A confidential report to the boards of the World Bank and International Monetary Fund has recommended that salaries at the two international organizations be set 10 percent above a comparable average of U.S. civil service and private sector pay.

The U.S. Treasury, which last year angered bank and fund staffs by proposing salary cuts of 5 to 20 percent, believes the report "tends to confirm some of our position on salary levels," an official there said.

"We are not in full agreement with all aspects of the recommendations," the Treasury official added, "but they go a long way toward establishing a relatively objective system for setting salaries and relate them to both civil service and the private sector."

A joint Bank-Fund committee based the report on a survey of salaries for comparable jobs in 38 private firms in Brazil, France, Germany and the U.S., and 10 public sector organizations in Canada, Germany and the U.S.

The 10 percent premium was recommended to allow continued recruitment of employees from other high-salary countries, such as Germany, according to the report.

U.S. nationals working for the Bank or Fund would be hard hit by another proposal which the committee estimates would reduce their pay by an average of 12 percent.

Salaries at both organizations are set on a net-of-tax basis since foreign nationals, with a handful of exceptions, pay no income tax either in the U.S. or in their home country on their salary, U.S. nationals are paid an additional amount intended to make their after-tax income comparable to that of foreign nationals.

The organizations have always assumed their American employees would use the standard deduction in figuring their U.S. tax liability, even though most itemized their deductions. In other words, they were overcompensated for their taxes.

Staff reaction at both the Bank and the Fund has been hostile. "The report is regarded as a simple cave-in to the U.S. Treasury position," said one professional staff member. "The committee is saying the U.S. is right."

Said another staff source, "We are considerably disappointed. This doesn't add to solving our problem of recruiting and retaining a good staff." But he added. "It doesn't confirm the U.S. Treasury's worst fears, that we were so greatly over-paid."

The staff associations at the Bank and Fund are preparing rebuttal papers for the executive boards, which are just beginning to consider the report's recommendations. No action is expected until well after the organizations' managers send the boards their own detailed comments on the recommendations, probably in late March.

Tying compensation to the U.S. market should go far to reassure several members of Congress who have raised the salary issue in connection with various multi-billion-dollar contributions by the U.S. to the several parts of the World Bank.

On the other hand, that link doesn't sit well with the staff. "If we are an international organization, our pay ought to be based on international comparisons," said one.

According to staff sources, the recommendation concerning the tax offset for Americans would lower their after-tax pay by about 10 percent, on average, and leave them about 8 percent below non-Americans.

The report also rejects a staff demand for general new allowances for foreign nationals working in the U.S. -- an expatriation allowance. It does, say, however, that "improvements should be considered in the range and adequacy of expatriate benefits."

Compensation for non-professional support staff should continue to be based on that of the U.S. civil service with a 5 percent premium in direct pay, the report also recommended.

The report said that the Civil Service is "not only the largest employer of support staff in the Washington area but also one of the best paid." And it adds that the "value of Bank and Fund benefits for support staff considerably exceeds the value of those provided... in the U.S. Civil Service.

Professional salaries at the Bank and Fund, after-tax, range from $17,700 to about $57,000. "Grossing up" that $57,000 pay, using the present assumption about the taxpayer using a standard deduction, implies a gross salary close to $100,000.

The report proposed a full-scale comparability review every three years, with adjustments in the interim tied to changes in compensation in the same U.S. civil Service-private sector base.