Bonum Certa Men Certa

Staff Representation at the EPO Has Just Explained to Heads of Delegations (National Delegates) Why the EPO's Financial Study is Another Hoax

posted by Roy Schestowitz on May 21, 2024

EPO Financial Study 2023

ABOUT half a decade ago the staff representation at the EPO put a lot of effort into explaining why the so-called "study" (Financial 'Study') was in fact a "hoax", to quote the word they kept using [1, 2]. It started less than a year after António Campinos had joined. Here we are again 5 years later and the Central Staff Committee, i.e. elective representatives, write the following to staff:

Dear Colleagues,

The Office is asking for the opinion of the Budget and Finance Committee (BFC) on two documents: Financial Study Phase II (CA/23/24) and the Office opinion on the recommendations (CA/39/24). The staff representation was not involved in the drafting of the mandate of the consultants.

The Financial Study supports the funding of EPO benefit liabilities: family allowances (unfunded) and tax compensation (marginally funded), and long-term care insurance, health insurance and pensions (currently funded). This proposal appropriately goes into the direction of solving long-standing issues of liabilities.

However, the Financial Study Phase II relies on a base scenario with overconservative layers of assumptions and targets which are used to justify several measures at the expense of staff and the patent system:

In this open letter to the Budget and Finance Committee, we provide our comments.

Sincerely yours,

The Central Staff Committee

Here's the letter they had sent less than a week ago and then circulated among staff:

European Patent Office
80298 Munich
Germany

Central Staff Committee
Comité central du personnel
Zentraler Personalausschuss

centralSTCOM@epo.org

Reference: sc24027cl

Date: 16/05/2024

European Patent Office | 80298 MUNICH | GERMANY

To: Heads of Delegation in the Budget and
Finance Committee

Cc: Mr António Campinos
President of the EPO

By email:
council@epo.org
president@epo.org

OPEN LETTER

Comments from the staff representation on Financial Study Phase II

Dear Heads of Delegations,

The Office is asking for the opinion of the Budget and Finance Committee (BFC) on two documents: Financial Study Phase II (CA/23/24) and the Office opinion on the recommendations (CA/39/24). The staff representation was not involved in the drafting of the mandate of the consultants. The Pensioner’s Association has neither been invited to a meeting nor informed about the present documents although many proposals are centred on the pension scheme, the healthcare insurance and the long-term care insurance which are of paramount interest to pensioners.

The Financial Study supports the funding of EPO benefit liabilities: family allowances (unfunded) and tax compensation (marginally funded), and long-term care insurance, health insurance and pensions (currently funded). This proposal appropriately goes into the direction of solving long-standing issues of liabilities.

However, the Financial Study Phase II relies on a base scenario with overconservative layers of assumptions and targets.

First, the Office intends to opt for a target funding ratio of 105% for all benefit liabilities. However, the Actuarial Advisory Group (AAG) considers that overfunding shall trigger measures to reduce the asset to a suitable funding target1 and even views that a funding level of 96.5% does not lead to a recommendation of an action to be taken2. The target funding ratio of 105% is hence a conservative target.

Second, the Office considers a margin for allowing the coverage of short- term fluctuations in the funding ratio. It intends to set aside a cash buffer corresponding to 12 months of the Office’s operational cash requirement plus the amount of non-current prepaid fees. This constitutes an additional layer of conservative target.

Third, the Financial Study assumes a low discount rate set at 4.6%3 in nominal terms (including consumer price inflation) as a consequence of the proposal to increase the probability of reaching the overfunding level at 66%4 instead of the current target of 50%5 of the AAG. Indeed, the AAG Study6 opted for a discount rate of 3.25% in real terms which amounts in nominal terms (when considering +2.03% consumer price inflation) to 5.28%. The chosen discount rate is below the expected yearly return rate of the RFPSS until 2042 of 6.07% according to PPC metrics and further below the RFPSS 20-year annualised performance of 6.4%7. This constitutes a further layer of conservative assumption.

Fourth, the Financial Study takes into account a one-off increase of the fees in 2024 and no increase of the fees thereafter until 20308. This constitutes yet another layer of conservative assumption.

The overconservative layers of assumptions and targets are used to justify several measures at the expense of staff and the patent system.

First, a steady increase in productivity of 2.1% per annum on average is foreseen over the period until 20309. The Office will therefore increase the production pressure on DG1 staff and seems to have given no consideration for any impact on patent quality (the word “quality” is notably absent from both documents). This measure is difficult to reconcile with the latest Engagement Survey 202410 by Willis Towers Watson showing that the largest decline of –12% since 2022 related to the perception of the EPO’s reputation for the quality of products and services.

Furthermore, any deviation from the annual production target will be tightly monitored via the DG1 management dashboard to ensure that it is kept at no more than –2%. Therefore, EPO staff can expect increased micro-management.

Second, the Office refers to the bundle of measures of the previous financial study (CA/18/20) and announces that it will explore ways to address post-employment liabilities and will make proposals to address the principle of shared effort. This statement is already a matter of concern among staff. The latest Engagement Survey 2024 results show that wellbeing and change fatigue remain a challenge at the EPO11. In this context, we can only strongly advise against any adversarial change to the pension benefits, tax compensation, family allowances, healthcare insurance and long-term care insurance.

Sincerely yours

Derek Kelly
Chairman of the Central Staff Committee

__________

1 CA/52/23, p. 63/64

2 CA/52/23, p. 31/70, par. 133

3 CA/39/24, p. 4/14, par. 5

4 CA/23/24, p. 28/97

5 CA/39/24, p. 8/14, par. 12

6 CA/52/23, p. 22/70, par. 90 and 92

7 CA/42/23, p. 3/21

8 CA/23/24, p. 44/97

9 CA/39/24, p. 6/14, par. 8

10 Engagement Survey 2024, Willis Towers Watson, p. 12/35

11 Engagement Survey 2024, Willis Towers Watson, p. 4/35

As we explained here before, the Budget and Finance Committee (BFC) is a major facilitator of EPO corruption [1, 2], yet the media never talks about it.

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