A draft amendment to the Public Service Act (836 SE) has passed its first reading in the Riigikogu. One of the bill's central changes would place mid-level management positions at state agencies on five-year fixed terms.

In their official opinion on the draft legislation, experts at Tallinn University of Technology (TalTech) were highly critical of the measure, noting that no other developed democratic country has implemented such a system at the mid-management level.

"Today, the problem in Estonia's public administration system is not that people stay in office too long. On the contrary, there is already fairly high turnover among mid-level managers in the public service," said Külli Taro, head of knowledge transfer at the Ragnar Nurkse Department of Innovation and Governance at Tallinn University of Technology's School of Business and Governance.

"A study conducted a few years ago found that, on average, 46 percent of mid-level managers had been in their position for less than three years. In practice, we do not see the problem this proposal is intended to solve," Taro added.

The experts said introducing fixed-term employment relationships would further increase staff turnover, leading to a loss of expertise and working relationships.

State Secretary Keit Kasemets disagreed with those claims.

"Experience in another ministry or government agency benefits every official," Kasemets said, adding that the system would encourage movement between ministries. He said this would also help break down so-called silos where ministries and agencies fail to understand one another.

One important nuance, however, affects the proposed amendment. Estonia must take into account European Union Directive 1999/70/EC, which is intended to protect employees from abuse arising from the repeated use of successive fixed-term employment contracts.

Under the directive, if a person is appointed to the same position for two consecutive terms, their contract automatically becomes permanent.

Taro noted that while the draft bill aims to encourage rotation, the system would end up favoring officials who have already held their positions for more than 10 years, since they would fall under the directive's protections.

"At the same time, it is precisely new and younger managers who would remain in an uncertain position because they could more easily be replaced during the first 10 years," Taro added.

Kasemets acknowledged that, in line with the directive, fixed-term contracts become permanent after two terms, or 10 years.

"The purpose of the amendment is not necessarily to replace people who have been in office for decades, but rather to encourage rotation and movement between institutions," Kasemets stressed again.

Finance Minister Jürgen Ligi (Reform Party) admitted in the Riigikogu that he had been skeptical about fixed-term contracts.

"People very intensively made it clear to me — though how much of it I accepted is another matter — that fixed terms are considered a very progressive thing. At the same time, I think people accept positions and companies are created with a long-term perspective rather than for a fixed period," Ligi said.

Independence of civil servants

Opposition Isamaa MP Helir-Valdor Seeder described the amendment as a bureaucratic and dangerous experiment.

"It raises the question of whether this creates a risk of politicization if we begin widely introducing fixed-term contracts of this kind," Seeder said, referring to the danger that civil servants could become overly dependent on ministers.

Seeder also stressed that the system would make state governance more cumbersome and expensive.

"If we sign a five-year fixed-term contract today and later need to make structural changes or eliminate positions, we would have to pay out five years' salary to the person with whom we signed that contract. That is neither a reasonable nor rational approach," Seeder said.

Taro noted that the change could deepen concerns over the independence of civil servants.

"Civil servants must have personal independence so they can rely solely on the law, rather than on the preferences of whichever political forces currently hold office," he stressed.

€50,000 performance incentive

The draft legislation has also sparked heated debate over a provision added at the last minute at the suggestion of entrepreneur Taavi Kotka, which would allow performance bonuses of up to €50,000 for especially important large-scale projects that generate revenue.

Kasemets explained that the bonus is intended for long-term contributions to major reforms, citing the launch of Estonia's ID card system and e-residency program as past examples.

"This is the maximum performance bonus for a person involved in the project. The idea is that these projects would not be selected behind closed doors. A separate commission would be formed that would also include representatives of businesses, the media and NGOs," he said.

Külli Taro challenged Kasemets' argument.

"Assessing the economic impact of e-residency is highly controversial. In its audit, the National Audit Office stated that nobody actually knows the economic impact of the project. The figures being presented are pure speculation," Taro said.

The expert stressed that it is impossible to determine whether tax revenue was generated because of the program or whether it would have been collected regardless.

"We do not know whether the tax revenue came because of the e-residency program or whether those entrepreneurs would have conducted business activities in Estonia even without the program," she said.

Jürgen Ligi said the measure was added at the request of entrepreneurs with the aim of increasing the state's capacity to carry out projects with economic impact.

"I have not liked some of the rhetoric around it either. This kind of talk that exciting things will now start happening in the public sector is actually off-putting to me because the goal of the public sector is not to be exciting. That sort of language belongs more in teenage rhetoric," Ligi said.

Helir-Valdor Seeder described the bonus proposal as an emotional whim that carries a direct risk of corruption.

"The decision-making process will be extremely subjective. When specific political parties are in power, there will be a temptation to support people close to them," he warned.

Taro also criticized the plan to pay large-project bonuses to people no longer in office, calling it unreasonable because of the administrative burden and lack of accountability.

"It is a complicated accounting system and introducing and developing it would involve significant costs," Taro said.

A general rise in bonuses

Under the current law, a civil servant's performance-related pay may amount to up to 20 percent of their annual base salary. The draft legislation would raise the limit to 30 percent.

Helir-Valdor Seeder said the current 20 percent cap is sufficient.

"People do not join the public sector solely for the salary and at the senior management level the state cannot compete financially with the private sector. More important motivators are the substance of the work and opportunities for self-realization," Seeder said.

According to Keit Kasemets, a 30 percent performance-pay cap is an optimal limit that would help introduce a results-oriented management culture into the public sector. He cited Singapore as an example of a country known for an effective public service system where performance-related pay can account for as much as 50 percent.

"I think that would be too much for Estonia, since public-sector money comes from taxpayers and must be used responsibly. Excessively high rates could lead to unjustified payouts," Kasemets acknowledged.

Külli Taro warned that raising the cap may not solve underlying problems if the diagnosis itself is wrong. She referred to earlier experiences in which performance bonuses were often paid out even when real results were not achieved.

According to Taro, the reasons large-scale projects fail are usually structural — limited resources, unclear responsibility or overburdened civil servants — and cannot be solved through additional financial incentives.

The draft legislation is now awaiting its second reading in the Riigikogu. The implementation of fixed terms for mid-level managers has partly been postponed until 2031, giving civil servants time to adapt to the new system.

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