Sunday, May 22, 2011

Ministerial pay

May 22, 2011

Ministerial pay to be reviewed
Special committee will review basis and level of salaries, says PM Lee

By Lydia Lim

Ministers' salaries will be reviewed - that was the first dramatic change Prime Minister Lee Hsien Loong chose to announce last night after being sworn in for another five-year term.

National Kidney Foundation chairman Gerard Ee will be the head of a committee to review the basis and level of these salaries, PM Lee said in a speech at the Istana, after he and his new Cabinet were sworn in by President S R Nathan.

Mr Lee made clear that while the country would always need committed and capable ministers who should be paid properly, 'politics is not a job or a career promotion. It is a calling to serve the larger good of Singapore'.

He thereby signalled that he and his new team know that unhappiness over high ministerial pay must be addressed if they are to renew the compact between government and people.

Mr Ee told The Sunday Times that a guiding principle of the review that his committee will undertake would be the Prime Minister's point that holding political office is about serving the public.

'PM has said in his speech that salaries must reflect the values and ethos of public service. That means that whatever we work out, the final answer must include a substantial discount on comparable salaries in the private sector and people looking at it will say, 'these people are serving and making a sacrifice',' he said.

He said he expects his committee to do an in-depth study of comparable salaries in the private sector, and to factor in other points of reference, such as general wage levels.

They have been handed a very serious task, he said, as the issue of ministers' pay is very important and has the attention of the electorate.

'We must be seen to be very fair and transparent. We must be able to robustly defend our recommendations,' he said.

Education Minister Heng Swee Keat said he fully supports Mr Lee's decision to review political salaries, 'so that we get an agreement on this important national issue'.

The policy of pegging ministers' salaries to top private sector pay has been in place since 1994 but remains controversial and unpopular.

The current benchmark for ministers' pay is two-thirds of the median income of the top eight earners in six professions, including bankers and lawyers.

The Government does not disclose how much each minister is paid but the most current figures released by the Public Service Division show that the annual salary of an entry-grade minister was $1.57 million in 2009.

The Prime Minister's salary that year was $3.04 million.

During the recent election campaign, opposition politicians attacked ministers' salaries as being far removed from the wages of ordinary Singaporeans. The policy had also failed to achieve its aim of attracting top private sector talent into government, they said.

Yesterday, political observers and economists welcomed the announcement of the review. Former Nominated MP Siew Kum Hong said it showed that there truly 'are no sacred cows'.

Others suggested that ministers' pay be pegged more closely to median rather than top incomes.

In his speech, Mr Lee pledged that his Government would review both its politics and its policies so as to better work with Singaporeans to 'create a just and fair society', a phrase the PAP used at its founding in 1954.

He spoke of renewal in three ways. First, a renewal of leadership to lead Singapore in a new phase of development.

Mr Lee has named a younger team to the Cabinet, and appointed four first-term Members of Parliament to the positions of minister and minister of state.

Second, a renewal in the Government's approach to policies, including a rethink of what is necessary and best for Singapore's future. 'Though Singaporeans trust that our policies are mostly sound, nothing should be sacrosanct,' he said.

The third renewal is of the values at the heart of government and society. Mr Lee pledged to work with Singaporeans to create a society which gives all citizens the best start in life, and leaves no one behind.

'A Singapore which excites our young and respects our old. A society that nurtures and inspires the human spirit, beyond material success,' he said.

Ministerial salaries: A short history

By Rachel Chang

It has been an albatross around the Government's neck since the policy pegging ministerial pay to the private sector was first implemented in the mid-1990s.

The issue of ministerial pay first surfaced in 1972 and has remained controversial since. In 1985, then Prime Minister Lee Kuan Yew told Parliament that he had been a 'kept man' in all his years in public service.

His pay as PM was much less than what his brother and wife, both lawyers, were earning in private practice, he said. He himself would have earned as much if he had not gone into public service.

But it was only nine years later that the idea of finding a formula to peg ministerial salaries to private sector pay began gathering speed.

In January 1994, then Senior Minister Lee said such a formula would 'remove the need to justify pay revisions every few years as adjustments based on income tax figures could be made automatically each year'.

In October that year, a White Paper on Competitive Salaries for Competent and Honest Government was endorsed by Parliament after an intense three-day debate.

The benchmark at which a junior minister's salary would be set was two-thirds the average principal income of the top four earners in six professions: banking, accountancy, engineering, law, managing local manufacturing companies and managing multinational corporations.

The one-third discount was meant to be a 'visible demonstration of the sacrifice' entailed in becoming a minister.

Passionately imploring Singaporeans to support the benchmark, then Prime Minister Goh Chok Tong told Parliament: 'It will be penny wise and pound foolish if you deny me the means to get the best people in government.'

After the White Paper was endorsed by Parliament, an independent panel set the Prime Minister's pay at twice that of the most junior minister. Mr Goh was to be paid about $1.5 million.

But if Mr Lee had thought a benchmark would negate the necessity of the Government periodically justifying ministerial pay rises, he was disappointed. The benchmark itself threw up a different set of problems.

It was the target of much public confusion and ire, little of which was defused by the Government's continued defence of the policy - such as Mr Lee's 1996 speech to unionists complete with figures from the Inland Revenue Authority of Singapore showing what the top earners in the private sectors made.

Another headache for the Government: the difficulty of keeping ministerial pay pegged to the benchmark.

For example, while top private sector earners saw their incomes rise right through the 1990s, the 1997-1998 Asian financial crisis saw the Public Service Division freeze pay increases in the public sector.

As then Deputy Prime Minister Lee Hsien Loong noted in April 2000: 'Workers' wages fell across the board in 1997 and 1998. At the top, we expected incomes also to fall, after a delay.

'But this did not happen. To our surprise, the civil service benchmarks rose steadily throughout the crisis.'

This was because even during a recession, there would be people in the private sector who would do well. The people whose salaries were reflected in the benchmarks differed from year to year.

Although the benchmarks might call for ministers' salaries to be raised, the political cost of doing so while workers' incomes fell was seen as too heavy. And so ministers often took pay cuts during economic crises.

By 2000, ministerial salaries were at only 70 per cent of the benchmark.

That year, Parliament debated the Government's intention to raise them to 80 per cent, and then to 100 per cent over three years.

The benchmark was also tweaked, in response to criticism that its methodology skewed upwards. It would now be two-thirds of the median income of the top eight earners in six professions, as opposed to two-thirds of the average income of the top four earners previously.

By including a broader sample, it would be more representative. Also, only 50 per cent of the stock options awarded to the top earners would be taken into account in calculating the benchmark , as the options were often outsized.

But the move to have ministerial pay cleave more to the benchmark was quickly stymied again - by the crises following the Sept 11, 2001 attacks on the United States, and the outbreak of Sars in 2003.

With the economy in the doldrums, ministers took pay cuts rather than following the benchmark upwards.

As a result, by 2007, the gap had again grown: Ministerial pay was at only 55 per cent of the benchmark.

The debate that followed over the move to bring pay to 70 per cent of the benchmark was heated and acrimonious.

Workers' Party chairman Sylvia Lim said in Parliament that the average worker's monthly wage would be earned by ministers in two to three hours.

'Does the Cabinet not feel a tinge of discomfort in drawing taxpayers' money at such a rate?' she asked.

Then Minister Mentor Lee Kuan Yew rose to defend the policy, arguing that high salaries had kept the country's governance top-notch and uncorrupt for 50 years.

He painted a picture of what might happen if Singapore had sub-par ministers because it refused to pay for top talent:

'Your apartment will be worth a fraction of what it is. Your jobs will be in peril, your security will be at risk and our women will become maids in other people's countries.'

As a result of the revisions in 2007, Prime Minister Lee Hsien Loong's pay increased from $2.5 million to $3.1 million.

He said he would donate his increase to charity over the next five years.

At the end of last year, ministerial salaries stood at about 70 per cent of the benchmark, after planned increments were deferred due to the 2009 financial crisis.

Deciding ministerial pay will be tough

By Chua Mui Hoong

When People's Action Party (PAP) leaders started talking about change, promising to listen to people's concerns and review policies, my first reaction was: Would they bite the bullet and review ministerial pay?

I wasn't the only Singaporean who wondered, judging from letters to The Straits Times Forum page and online blogs.

The issue of high pay for ministers has become so contentious that it is like a wound in the body politic.

It did not begin that way. In fact, the idea to have a formula to peg the pay of political office-holders to top corporate chiefs' pay was meant to remove the issue's political sting. Establish a formula, peg ministers' pay to it, and voila - you get a workable method to determine how much ministers should be paid. The aim was to establish a salary level high enough so the very able will not be required to accept a drastic fall in lifestyle as a result of entering politics, but not so high that it becomes an inducement in itself.

That, at least, was the theory.

In the 17 years since the formula has been in place, the result has been the reverse. Ministers' high pay has been criticised and debated extensively in Parliament - but always with the PAP defending the principle, arguing that it was necessary to pay top dollar to attract talent into the political ranks.

And yet, last night, Prime Minister Lee Hsien Loong chose to announce a review of political salaries at the swearing-in of his new Cabinet: 'One important area for review is political salaries. We will always need committed and capable ministers. Politics is not a job or a career promotion. It is a calling to serve the larger good of Singapore. But ministers should also be paid properly in order that Singapore can have honest, competent leadership over the long term.

'I know that Singaporeans have genuine concerns over the present salaries. Hence I am appointing a committee to review the basis and level of political salaries. The committee will be chaired by Mr Gerard Ee, chairman of Changi General Hospital and chairman of NKF (National Kidney Foundation).'

The review is very welcome. Coming after a decisive change in the Cabinet line-up, it signals the PAP's intent to act on its election promise of change.

But the hard work lies ahead. To be credible, the committee must consist of non-partisan, independent-minded people. Mr Ee, a social service veteran and trusted accountant, is a good choice as chair.

It is a cardinal principle that those who stand to benefit should not be involved in setting their own pay. Hence, the other members of the committee should not come from the ranks of political office-holders, or indeed from the civil service.

The committee's terms of reference should also be made clear, both so that it can do its work properly, and also so that Singaporeans' expectations are set right.

It should be wide enough to allow the committee free range to do what it believes is right for Singapore - balancing the need to pay ministers properly, as the PM put it, but not erode their standing in the public eye as public servants who have answered the call of duty to serve their country.

What has changed to induce PM Lee to announce a review of a pay formula that all three of Singapore's Prime Ministers - Mr Lee Kuan Yew, Mr Goh Chok Tong and the incumbent - have so stoutly defended?

We can only speculate, but the following are possible reasons:

First, the formula's failure to fulfil the objective of attracting private sector talent. In the last Cabinet, seven out of 18 ministers sworn in were from the private sector. At last night's swearing-in, only Foreign and Law Minister K. Shanmugam (former litigator) and Defence Minister Ng Eng Hen (former surgeon) among the 14 full ministers are from the private sector. The rest are from the public sector, the military or academia, although a few, like Mr Gan Kim Yong and Mr S. Iswaran, were in private sector jobs before holding political office.

The entry of high-earning, high-flying professionals like Mr Chen Show Mao into opposition politics - without the lure of multi-million-dollar salaries - also discredited the PAP's argument in the public eye.

Second, the depth of resentment over the issue has intensified
. Such feelings are impossible to quantify, but any trawl of online forums or coffee shop talk will suggest that high ministerial pay is the No. 1 pet hate of many Singaporeans. To be sure, unhappiness at this policy has been present from the outset, but it has been more recently amplified by social media online.

As many have noted, the issue has become the distorting lens through which many ordinary Singaporeans view the PAP government, and indeed all political matters. It eroded the moral high-ground the PAP occupied as a result of having provided decades of good government and the considerable personal sacrifice of its founders, and introduced a transactional tone into the people-government relationship: We pay top dollar, you deliver or get out.

Third, as some senior government figures have acknowledged privately, the current formula is flawed.

It is counter-cyclical because of the time-lag in getting income data. In a recession, the benchmark may go up as it is based on income from one or two years ago. But raising ministers' pay in a recession would be political suicide. Result: Actual pay given to ministers was typically 50 to 70 per cent of the benchmark for years. This creates a rather absurd effect of the PAP getting flak for very high salaries it deems politically untenable to pay to its ministers.

The formula is also flawed because it is pegged to outliers - the top eight earners in six professions. As many have noted, a windfall pay packet, say, or a once-in-a-lifetime deal, can propel someone into that top spot. But the next year, his pay may plunge.

The minister's pay however, always remains at that level, for it is pegged to the top earners, whoever they might be, every year. It is like striking lottery every year, the critics noted.

The review committee has to decide if a formula is a good way to determine political salaries. If yes, it should relook the current formula, and consider alternatives, such as linking it to median income.

Two things are certain about the committee's recommendations: it will result in lower political salaries. And whatever method it proposes will continue to be controversial.

But if the composition of the committee is right, it will have one strong plus factor: ministerial pay would have been determined by a committee of neutral people who do not benefit from it. That alone would make the entire review worthwhile.

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