VZCZCXYZ0003
RR RUEHWEB

DE RUEHBW #1303/01 3520558
ZNR UUUUU ZZH
R 170558Z DEC 08
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0777
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS BELGRADE 001303 
 
SIPDIS 
USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD EFIN SR
 
SUBJECT: SERBIA: GOVERNMENT REIGNS IN EXECUTIVE SALARIES AT STATE 
COMPANIES 
 
Reftel: Belgrade 1243 
 
SUMMARY 
------- 
 
¶1.  The Serbian government recommended a cap on state-owned 
companies (SOC) managing board members' salaries and the public 
disclosure of SOC executive salaries in response to two high profile 
scandals in which general managers of SOCs received high salaries 
and bonuses.  On November 6, the government approved a 
recommendation that would cap board members' salaries at $500 (the 
average salary in Serbia in October 2008) and at $750 and $600 for 
board presidents and vice-presidents, respectively.  The government 
plans a similar recommendation for SOC managers.  The 
recommendations were positive steps toward reducing state 
expenditures during the financial crisis and increased transparency. 
 The attempt at transparency notwithstanding, cronyism and misuse of 
SOC monies for party interests are still prevalent.  End Summary. 
 
SALARY SCANDALS PROMPTS GOVERNMENT INVOLVEMENT 
--------------------------------------------- - 
 
¶2.  Weeks before the November scandal and resignation of Belgrade 
Airport General Manager Bojan Kristo hit the press and brought 
public scorn against high paid executives of state-owned companies 
(SOC), the government had already approved a recommendation to reign 
in SOC executive salaries (Reftel).  The recommendation came amid 
public pressure after Milenko Sarancic, the recently dismissed 
director of SOC Zeleznice Srbije (Railroads of Serbia), raised his 
last salary payment in October from $1,700 to $9,000.  Zeleznice 
Srbije is a heavily subsidized and highly indebted SOC.  On November 
6, the government approve a recommendation to cap monthly salaries 
of SOC board of directors (BoD) members at the October 2008 net 
average of $500.  Presidents and vice-presidents of the BoD would 
receive $750 and $600, respectively, plus an eight percent 
adjustment for projected inflation.  As a comparison, the BoD 
president of state-owned oil company NIS earns $9,900 while the 
Prime Minister reportedly earns only $1,700.  The government's 
recommendation would go into effect January 2009.  Immediately after 
the airport scandal, the government called for another 
recommendation that would require SOCs to disclose salary 
information to the government.  Currently salary information is 
classified as an "official secret."  Several SOCs including Telekom 
Srbija announced they would lower board member and executive 
salaries in response to the recommendation.  The government plans to 
approve a similar recommendation for SOC managers' salaries. 
 
¶3.  On the other hand, the salaries of government ministers are 
transparent and are three times higher than the average net salary 
in Serbia.  The prime minister has the highest salary of $1,700, 
followed by the deputy prime ministers with $1,500 and ministers 
with $1,450.  Although ministers' salaries are relatively high by 
Serbian standards, in most cases their public salaries are not their 
main source of income.  Most ministers have side businesses that 
often carry conflicts of interest. 
 
¶4.  Sasa Mogic, Cabinet Chief at the Ministry of State 
Administration and Self Government, told us on December 3 that the 
government legally did not have the power to set SOC board or 
executive salaries, but had the authority to approve or reject 
companies' annual budgets.  Therefore, the government could only 
indirectly affect salaries.  The recommendations, however, sent the 
message to SOC executives to act responsibly during this difficult 
financial period.  Mogic estimated that savings from lower BoD 
salaries could reach $14 million annually.  Mogic also said the 
government would suggest that SOCs adopted internal regulations on 
official phone, car, and apartment use.  Companies would be required 
to submit regular reports on operations to the government for budget 
adjustment. 
 
 
 
 
SOCs HELP FUND POLITICAL PARTY 
------------------------------ 
 
¶5.  Transparency International Program Director Nemanja Nenadic told 
us on December 4 that the government's reactions were positive steps 
toward reducing spending during the financial crisis.  However, 
Nenadic believed these reactions did not provide a solution to the 
lack of professionalization of these companies, which should be the 
long-term goal.  He confirmed speculation that politically appointed 
directors and BoD members were required to tithe, on average, 10% of 
their salaries to their party as membership fee.  Nenadic also said 
cronyism, misuse of SOC funds, and abuse of company benefits for 
party interests remained unaddressed. 
 
Comment 
------- 
 
 
¶6.  The government's attempt to cap executive salaries and introduce 
more controls in SOC is a positive step toward more transparency and 
state savings, especially during the current economic crisis.  As 
the reality and consequences of the crisis sets in, the government 
may target controversial wasteful spending as low hanging fruit, in 
a show of solidarity with the public.  In the short-term, amid 
public pressure, the recommendation will reduce SOC costs.  In the 
long-run, however, low executive compensation will make it hard to 
attract high-quality management talent to run state firms.  End 
Comment. 
 
MUNTER