Friday, 6 January 2012

Answering the wrong question on ministerial salaries

By now, the highlights of the report by the Committee to Review Ministerial Salaries should be well-known, so I won't rehash them. A search on "singapore ministerial salaries" will quickly bring you up to speed.

There have always been two types of criticisms leveled at ministerial salaries. The first category comprised criticisms of the formula itself, that it led to distortions and did not achieve the outcomes we wanted. These are technical criticisms that implicitly endorsed the principle of pegging ministerial salaries at a discount to supposedly equivalent private-sector salaries.

The second category comprised criticisms of the absolute amount of ministerial salaries, which are seen as being excessive in their absolute amounts and completely out of touch with normal Singaporeans. These are political criticisms that will persist regardless of the formula used, because they stem from a fundamental perception that the absolute salaries are simply unjustifiably high, regardless of the formula used.

Well, here’s what I think: the Committee gave a good answer, but to the wrong question. The Committee’s recommendations will address the first type of criticisms, but will do nothing to stem the second.

I actually happen to think that within the limitations of its terms of reference, the Committee did a pretty good job. That’s because its terms of reference required (and perhaps limited) the Committee to “take into account salaries of comparable jobs in the private sector and also other reference points such as the general wage levels in Singapore”, and to implement “a significant discount to comparable private sector salaries to signify the value and ethos of political service.”

The Committee fixed a lot of the major flaws in the previous formula. For instance, by expanding the sample size of income earners from the top eight earners in six professions to simply the 1000 highest-income Singaporeans, the Committee effectively rendered irrelevant the problem of the 48 top earners being a changing cast while the ministers themselves did not change. Similarly, the new bonus structure is much improved on the previous simplistic reliance on GDP growth as a proxy for the good performance of the Government (and on that, I was reminded of this defence of the previous bonus structure by now-DPM Teo Chee Hean).

But I do think that the Committee was asked to answer the wrong question. The Committee’s terms of reference had already pre-supposed that fundamentally, the proper way to determine ministerial salaries was to compare with private-sector salaries (“how do we calculate ministerial salaries taking account private sector salaries and other guidelines”). In other words, the Committee was only being asked to answer the technical question of precisely how to calculate ministerial salaries based on private-sector salaries.

But to my mind, the question of ministerial salaries is actually a political one (“how do we determine ministerial salaries in a way that Singaporeans can and will support”). And so, we ended up with a technocrat’s answer to a technical question, when what we really needed was a political answer to a political question. Since we didn’t get that, the political criticisms I had referred to will almost certainly continue.

It is clear from the report, and subsequent public comments, that the Government, and the Committee, continue to think about ministerial salaries in terms of private-sector salaries and sacrifice by office-holders, especially financial sacrifice.

I think that is a completely incorrect approach to the question, which as I have said is a political one. This approach will never get true buy-in from the majority of Singaporeans, because they see the Government and ministers in completely different terms.

The Government and the Committee see public service as a sacrifice, as if it is some sort of burden or imposition. But I, and I suspect most Singaporeans, see public service as a calling, as an honour and a privilege. It is something to be proud of, and not something to bemoan and begrudge. That is what the spirit of public service is about.

The Government and the Committee also see private-sector jobs as being closely equivalent to ministerial posts, as if running a company is very similar to running a country. I think most Singaporeans disagree, because they instinctively understand that running a country is a political undertaking that is fundamentally different from running a company, requiring as it does political sensitivities and skills that are not always or usually needed for corporate success (and here, I am talking about popular politics, not office politics).

I do want to be clear: I don’t necessarily think that S$1m a year is excessive. I don’t know for sure what number would or should work, but it probably won’t be a small number. I do think that Singaporeans should be more mindful of wanting ministerial salaries that are so low, that only rich people will run for office. I also think Singaporeans should be careful about cutting salaries so much, that our office-holders become distracted from the all-consuming job of running the country by personal financial needs.

So that begs the question of how ministerial salaries should be set. Well, I think the starting point should be that we do not want money to drive ministerial aspirations, but at the same time we do not want ministers to have to worry about their personal finances.

One way to do this is to figure out what a reasonable salary for a minister would be, such that he/she can maintain a reasonable lifestyle. And by reasonable lifestyle, I would think that the salary should be enough to comfortably cover mortgage payments for a reasonably-priced landed property in a reasonable location; payments for 2 cars for the family; education for a minister’s children (including overseas education); some retirement savings; and so on.

This may or may not be a big number, but then at least it becomes more politically defensible in terms of this being what is necessary to allow the minister to do his/her job without undue distractions and while allowing the minister to maintain a reasonable standard of living. It also completely strips away the effects of the widening income gap, although it does become subject to changes in the cost of living. It represents an approach that can be explained to people and which people can instinctively understand (viz. the need to take care of one’s family).

Sadly, this is not the approach that has been adopted for Singapore. Which is why I think Singaporeans will continue to be dissatisfied with the level of ministerial salaries in Singapore.

The question of ministerial salaries is a critical one for Singapore. Not just for the obvious reason that it affects who enters into government (and who is attracted to join politics in the first place), but also for how it has severely poisoned political discourse in Singapore. Every time something bad happens, there will be people who will complain about how our highly-paid ministers had once against failed – whether or not this is justified. This cannot be a healthy state of affairs for Singapore.

The Government recognized this, hence the Committee. Unfortunately, I firmly believe that these latest changes will not suck all of the poison out of local politics. What a wasted opportunity.

13 comments:

The Observer said...

Kum Hong,

I refer to your para in your blog piece:

"One way to do this is to figure out what a reasonable salary for a minister would be, such that he/she can maintain a reasonable lifestyle. And by reasonable lifestyle, I would think that the salary should be enough to comfortably cover mortgage payments for a reasonably-priced landed property in a reasonable location; payments for 2 cars for the family; education for a minister’s children (including overseas education); some retirement savings; and so on."

My personal opinion on this para is that it is flawed in terms of principle. The benchmarks you mentioned are precisely the problems we are facing in Singapore - housing, transportation and education. If our ministers cannot even subscribe to the fact that housing, public transportation and education are world class that they need to purchase landed property, own cars and send their kids for overseas education, what message are they sending to us, the populace.

Other than his, I agree with your conclusion. They kept to 3 principles in their review:

1) Salaries must be competitive so that people of the right calibre are not deterred from stepping forward to lead the country;
2) The ethos of political service entails making sacrifices and hence there should be a discount in the pay formula; and
3) There should be a “clean wage” with no hidden perks.

Principle 1 was already highly flawed from the beginning. Salaries should not be the main deterrent, I agree only with the loss of personal space and privacy. If I may, rehash Vivian Balakrishnan's quote "What do you want? 3 meals at a hawker centre, food court or restaurant?", it will be, "What is competitive? 3 cars from Borneo Motors, BMW or Aston Martin?"

Fundamentally, the review is flawed in many ways. Consider para 32 of the report:
"Politics is a calling and privilege, and those who want to serve must have a sense of duty to the nation and a desire to contribute to the public good. For a country to succeed, talented people need to step forward to serve when they are in their prime. In designing salaries, it is important to consider the quality of talent that we desire to lead our country and the opportunity cost faced by this group in deciding to enter politics."

Just how do you define "prime" and "quality of talent"? This is very debatable and yet there seems to be a fixation on the "standard definition" of such terms according to the establishment.

There are also some glaring inconsistencies in the review. For example, para 66 (d) explains clearly why the review committee did not use foreign governments as a benchmark and yet in para 109, the Westminster Parliamentary systems is being referred to and used as a benchmark for the MP allowances for the Prime Minister, Speaker, Deputy Speaker and political appointment holders that have dual roles of being MPs.

While all this is technical, at the end of the day, Singaporeans voted them in, so they shouldn't complain. Hopefully by now, they realise that the vote they have is the real power they wield and not the government's power over Singapore.

Chan JY said...

"The Government and the Committee also see private-sector jobs as being closely equivalent to ministerial posts, as if running a company is very similar to running a country. I think most Singaporeans disagree, because they instinctively understand that running a country is a political undertaking that is fundamentally different from running a company, requiring as it does political sensitivities and skills that are not always or usually needed for corporate success (and here, I am talking about popular politics, not office politics)."

Yes, but the government's rationale for doing this is to attract people from the private sector to enter politics. For too long, we've been having senior civil servants and generals and they are seeing that "talent" from such sources don't really add value to the leadership.

No, I don't think that running a company is that different from running a ministry. In fact, many people feel that lacking talent from the private sector is exactly why our leadership has lost touch with the ground.

arul said...

@chan - its rather naive to say its the same running a ministry and a company. the motivations and objectives are vastly different. while similar skills like people management are at play, the mission of the company is vastly different from the mission of the ministry.

the problem with paying million dollar salaries to our ministers, and other top earners, is the disgustingly small proportion they have to pay in taxes.

there would be no issue with paying ministers $1m or more, if there exists a super-tax of 50% on any portion of income above say, $500k or some other acceptable figure.

taxes are too low in singapore for the top 10,000 earners.

Phantom said...

I think that benchmarking salaries to the private sector is ok and paying ensuring that our the leaders are paid well to attract talent is ok. However, benchmarking should not stop at salaries. As one says, it's no pain no gain. Thus, I am all for paying our leaders well but they should also be benchmarked against their goals and achievements. And thus, the salary structure should have a high variable component, say like 30-50% which will be INDIVIDUAL performance based. Thus, if the Minister of Transportation does well, he will achieve his target salary otherwise, he should also be benchmarked like a private sector leader and be relieved of his post. In the private sector, if the company does not meet it's performance targets, the CEO usually does not get must bonus. In addition, in MNCs, they are measured every quarter and even if a CEO has achieved 10 quarters in a roll, and if he misses the next 1 or 2 quarters, he is relieved of his post as well. Thus, asking for the salary is one thing, but will our leaders subject themselves to this kind of performance measurement?

Chan JY said...

Of course the mission is different. I don't think any CEO would be dumb enough not to realise that if he becomes a minister, his mission is different. If you put a heart surgeon on a battlefield, you don't need to tell him that he would be removing bullets and not doing bypasses.

The same down-to-earth people (employees, customers, business associates) management skills often lacking the civil service will prove valuable in any ministry.

Singapore Office: said...

KH, you wrote "One way to do this is to figure out what a reasonable salary for a minister would be, such that he/she can maintain a reasonable lifestyle. And by reasonable lifestyle, I would think that the salary should be enough to comfortably cover mortgage payments for a reasonably-priced landed property in a reasonable location; payments for 2 cars for the family; education for a minister’s children (including overseas education); some retirement savings; and so on", isn't this also a technical way in arriving the amount? I guess perhaps this is a more understandable technical way by most Singaporeans. So, from your above mentioned way, what's the acceptable amount to pay a Minister?

Game1980 said...

landed property: 10 million
2 cars: 100k x 2 = 200k
Education for 2 kids: 500k x 2
Retirement savings: 2 million

Conclusion: 13million
Term: 5 years

So Minister should be paid 2 million annually and are underpaid now. No wonder Grace is so worried that if we cut pay further, there wont be enough takers for the job.

Recruit Ong said...

the answer to the question of what level of pay is reasonable is actually simple.

bcos all of us agree public service is a calling, so the most important criteria is actually to make sure those that enter public service is not doing so for the high salaries. this means the salary cannot be high liao.

next thing is, in life when one's lower needs are fulfilled, one then aspires to fulfill their higher needs. E.g. once a person has achieved success in his career and no longer needs to worry about $$ for the rest of his life, then the person is more inclined to go into public service. (here i am guessing someone like chen show mao fits this description)

and this is why we see in advanced democracies they do not have this problem. Their politicians have mostly made it in their careers first, and then only later they naturally gravitate towards politics as the calling and inclination is in them.

in spore the PAP prarachutes some paper generals from the SAF to groom them for public service or ministers. It cannot work one. this is why these greenhorns cannot hold up on their own and their awkwardness and endless gaffes are plain and painful for all to see. these people actually demeans public service.

Ed Tan said...

@Chan JY
Your view that Private sector skills are relevant in Public sector is simplistic, at best.
 
There are fundamental differences in governing a country compared to running a business. One example is the government-citizen relationship versus the corporate-client relationship. In a company, selling a product or service targets a specific market segment with no negative impact on the rest of non-consumers. But the implications of government policy are far-reaching and affect the entire country including individuals, businesses and other organizations, in both positive and negative ways. For example, the CEO of SMRT only needs to look after customers that take its MRT trains, taxis and buses, whereas the Transport Minister has to take into account the interests of SMRT's customers, SMRT itself, other transport companies, and private car owners. As a further example, the COE policy would have had a negative impact on car owners, potential car owners, but a positive impact on public transport companies. This ability to balance the interests of different interest groups is a skill that is not evident in the private sector.
 
Even if you compare the company-shareholder relationship, where arguably, shareholders can have diverse interests (growth versus income returns); again for a company, that relationship is narrowly defined and limited to profit in monetary terms. A citizen's aspirations are more than just dollars and cents, and a large part of these aspirations are not tangible or measurable. In fact, I would argue that using a corporate mentality to meeting the demands of citizens is usually counterproductive, becuase the corporate mentality ends up with KPIs and defining the problem too simplistically.
 
Take the declining population growth for example, a result of less and less Singaporeans not wanting to have babies AND Singaporeans leaving the country. The government's approach to solving this complex issue is to throw money at it in terms of baby bonuses, tax rebates, more leave days, etc., AND bringing in foreigners to replace Singaporeans. This is exactly what a person with a corporate mentality would do - just focus on the numbers (workforce population) and KPIs (population growth), without considering the non-tangibles - the concept of home, family, country, culture. These have been diluted in Singapore. 
 
More importantly, shareholders can choose to vote with their feet by selling their shares. Citizens can't do that without a significant change in their lives.
 
So, it really takes a different person to run a country as compared to running a company. For me, having the right heart is the most important thing. If the heart is in the right place, then more consideration will be put into formulating policies, beyond just looking at GDP growth.
 
To me, the real problem in not being able to attract good talent into politics has nothing to do with money, but everything to do with the political landscape in Singapore. Until recently, if you wanted to succeed in politics in Singapore, you could only join the PAP. Otherwise, you run a very real risk of being prosecuted, sued, or thrown in jail (see Francis Seow, Chee Soon Juan, JBJ, et al). People who would have made good politicians and leaders but did not share the PAP's views, would not have joined the PAP as that would have been against their a strong sense of principles. These would-be political talents became everything else, but politicians. If the government is really interested in attracting talents to run the country well, it would be better if they removed all the impediments that make one think twice about running for elections, such as election deposits, GRCs, free-er press, the ISA, etc.

The Pariah said...

Broadly agree with Siew Kum Hong's blog commentary.

However, we must nail down the "How", "What" and "Why" to brass tacks and NOT just paint with broad brush strokes.

The Review Committee's Report embeds some core flaws. There is also spin in it if you analyse it carefully.

Rather than "teach" the yaya-PAPayas by being specific in our criticisms and suggestions, it's better to wait for the Parliamentary debate on this Report.

Siew Kum Hong said...

@The Observer: I think most Singaporeans (and people in general) aspire to a better life and a higher standard of living. My personal view is that it is ok for Singaporeans to provide that for Singaporeans. The pragmatist in me also thinks that setting the standard of living too low would indeed deter people from joining public service. But I accept that the question of what is a reasonable standard of living is open to debate, and you may have a different view from me; that should be something for Singaporeans to debate and decide. The prinicple remains though. I also believe (but stand to be corrected) that most if not all the figures suggested so far by the opposition parties in public, would be sufficient to support a lifestyle that goes beyond public housing and public transport.

@Chan: I don't think top private-sector executives necessarily have a better feel for "the ground" than senior civil servants, and I also very strongly disagree that running a company is similar to running a ministry (which is what you seem to suggest). In any case, I personally believe that many people in the private sector are deterred from politics because of the PAP and many of the things that it has stood for and continues to stand for, and also because this entire approach to ministerial salaries has damaged the spirit of public service in Singapore. I would think that private-sector folks who are minded to go into public service, are looking for something other than financial rewards.

@Game1980: Your formula and assumptions are flawed. I do not think a $10m property is reasonable. I also do not think that the figures should be set such that a 5-year stint in government would suffice to pay for all these things. I don't see why a minister cannot have a 20/25/30-year mortgage just like everyone else.

The Observer said...

Kum Hong,

I just read your earlier post on the ministerial salaries dated 9 April 2007. It's indeed ironic that more than 4 years later, we have all forgotten the points you raised in Parliament. I wonder what else we might have forgotten.

I can't disagree with your point on aspirations but getting agreement on the level of reasonable standards of living may prove too difficult if put to the people. In which case, we had NEVER had a referendum and perhaps never will. What is left is just the vote at the general elections. But how many will remember 5 years down the road especially when all the sweeteners (and threats - veiled and unveiled) are deployed close to the elections?

It's a vicious cycle with seemingly no end and no cure.

Little Pingan said...

Kum Hong, thank you your thoughtful clear explanation. Here are some more points to consider.

First, being so justifiably upset, people may "throw all babies out with the bath-water". What I mean is: (1) most political leaders receive modest salaries and corruption is a well-known feature; (2) worries over financial needs can tempt people towards corruption or the abuse of power; (3)"advanced countries" e.g. US, financial corruption may not be the issue - but you see media-fanned popularity and choosing policies make everyone happy in the short-term but eventually lead to collapse ... one respondent suggested ministers be assessed as CEOs by quarterly results. Disastrous: this is what is making the US become bankrupt now - I know that vast corporate resources and time are spent "window dressing" financial figures / PR to impress analysts and media to THINK the company's doing fine by hiding decline!

High salaries do not equal best people for the running a country! E.g., among lowest paid professionals were teachers, nurses. These are people shaping our lives or making a difference when life seemed desperate. Of course there are bad teachers and bad nurses but that is not the point. The point is the best in every professional may have what it takes for political office and for running a country.

When LKY, GKS, Raj etc began - they surely knew their commercial potential and personal/family sacrifice but they chose our nation's future. $ issues were not their motivation. I come from a family whose parents (now in their 80s) chose to the civil service even though moving to the private sector would have earned them millions. My father was even offered a top public service position in a foreign country that paying $$$ more than in Singapore, including elite housing!

The ROOT of our dilemma is the wrong belief that "high salaries = best brains to lead Singapore". Salaries depend on professions and non-$ choices. It doesn't point to best brains. It is simply not true that lowering $ gets monkeys or will fail to attract the best to run our country.

The other problem has been in the argument that "best brains = best leaders". What does "the best brains" mean?! May I suggest "the best brains" to run Singapore includes a long list of essentials:
a) "self-sacrificing love of the nation" + b) "wisdom to really understand people" includes empathy with people's feelings/concerns; jow to select lieutenants - to pick most the best man for each job + c)seeing what solutions for BOTH short-term and long-term well-being + d) moral fibre: new NMP Faisal Mohd raised this in parliament + e) practical sense + d) ethical courage to do the right thing. There is no fast track formula.

It's not about $. It's about the right people who love Singapore so much to devote themselves to LEADING our people and TAKING CARE to ensure that future generations have an opportunity to continue the good foundations laid down. This also means GLOBAL care (e.g. environment, refugees, etc...) if we we want our future generations to have moral fibre rather than being spoiled rich self-preserving brats.

Thank you again for starting the ball rolling.