Reformulating Regional Heads’ Remuneration through Fiscal Capacity and Welfare Indicators
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Fiscal Capacity, Fiscal Decentralization, Local Government, Public Welfare, Remuneration Reform
Abstract
Research Originality – Although recent policy discussions have called for reformulation of Indonesian regional heads, existing proposals remain largely normative and have not provided an operational remuneration model. To the best of the author’s knowledge, this study is the first to develop a multidimensional remuneration framework that integrates regional fiscal capacity, demographic complexity, fiscal discipline, and welfare indicators into a unified formula and evaluates its implications through simulation across Indonesian regional governments.
Research Objectives – This study develops and evaluates a remuneration framework that reflects contemporary fiscal conditions, demographic complexity, and governance priorities while encouraging prudent fiscal management and improved public welfare.
Research Methods – The proposed remuneration model incorporates four principal dimensions: regional fiscal capacity represented by Regional Original Revenue (PAD), demographic complexity measured through a nonlinear population function, fiscal discipline represented by a maximum personnel expenditure ratio of 30% of the regional budget, and poverty as a welfare safeguard indicator. The framework was evaluated through simulation using 23 regional governments representing diverse fiscal and socioeconomic characteristics.
Empirical Results – The simulation results indicate that remuneration outcomes differ substantially across regions and are no longer determined solely by fiscal capacity. Instead, remuneration reflects the combined effects of fiscal performance, demographic conditions, budget discipline, and welfare outcomes. The proposed framework reduces PAD’s dominance as the sole determinant of remuneration while strengthening incentives for prudent fiscal management, improved welfare performance, and accountable regional governance.
Implications – The findings contribute to the literature on public sector incentive design by demonstrating that remuneration systems should be structured around multiple governance dimensions rather than single fiscal indicators. From a policy perspective, remuneration reform should complement, rather than substitute, Indonesia’s Transfer to Regions (TKD) system, with remuneration functioning as a behavioral incentive for regional leaders while intergovernmental fiscal transfers remain the principal instrument for regional fiscal equalization.
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