11.14.20

Inside the EPO During Corona: The EPO’s Fat Cash Cow is Decreasing Salaries of Staff During a Public Crisis

Posted in Europe, Patents at 2:58 pm by Dr. Roy Schestowitz

No dialogues needed, apparently. Just make ordinary staff pay, as usual.

Cow dialogues

Summary: “We demand that the salaries of the EPO should respect the principle of parallelism based on the cost of living in each of the Places of Employment,” the staff union of the EPO (SUEPO) writes, “which is a real salary adjustment method – as used throughout international organisations – and not a Salary Erosion Procedure which we will be getting soon.”

THE working conditions of EPO staff, not to mention their salaries, have been under constant attacks by the Benoît Battistelli regime; this isn’t what examiners signed up for and typically relocated the whole family to another country for. António Campinos is just more of the same; Mr. Fanta. Different branding, same abuses. Even worse abuses.

“Did the EPO give/extend any courtesy/respect to actual facts over the past decade?”SUEPO, the staff union of the Office, published the following back in April, noting that “presenting our previous Salary Adjustment Procedure as an automatic increase is an extremely single-minded view, devoid of any facts.”

Did the EPO give/extend any courtesy/respect to actual facts over the past decade? Or just lies and buzzwords like “Hey Hi” (AI), along with euphemisms such as "social dialogue"?

Here’s the publication from SUEPO:

24 April 2020
su20020cp

Salary adjustment method: which inflation is relevant?

From the emails we receive, we conclude that there are several open questions relating to the inflation in the EU, Eurozone or national level with respect to the cost of living in our Places of Employment. This publication tries to answer these questions.

It must be added that, whether or not you will like the result, the President is fully aware of the consequences and it was his deliberate choice.

Introduction

In a nutshell, following from the Mercer Financial Study, the President neglected some € 9 billion (sic.) of EPO assets in a financial study to find a “funding gap” of € 3.8 billion – on top of which another € 2 Billion ‘buffer’ were magically added, which should now be filled with a cut of about € 2.7 billion from our salaries over the next 20 years1. This is equivalent to several hundred thousand Euros in loss of purchasing power for each of us. The tool for implementing this cut is the new salary erosion method as proposed by management.
In this new salary erosion method, a number of safeguards that existed in the previous salary adjustment method are deleted, e.g. to account for unexpected inflation or double counting. It also removes the retroactive correction from July to December.
Finally, the President’s method will apply an overall cap based on the inflation of the Eurozone. This last step is the core element that will gradually erode our purchasing power by hundreds of thousands of Euros for each of us. Everyone can verify to themselves using the salary simulator2 created for that.

The inflation: an important element for the cap

The President claims that the impact of the cap in the salary erosion procedure is about € 2 billion – but this is actually misleading. Indeed the € 2 billion he is mentioning3 is based on the EU inflation4 (as used in the financial study), but the method as now proposed actually uses the Eurozone inflation.
This little detail is worth billions of Euros: the annual EU-HICP (EU-inflation) is currently at 1.6% while the Eurozone inflation is at 1.2%5. The cap according to the salary adjustment method, which is Eurozone inflation +0.2% (plus 0.2%), corresponds to an EU-inflation – 0.2% (minus 0.2%).
When looking at past data, the EU-inflation is consistently above the Eurozone inflation, which only reflects the fact that the Eurozone contains mainly stable, old economies while

______
1 “What does Campinos’ SAP do?”
2 https://suepo.org/salarysimulator
3 “Salary Adjustment Method” intranet publication dated 9.4.2020
4 Financial Study Phase II, CA/83/19, page 123
5 https://ec.europa.eu/eurostat/web/hicp/data/database


the EU contains also countries which are attributed to the European Emerging Markets which have a higher economic growth which comes along with higher inflation.
Changing the inflation basis from EU-HICP to Eurozone HICP has as a consequence that the impact of the cap will be much closer to € 3 billion than to € 2 billion6.
Still, the President continues to communicate € 2 billion on the basis of an EU inflation +0.2%, thus entirely misleading staff.

By applying the salary erosion method proposed by the President to the last six years (2014-2019 – which were prosperous years), the erosion of the salary scales would be around 7% or the equivalent of some 3 steps, lagging the evolution of the cost of living in our Places of Employment by around 4 %.
Having said that, neither the EU-HICP nor Eurozone-HICP are in any way representative for the evolution of the cost of living in any of the Places of Employments. Over the last 6 years the cost of living in Munich and The Hague as calculated by Eurostat increased around 5% faster than EU-HICP, and almost 6% faster than Eurozone-HICP.

Why do we need the correct cost of living (inflation) in the Places of Employment?

One of the important elements of remuneration of international civil servants is the so-called parallelism. The parallelism stipulates that the salary evolution of international civil servants should develop in parallel with the national civil servants. Since the member states have vastly different inflation, simply taking the average of the nominal salaries will lead to arbitrary results.
Therefore, the average of the real salary development (thus the nominal reduced by the inflation) of the national civil servants is calculated. This average is the so-called specific indicator (SI). The SI is frequently negative in economic crisis, meaning that the national civil servants receive a salary adjustment below inflation. We expect it to be negative this year, too. Since the SI is net of inflation, the inflation or cost of living must be added again. It is evident that the inflation is thus only a base line from where the SI is added to reflect an adjustment of our salaries in parallel with the salaries of the national civil servants. It is, however, also evident, that for the method to yield correct results, an inflation must be used, which is relevant for the real life of the employee in a particular duty station. For our salary adjustment, the SI must be added to the evolution of the cost of living in the respective place of employment.

What is the cost of living in the Places of Employment?

Everybody who lives in one of our Places of Employment (PoEs), some of the most expensive cities in Europe, can confirm that the cost of living there has nothing to do with the average cost of living (inflation) in that country. This is the very nature of an average. Unfortunately, the inflation in the PoEs, for example, Munich is not available directly. However, there is solid data prepared by Eurostat to calculate it indirectly7. What we do have is the evolution of the purchasing power of Munich and Brussels. This is calculated by Eurostat for these cities. It yields the purchasing power parity between these places (PPMM/B), which is equivalent to the inflation in Munich divided by the inflation in Brussels8.

______
6 Financial Study Phase II, CA/83/19, page 9
7 To show the mechanism, we use Munich as an example. The same is done with The Hague and Vienna.
8 https://en.wikipedia.org/wiki/Purchasing_power_parity


Thus, when multiplying this PPPM/B with the inflation in Brussels one obtains the inflation in
Munich9.
Therefore, the best available proxy for the cost of living in Munich is10:

cost of living in Munich = HICPBE * PPPM/B

When adding the Specific Indicator (SI) the adjustment in Munich is:

adjustment in Munich = HICPBE * PPPM/B * SI

The Munich local inflation (HICPBE * PPPM/B) increased over the last 6 years close to 6%
faster than the EU-inflation (EU-HICP). With respect to the German or Eurozone inflation,
the difference is even higher.

What does the use of another inflation do?

From the above it is apparent that we can calculate the best available figure for the cost of living in Munich, The Hague and Vienna. Globally capping the adjustment as proposed by the President based on an inflation almost entirely unrelated with the reality of the evolution of the cost of living at the PoEs will almost always lead to a loss of purchasing power for the people living there. Only in and after severe crisis it will have no impact because in such situations the member states normally reduce the salaries of their national civil servants. In line with the principle of parallelism we will follow these cuts, too.

Conclusion

The President and his management state that we were used to an automatic salary increase, however, the salary adjustment method is there to adjust the salaries in line with the salary development of national civil servants. It may be an increase (i.e. above inflation) if the national civil servants receive an increase (above inflation), or conversely a decrease (i.e. below inflation) if the national civil servants receive a decrease. The latter happened particularly in and after economic crisis11. Presenting this as an automatic increase is an extremely single-minded view, devoid of any facts.

We demand that the salaries of the EPO should respect the principle of parallelism based on the cost of living in each of the Places of Employment, which is a real salary adjustment method – as used throughout international organisations.

The ability of the EPO to recruit among the most skilled candidates is at stake: on top of the 5-year contracts, the worst career system in International Organisations, we now get the worst salary adjustment system.
Recruitment was already challenging – soon the EPO will be entirely unable to hire the best engineers of Europe.

SUEPO CENTRAL

______
9 For example: If the inflation in Munich and Brussels were the same, the PPPM/B would not change and it would remain at 100%. If on the other hand, the Inflation in Munich is lower than in Brussels, this would mean that 1 Euro could buy more in Munich than in Brussels. The PPPM/B would immediately compensate for this “imbalance”. It would decrease below 100% to compensate the diverging evolution.
10 The current SAP, uses the HICP of Belgium as the inflation in Brussels. Some years ago, it was still the Brussels International Index. The latter would probably better reflect the cost of living of international civil servants in Brussels. But since Brussels is the heavy weight in the Belgian economy, using the HICP of Belgium is not too bad. Contrary to that, if we took the German HICP as the local inflation for Munich, the deviation would be significant.
11“What does Campinos’ SAP do?”

Discussion about salary increases and decreases may seem boring on the surface, but it’s important to remember that the EPO sits on a big pile of cash it’s not even supposed to have; it could easily (fiscally) afford to just let the staff rest at home (like a paid leave) until the worst of the COVID-19 crisis is over. At the moment the EPO loses skilled staff as the quality of the work nosedives, reducing if not outright discrediting/nullifying the justification for this whole system. Examiners who cannot properly decide on patents can do more harm than good, no matter if it’s due to lack of time or lack of relevant skills.

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