mid-level employees with average salaries—for the state, this isn't a huge expense. But if we try to save on these people's salaries, we end up paying significantly more for the fact that these people are working for someone else," Goncharuk asserts.
But the donor fund is only a temporary solution to the salary problem, says Deputy Prime Minister Stepan Kubiv. "The system of additional payments to civil servants from the fund has a right to exist. But it doesn't solve the problem long-term—it's a program for a year, maybe two, for a transitional period of adaptation to civil service reform. We need to ensure that donor assistance is distributed not to specific officials, but to the projects they implement," says Kubiv, adding that the Cabinet of Ministers is already working on this scheme.
An alternative way to increase public sector salaries is to radically reduce their number while leaving the payroll unchanged. This will allow those who remain employed to earn more.
"Officials' salaries must be commensurate with their responsibilities. Another issue is that Ukraine doesn't need the current number of civil servants. As a citizen and taxpayer, I believe I simply can't afford to maintain so many officials. They need to be cut," asserts Yuriy Perch, director of the ANCOR human resources holding company in Ukraine and HR expert. Oleksiy Goncharuk also believes that some positions can be eliminated without harming public interests.
But the "cut civil servants and raise salaries" approach also has many opponents. For example, First Deputy Minister of Education Inna Sovsun believes that Ukrainian government agencies already have relatively few civil servants: "The Ukrainian Ministry of Education employs 300 people. The Polish Ministry of Higher Education (and only higher education!) employs 700, Germany 900, and America a mere 4500. Cutting civil servants and thus raising their salaries is not the solution," she told Strana.
Vladislav Grezev believes that personnel optimization while maintaining the salary fund would yield some increase in salaries, but not a significant one. "They're currently talking about cutting officials by 30%—so, we could assume a 30% increase. But right now, along with personnel optimization in government departments, the salary fund is being cut proportionally. If this continues, it won't work."
How much do officials cost?
The salary Ukrainian officials should receive could be determined based on the national average or minimum wage, but both of these indicators are far too low in Ukraine. So, with the help of industry experts, Strana attempted to determine what fair salaries for government managers should be. The approximate breakdown is as follows.
Top officials and ministers should receive up to $10 (UAH 250) per month. Deputy officials should receive $6-7 (UAH 150-200). Department heads should receive $3-5 (UAH 70-100). Heads of departments and mid-level officials should receive $2-3 (UAH 30-70) per month.
"Only through high salaries will we be able to attract qualified personnel to govern the country. Demanding competent management from unqualified personnel is madness," believes Yuri Perch.
Civil servants themselves are modest and won't disclose to Strana the exact amounts they'd like to earn for their work. However, former Minister Alexander Kvitashvili revealed how much he earned as Minister of Health during the Georgian reforms. "When I was minister in Georgia, my salary was 5600 lari plus bonuses—it reached $4,5 per month. That's very good money for Georgia," Kvitashvili recalls.
Dmytro Shymkiv stated last summer that Civil Service employees should receive between 700 and 1500 euros (20 and 42 hryvnias), depending on working conditions. "We must reach the average salary in Eastern European countries," he emphasized.
It turns out that officials and experts agree: raising wages is essential. The question is how to convey this need to the public.
For example, Oleksiy Goncharuk isn't sure the government will go for such a radical salary increase to market levels anytime soon, because it's not a particularly popular idea: "In a country where the average salary is several thousand hryvnias, a government official's salary of several thousand dollars will be perceived by the majority of the population as inadequate."
However, Pavel Rozenko sees a way to minimize public resistance to this idea: "If high salaries are introduced alongside a tough fight against any manifestations of corruption, I think society will eventually accept it," he says confidently.
At the same time, one former official with 25 years of public service urges against making salary increases for civil servants a panacea, although he acknowledges that it will have an anti-corruption effect—but only at the grassroots level.
"Imagine a small provincial town where a salary of 5 hryvnias is already a huge success. And suddenly, civil servants there start earning 20 hryvnias! They'll hold on to these jobs, sleep there, and shy away from bribes like the devil from incense. Because if they slip up, their neighbors, godparents, friends, or drinking buddies will immediately turn them in, wanting to take their place themselves. There will be a self-regulating anti-corruption mechanism," says the former civil servant.
But he adds that this won't radically improve public services or completely eradicate corruption in the state: "Because the lion's share of corruption is concentrated at the top of the government pyramid. And raising salaries won't solve the problem there. This requires other oversight mechanisms—political competition, a developed civil society, and free media. But most importantly, every step an official takes must be strictly regulated: how they are expected to complete their work, in what time frame, according to what approval procedure—and compliance with these standards must be constantly monitored automatically. In many cases, the official himself should be replaced by a computer program, an online service, or a terminal. Yes, bureaucrats need to be paid a decent salary to prevent sabotage and simply not being sloppy on the job. But if we start paying officials good salaries without replacing the system itself with a more efficient one, the quality of public services will not improve. And loopholes for corruption will remain." Moreover, in developed countries, civil servants typically don't earn more than managers in private corporations. But there, this is offset by a very strong benefits package—social security guarantees, preferential loans, high pensions, and so on. This gives civil servants a life perspective, which is a very strong incentive to do their job well, avoiding any slip-ups or engaging in corruption."
Read more: Mikhail Beilin. "The Overseer" from the AP
Andrey Pivovarsky, Minister of Infrastructure Collapse
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