The Business Times, Thursday, July 20, 2000

Let independent panel set the pay for ministers

It could study why talented citizens don’t want to join the public service and how to attract them

By Peter Lee

THE ministerial pay formula is, unfortunately, attracting considerable flak from the public. Although intended as a way of instituting regular pay reviews so that the Government does not have to justify every three or four years its case for more money for its ministers and civil servants, it continues to rankle many Singaporeans - and this more than five years after the concept of pegging official salaries to top market levels was introduced.

The Straits Times reported on July 6 that (from a survey of 159 people) “among those who felt that the (pay) increase was excessive, eight out of 10 were professionals and those with higher educational qualifications such as lawyers, bankers, managers and doctors”.

Despite this, most professional Singaporeans, I suspect, accept the concept behind the formula.

So why the high level of disquiet among professionals, whose private sector pay levels the government is trying to emulate?

Many believe that money is not the over-riding issue here and, therefore, the Government is providing the wrong carrot. Some even feel that it is running the risk of alienating many other Singaporeans in the process.

The key question, of course is: What can be done to attract and retain top talent? This issue of attracting and retaining top talent has much wider implications beyond that of an internal Government pay review. Hence it deserves a broader and deeper study.

An independent commission should, perhaps, be set up to investigate more thoroughly why talented Singaporeans do not want to join the Government and what other means are needed to attract and retain them.

In the process, the pay formula could be validated or further fine-tuned, if necessary. This is how most private sector companies would handle the pay review of their top management.

Such a commission could canvas opinion in much the same way as the National Wages Council or the body set up to examine public opinion on the Elected Presidency.

The commission could comprise a few select professionals, business leaders or CEOs, one of whom should be chairman; plus a permanent secretary, a member of Parliament and a trade union leader.

Most people would not quarrel with the concept of paying market salaries for ministers. The problem, however, is that there is no clear market rate or job value for ministers.

Unlike CEO jobs, there are no other comparable political jobs in Singapore or for that matter anywhere else, so the conventional approach of using the “market rate for comparable job” cannot be used.

As there is no single, technically correct answer, any formula that is developed for setting ministerial pay will inevitably be based on subjective judgment and interpretation as to what constitutes market value for ministerial-calibre individuals.

In a free-market economy, outstanding and talented business leaders, professionals and performers are often paid according to their “personal” worth - in terms of what they can deliver or contribute. Often, this personal worth, set against the company’s objectives, far exceeds the job worth that other organisations would normally attach to comparable positions.

Even so, many professionals feel the Government may be overdoing the benchmarking, especially when even they (the government) acknowledge that money is but a “hygiene” component and not the compelling and key motivating factor.

They feel the Government should focus more on why talented Singaporeans are not attracted to join the government. Those who do may not be there for money.

Having a formula that is tied to top earnings in the private sector also assumes a very direct correlation of talent with earnings - an assumption many are uncomfortable with.

Quite apart from the volatility of these top earnings because of their “outlier” or extreme characteristics (extremely high or extremely low earnings usually fluctuate rather unpredictably), top earnings are usually associated with short-term results, opportunistic deal-making, cyclical and perhaps even windfall factors - factors which should, perhaps, be used for “discounting” rather than directly rewarding ministerial performance.

The recent revisions to the formula - using the median of the top eight rather than the top four earnings in six professions, and taking 50 per cent of stock option gains - are steps in the right direction. However, many still think the benchmark is too high.

It is a question of judgment as to what the right level is. An independent commission may not necessarily do a better job than the government’s review team but because it is an independent body, its recommendations would be better accepted by the people and not perceived to be self-serving.

The commission can take on the role of explaining and justifying the approach and formula taken. This could include outlining the various perks and sacrifices of the job. Coming up with a pay rise formula and a “job description” for ministers could well point Singapore towards a system like in the US, where cabinet secretaries do not have to take part in the business of winning votes for the party.

The issue is particularly complicated because the public is unable to see just how outstanding and talented individual ministers are.

Outstanding and talented people in the business, professional and performing worlds can at least be judged by the profitability of the companies they head.

The well-being of a nation and an economy requires the development and execution of effective long-term plans and there are little or no short-term or objective performance criteria by which ministers can be judged.

As things stand, the PAP leadership of the Government has proven itself on all counts over the past 35 years.

Today, however, the prime minister is attempting to recruit the best talent in Singapore for his Cabinet. In the minds of the public, these people have yet to prove themselves. This adds to the complexity of the whole exercise.

Any formula obviously has to take into account the loss of income individuals will suffer when they enter public office - they cannot, for example, make a “killing” on the stock market.

In the UK and the US, it is often said that the power and the prestige of the ministerial jobs more than make up for the relatively paltry pay that incumbents receive.

To some extent, this applies to our ministerial jobs as well. Our ex-ministers are highly sought after for their experience and knowledge. To what extent this will continue to apply to the new and younger candidates only time will tell.

The writer is managing consultant with
RDS Remuneration Data Specialists Pte Ltd