Thursday, July 31, 2014

Egypt's 'Maximum Wage' - Contradictions & Conflicting Information

Egypt’s new maximum wage law is cloaked in confusion and conflicting information
Sunday July 27, 2014
Jano Charbel and Isabel Esterman

During a June 24 speech, President Abdel Fattah al-Sisi declared that no public employee in Egypt would be paid more than LE42,000 per month, the same salary the president is entitled to.
  A month later, a decree by Prime Minister Ibrahim Mehleb gave more detail about how a new maximum wage law is to be implemented. Debate has since raged over the wisdom of capping wages, with opponents and proponents taking to the media to argue their positions.

The maximum wage ceiling of LE42,000 per month (US$6,000) has been criticized by high-earners as being too little, while labor groups say it’s too much.

For nearly seven years, labor activists have been demanding a monthly minimum wage of LE1,200 and a maximum wage of no more than 15 times that amount. Since the January 2011 uprising, successive governments have promised to forge ahead with one that’s 30-40 times the minimum, in an attempt to address demands for social justice.

The new law finally sets the maximum wage at 35 times the minimum received by public sector employees.

According to worker and activist Nagy Rashad, “The maximum wage is a good starting point for the realization of social justice. It will be a positive step forward if the ruling authorities are actually able to implement it.”

However, he still maintains that the maximum wage is excessive. “The income differential is very large — this is not what we were hoping for,” he says.

Sources familiar with the wage structure of public sector companies say that the LE42,000 ceiling will not affect the vast majority of workers.

Eslam, a National Bank of Egypt employee, who asked that his last name not be used, explains that entry level workers earn LE2,000-3,000 per month, rising to LE9,000 after years of experience.

Branch managers can earn around LE20,000 per month. Only board members and top managers, who are eligible for huge bonuses and profit sharing schemes, can expect to earn more than LE42,000 monthly.

In the petroleum sector, only a few top managers and board members are likely to exceed the maximum wage. Nonetheless, for those at the top end of the scale, the cap has come as unwelcome news.

In press statements issued this month, spokespersons from the Central Bank of Egypt and other public sector banks expressed concern that the new maximum wage law may deter young bankers from working in the public sector. They would instead seek employment in private sector banks were there is no ceiling, leaving public institutions vulnerable to a lack of skills and experienced labor.

According to Angus Blair, head of the Cairo-based Signet Institute, this may not be a bad move for the country, which is burdened by a huge public sector wage bill.

“Egypt needs to send more people to the private sector,” he says. “It’s sending a message to say ‘if you want a decent salary, the government is not for you.’”

Enforcing a maximum wage law also signals an end to the old days, where Egyptian ministerial employees might expect to out-earn their counterparts in Europe. Blair says it also sends a message of  “no more corruption of high salaries.”

Rashad, however, worries that a wage cap could push some of Egypt’s brightest talents out of the country entirely — a country in which many competent and skilled laborers already seek job opportunities abroad.

Despite his general stance that the maximum wage is excessive, he does call for exceptions in special cases.

“Someone of the caliber of Dr. Ahmed Zuweil, or his like, should not be confined to LE42,000 per month, otherwise they'll opt to work elsewhere in the world,” he said in reference to the internationally renowned Egyptian chemist/physicist and Nobel prize winner.

There are two decrees regulating Egypt’s new maximum wage: Presidential decree 63/2014, concerning the maximum income for state employees — issued on July 2, and prime ministerial decree 1265/2014, issued July 19, which sets the executive regulations pertaining to decree 63/2014.

The former sets the maximum wage as a law to be imposed nationwide on all state ministries, authorities and public sector offices, while the latter specifies the detailed regulations of this legislation.

The second decree stipulates in Article 1 that the net sum income will be capped at LE42,000 per month, with no exemptions in the form of additional bonuses, extra wages, monetary benefits or pay raises. This is significant, since such bonuses often form the bulk of wage packets in Egypt.

However, this does not include transportation or accommodation allowances for work, missions, or any other official business.

Article 2 lists the 30 state sectors to whom these regulations apply, which include public sector banks, the judiciary, police, armed forces, ministries, state-appointed national councils, public sector utilities and service companies. The maximum wage also applies to state-employed advisers, technicians, experts and specialists.

However, the provisions of this law do not apply to diplomats, consular staff, commercial/trade officials or any other official representing the Egyptian state abroad.

In an interview with the Sada al-Balad news outlet this month, Prime Minister Mehleb explained that these categories of civil servants are exempt from the maximum wage in order “to maintain their high performance” and “in light of the high living expenses abroad.”

According to Article 3 of the law, committees or working groups are to be established within each state body to monitor the maximum wage as well as to earmark all money in excess to specialized bank accounts or to the Ministry of Finance.

Those who earn more than the maximum wage have to settle any overpayment within 30 days of the end of the year.

Article 4 states that in the case of non-compliance, the government can deduct additional income from employees, beginning in December in the year following the year of payment. Any money deducted is to be sent to the public treasury.

According to Article 5, state entities employing consultants or specialists must disclose any payment to state auditors within 30 days. Failure to do so will lead to a disciplinary hearing, and could result in the consultant being obliged to return any remuneration he or she received.

The law leaves a number of questions unanswered. For example, it is unclear how the salary structure will be adjusted in agencies where employees at various levels of seniority are currently earning more than LE42,000 a month.

The language in the law also refers to “year of payment,” an obscure term that leaves room for confusion as to whether regulations are linked to calendar or fiscal year. It is also unclear how the new legislation will affect entities, such as petroleum companies, that are joint ventures between the Egyptian state and foreign investors. 

The law also does not clarify the extent to which the committees tasked with monitoring enforcement in each state agency will be subject to independent oversight. Nor is it clear how much money the government hopes to save by enforcing a maximum wage.

Figures issued by the state’s financial authorities suggest enforcing a maximum wage will save LE2 billion per year, while other sources have claimed it will save the public treasury LE13 billion.

While the law is set to enter into effect by the end of this month, whether or not state authorities will comply is another matter. 

The lack of clarity surrounding the maximum wage law has led to officials waging a battle for public opinion via the pages of local newspapers.

A number of statements attributed to Hesham Geneina, head of the Central Auditing Organization, have accused various state agencies — including the judiciary and police — of refusing to cooperate. Meanwhile, the organizations named have taken to the media to refute the claims. 

In terms of state officials with the highest pay, media attention has focused primarily on board members of public-sector banks, ministers, the judiciary, diplomats and generals in the both the police and armed forces. However, virtually none of these highly-paid categories have admitted to earning LE42,000 per month, while all authorities have claimed that they are in compliance, or are in the process of doing so.

The idea of setting a maximum wage is not a novel concept introduced by the new president or his prime minister — it dates back well over 40 years. Article 24 of the 1971 Constitution calls for both minimum and maximum wages to be set.

An amended form of this provision was included in Article 14 of the Muslim Brotherhood-era 2012 Constitution.

In April 2012, under the Muslim Brotherhood-dominated parliament, a maximum wage of LE50,000 was reportedly imposed on all ministers and members of parliament — although these regulations were criticized on the basis that they were not comprehensively implemented amongst leading state employees.

Moreover, there were exemptions from the maximum wage for certain categories of advisors, scientists and technical specialists.

In the new 2014 Constitution, Article 27 also stipulates for both a minimum and maximum wage. Yet, there are concerns over the actual implementation of both.

In January of this year, a monthly minimum wage of LE1,200 was issued by law, yet, out of a total workforce of some 27 million, only some 4.9 million public sector employees were granted this new wage. The public sector employs some seven million people.

“The ruling authorities seek to portray themselves as being populist leaders of a populist government, much like [ousted President Hosni] Mubarak sought to portray himself to the populace,” says labor activist Rashad.

“I expect that heavyweight officials and the ruling regime’s fat cats are going to find a way to exempt themselves from the maximum wage and its regulations,” he suspects, saying that since the minimum wage law is weakly enforced, the maximum would be also.

*Photo courtesy of Royalty Free Stock Photos

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