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Financial Analytics: Science and Experience
 

The effective contract in the performance-based budgeting model

Vol. 8, Iss. 21, JUNE 2015

PDF  Article PDF Version

Available online: 14 June 2015

Subject Heading: FINANCIAL INSTRUMENTS

JEL Classification: 

Pages: 24-35

Ivanova N.G. Saint-Petersburg State University of Economics, St. Petersburg, Russian Federation
ivanova_ng@mail.ru

Kankulova M.I. Saint-Petersburg State University of Economics, St. Petersburg, Russian Federation
kankulova@mail.ru

Importance Whereas budgetary spending should demonstrate higher efficiency, it is especially relevant to ensure the correlation of employees and executives' salaries with their performance results and target indicators of State programs.
     Objectives The research verifies the hypothesis that budgetary funds will be effectively spent to meet the objectives of authorities as set forth in State programs, if payroll expenses for salaries of employees and executives correlate with qualitative and quantitative indicators of organizations providing public services (completion of work).
     Methods We apply such methods as analysis, synthesis, induction, deduction, comparison, observation, etc. We use interviews and questionnaires as special methods for the research.
     Results We obtain the results of the hypothesis verification. The research identifies weaknesses of the existing compensation plan that impede implementing the budgeting principles in line with results. The weaknesses also prevent a direct influence on the amount of the employee's salary, efficiency of his/her work and productivity of corporate operations. We articulate our recommendations on the way to improve mechanisms for financing compensation plans in direct correlation with each employee's contribution to achieving the common result of the required quality.
     Conclusions and Relevance The obtained results of the analysis confirm the theoretical consistency of verifiable hypothesis. However, the issue of factual influence mainly depends on solution of two critical and interrelated matters, i.e. insufficient finance of statutory expenses for salaries and technicalities in applying criteria for encouraging the effective performance of employees, executives and the entity as a whole. If the proposals are implemented, it will increase the efficiency of budgetary spending on salaries of employees working for public and municipal institutions. The recommendations may be applied by financial units, industrial governmental and local authorities, public and municipal institutions in order to improve their compensation plans.

Keywords: effective contract, budgetary reform, performance-based budgeting, program-based budget, salary, governmental institution, quality, public service

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