Is ADB stepping out of line with its planned pension and benefits cuts?

By Lean Alfred Santos 03 December 2015

The Asian Development Bank headquarters in Mandaluyong City, Philippines. Photo by: Devex

Discontent is brewing among some members of staff and retiree pools of the Asian Development Bank, as top management looks set to push through with sweeping reforms that could see a number of their benefits and pension packages cut.

The planned changes, first proposed in June this year by ADB’s leadership team led by President Takehiko Nakao, are expected to scale down parts of the bank’s education package and support for current international staff. Former employees are also expected to have a portion of their pensions cut back, including a cost of living adjustment element.

In a town hall meeting in early September, Nakao explained that the proposed changes hinge on the need for the institution, and its employees, to be consistent with its goal of eradicating poverty in the Asia-Pacific region — something he said is “difficult to continue with [the] range of benefits.”

“Our compensation and benefits should be consistent with our mission of eradicating poverty in the region,” the former Japanese finance official said. “We must have discipline and a certain humbleness as a development institution to ensure broad and continued support from our shareholders and borrowers.”

An ADB representative told Devex that the modifications were also prompted by “changes in economic circumstances worldwide” and “fiduciary responsibilities”, among other factors, which would also be necessary for the “long-term interests of both our institution and our staff.”

But some staff members have cried foul, saying that the proposed changes in the benefits and pension package is also against the bank’s ideals of attracting the best talent in the world — despite internal communications clarifying that the changes are at par with standards of other international finance institutions.

Others connected to the bank, in various conversations with Devex, are questioning whether the possible changes are legal.

“Why is the current management of ADB led by the president doing very wrong and bad management?” an ADB official told Devex. “[The root of the discontent] is that there is no transparency, there is breach of contract with the staff about their pension, about their ... everything.”

The controversial proposals are surfacing against the backdrop of an increasingly competitive donor environment, which is influenced by the rise of the Asian Infrastructure Investment Bank and the New Development Bank bannered by Brazil, Russia, India, China and South Africa. Strategic and personnel changes could affect how ADB can position itself, internally and externally, as the “leading” development institution in the Asia-Pacific region.

Proposed modifications

The proposed changes were first shared with ADB staff members on Friday, June 19, together with a message from the president and a townhall meeting invitation the following Monday, June 22.  A revised version of the proposal was also presented to staff on Aug. 12. Both largely focus on two components: benefits for current international staff and a reduction in pension for former employees.

The benefits package in contention for staff members includes an education assistance plan that covers tuition and flat rate allowance that is planned to be implemented starting next year. The education benefits only apply to the bank’s international staff and not the national and administrative staff members.

In the June proposal, children of staff members at all education levels (primary, secondary and tertiary) under the age of 24 can, on average, enjoy 75 percent coverage for tuition and other expenses. Additionally, in the revised August proposal, assistance for tertiary level studies will also be reduced to a maximum of four years from the original maximum of six years.

The flat rate allowance, also originally planned to be completely phased out by September 2018, will no longer be abolished but replaced instead by a “subsistence grant” in reference to the World Bank subsistence allowance, according to the revised plan released in August. The transition period was also revised with the phase out period now adjusted until 2020 from the original 2018 timeline.

“[Is it] explainable to continue to provide generous subsidies to send young adults to graduate schools while we are talking about the need to support primary school enrollment in our developing member countries,” Nakao said in the September town hall meeting. “Is it reasonable to provide as much as $23,000 on average as an annual flat rate living cost allowance for one child attending university?”

“This amount can represent the average net salary of people in those countries,” the ADB chief added.

The ADB representative explained that part of the reason for the changes are other staff members’ sentiments of an “overemphasis on benefits for international staff.” This is why, the representative added, the management wants to institute balance by providing additional benefits including new allowances for leave, extension of emergency travel benefits, and vision and dental treatments for all staff — national and administrative ones included.

On the pension side, the proposed changes include an initial plan to abolish the minimum guaranteed 3 percent “cost of living allowance” for former employees accruing from October 2016 despite an “offset provision” stated in the revised proposal in August. Another proposal is an increase in retirement age from 60 to 65 for staff members hired starting next year.

Hans-Juergen Springer, president of ADB’s Association of Former Employees, told Devex in an exclusive interview that while the implementation on the changes on the pension system is still up in the air — there will be more consultations next year — the issue on the raising of retirement age is, in some ways, inevitable.

“The ADB is the only international organization that has a retirement time at the age of 60. It is likely that ADB will increase its retirement age,” he said. “This thing, it must come because we are so far behind the other international organizations. Something has to happen, something will happen, I’m sure.”

Springer also shared that an advisory task force is being formed to address some of the issues regarding the proposed changes and further comprehensive review, at least, on the staff retirement plan. The task force, which will be composed of representatives of affected stakeholders including himself, is scheduled to convene before the end of the year.

Legality issues

Following the details of the proposed modifications, a number of questions has been raised including whether the changes can be considered legal and well within the mandate of the Manila-based bank to implement, as well as the way the consultation process was conducted.

To answer this, it is important to know what laws ADB is bound by. Lawyers at the London-based firm Bretton Woods Law, which was approached by representatives of the ADB Staff Council and AFE, explained in a confidential legal opinion seen by Devex, that as an international governmental organization, ADB, “as a product of treaty … [is] subject of international law” and international administrative law — more so given that multilateral institutions like ADB “are not bound by the labor laws of their host and member states.”

On this background, lawyers at the firm explained in the document that, given the prevailing circumstance at the time of the opinion’s release, ADB management is not legally allowed to implement the changes without the consent of each affected party.

“It therefore appears that the ADB does not, under international administrative law and public international law more generally, have the right to change the existing benefits for staff in the manner in which it is proposing,” reads the legal opinion released in July.

In September, an addendum to the legal opinion was also released by the same law firm concerning the revised proposal shared in August by ADB management. The conclusion remained the same: “[T]he Revised Proposals cannot be unilaterally undertaken by ADB without staff’s and retirees’ consent and that any attempt to do so will be unlawful.”

One of the reasons cited by the Bretton Woods Law firm in their legal opinion concerns whether the items subject to changes in the proposal are “essential and fundamental” — based on international administrative law. While precedents for changes to employee benefits have been set at other institutions including the World Bank and the United Nations, the firm said the nature of the proposed changes at the ADB are different.

Lee Marler and Alex Haines, lawyers from the London-based firm and lead counsels on the issue, said that, in their legal opinions, the proposed changes are considered “essential and fundamental” because they are integral to the staff and retirees’ rights and privileges that, in one way or another, made them accept employment at ADB in the first place.

“The employees’ rights to the benefits that management is attempting to eliminate in the revised proposals are fundamental and essential terms of their contract of employment,” the opinion reads. Marler and Haines were in Manila in late October to meet with some staff and answer questions on the issue.

“Failure by the ADB to operate its pension and educational allowance on the basis signed up to by the staff would upset the balance of contractual relations … so as to amount to a breach of the rights of the staff member and the retirees,” the document reads.

Despite the legal opinion, the ADB representative explained to Devex that the bank, as an institution, “has some discretion” to revise and amend how its internal policies are implemented including staff benefits legally “provided the proposed changes are within certain parameters.”

“ADB does not share the view that the proposed changes alter any fundamental and essential aspects of ADB's staff employment or that staff agreement is required,” the representative said. “ADB believes the proposed changes are within the discretion permitted to ADB, and as such, it is within ADB's legal rights to make the proposed changes.”

Another issue that the July legal opinion tackled is the consultations process that started June 19, when the proposal was first shared with all concerned parties. The legal opinion detailed that, initially, staff were only given one weekend (June 19-22) to digest and analyze the proposed changes ­— which was compounded by the fact that most staff were “already in their summer vacation.”

Feedback from staff members and retirees were allowed to be sent via a confidential mailbox until July 17. Affected parties requested that the consultation process be extended, as made clear by the Staff Council, until mid-September. But the bank’s Budget, Personnel and Management Systems Department said consultations could not go beyond mid-August “due to a scheduled Board meeting,” thereby only allowing a one-week extension from July 19-24, according to the legal opinion.

The issue of inadequate consultation processes have been a recurring talking point at the Manila-based institution. In the bank’s recently conducted staff survey reported on by Devex, a staff member shared that “staff are the last to know” and that town halls become “checklist[s] of an already anticipated approved provision or change specially in benefits.”

Marler and Haines, in their legal opinion, shared that “this practice makes a mockery of the purpose of consultations and the [Staff Council’s] important role in making representations on issues that concern the staff as a whole.”

“The failure to consult is often a symptom of management attempting to push through changes precisely because they are unlawful,” the document states, adding that some retirees, for instance, were allegedly not invited to attend some of the briefings. “Any failure to consult often compounds the already unlawful decisions made by an organization.”

Concerns and sentiments

While some of the components and specific details of the proposed changes remain unclear and still subject to “consultations” and pending decisions, a number of international staff and retirees are already expressing their worry and discontent.

Springer, in his capacity as representative for all the bank’s former employees, shared with Devex that some of the concerns and sentiments of his colleagues are not altogether surprising, although he reiterated that nothing is set in stone yet.

“They’re not happy if there’s someone that wants to cut something, right? Nobody will applaud and say, ‘great, we get less from next year’,” he said.

On behalf of current staff, Staff Council chairperson Natasha Davis said in a statement during Nakao’s early September town hall meeting that while employees remain dedicated on the “overarching goal of eradicating poverty” in the region, protecting them is also as essential.

“The lack of adherence to these principles during this compensation and benefits review [has] damaged the trust relationship between staff and management,” she said in the statement. “These proposals seek to make changes to the fundamental and essential terms of our employment contracts, without staff consent.”

“[As] staff, we believe that once employment contracts are no longer valid in the eyes of management that other changes could be made without staff consent, at any time,” Davis added, hinting that the concern is not just about the specific changes being proposed but the general principle that once this move goes through, it will set a precedent for other larger changes in the future.

In a rapidly changing donor landscape, with the arrival of new players including AIIB and NDB that enjoy deep pockets, ADB may find itself struggling to remain ahead of Asia-Pacific’s development game and be more “strong, sustainable, responsible and respected,” according to the representative, if issues such as this one continue to emerge from within the institution.

The Manila-based bank, under the leadership of Nakao, has pursued major reforms aimed at making the ADB more focused, nimble, and relevant to the needs of a rapidly changing region. This includes a reform of its procurement process and the merger of its two financial instruments to do more for the region that has often kept the institution on its toes.

Introducing and implementing these kinds of reforms, as echoed by the ADB representative, is never an easy endeavor given all the moving and essential parts that will be affected in the process. But ultimately, these strategic and personnel reforms may, one way or another, influence ADB's quest to maintain development leadership and relevance.

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About the author

Lean 2
Lean Alfred Santos@DevexLeanAS

Lean Alfred Santos is a Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. Prior to joining Devex, he covered Philippine and international business and economic news, sports and politics. Lean is based in Manila.


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