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MINISTERIAL STATEMENT BY MR TEO CHEE HEAN, MINISTER-IN-CHARGE OF THE CIVIL SERVICE, ON CIVIL SERVICE SALARY REVISIONS, AT PARLIAMENT 9 APRIL 2007

A GOVERNMENT THAT WORKS FOR SINGAPORE

• Background
  • Role of Public Service
  • Good People are Key
  • Sense of Meaning and Mission
  • Making sure we can get and retain good people
  • Paying competitive salaries
• Civil Service salary revisions
  • Approach
  • Starting salary revisions
  • Schemes with In- Built Market Adjustment Component
  • Schemes which are at or close to market - “basic-tier” adjustment
  • Schemes which are lagging the market
• Admin Service and Appointment Holders
  • Administrative Service
  • Admin Service salary benchmarks
  • Adjustments for MR4
  • Adjustments for SR9
  • Adjustments for MP Allowance
• Ex-gratia payment
• Costing
• Conclusion

BACKGROUND

Role of the Public Service

1.                Modern Singapore is a testimony to the perseverance, ingenuity and hard work of our people. In a short span of 40 years, we have transformed our island state into a developed nation. Singaporeans enjoy peace, stability, economic progress, good housing, healthcare, education, and a clean and safe environment.

2.                The mission of the Public Service is to work with the elected Government to ensure Singapore’s continued survival, security and success. Public officers work with the political leadership as stewards of Singapore’s present and future. The work of the Public Service is closely linked to the lives of Singaporeans. Through the work it does, the Public Service provides infrastructure, homes, education, and law and order.  It creates a conducive environment for Singaporeans to create wealth, earn a living, raise a family and lead a fulfilling life. We have a diverse group of officers, with different aptitudes and capabilities.  There are policy developers, policemen, teachers, social workers, economists, statisticians, engineers, clerical and administrative staff.  We need a whole host of officers with different backgrounds and talents in the Service – to think, plan, and do.  Together they make the Service tick.  

3.                Richard Vietor, a Harvard Business School professor who specialises in teaching and research on business and government policy, recently published a book titled “How Countries Compete.”  He devoted one chapter to Singapore and described us as “the best example of government that works."[1] Ours is a government that works - for Singapore.

4.                Eight or nine years ago, when I was Minister for Education, I briefed the EDB's International Advisory Council on our new initiatives in education. These were a group of top CEOs -  experienced industrialists and businessmen from the US, Europe and Japan, several of whom had sat on or given advice to their governments' education review panels. They said: "We've heard all that before in our own countries. What makes you believe you can succeed in doing that when we have difficulties putting through similar reforms in our countries?" That question gave me pause. Then I replied that it is because Singaporeans place great importance on education. And in the ministry we have the people, and a system in place that will see this through. We also have a teachers' union that understands what we are doing. Instead of resisting change, they are supporting it – for example, organising courses in IT for the teachers to keep up to date. I am glad that my confidence in our parents and students, teachers, our educational administrators and our institutions has been proven right. Today, they have brought our system forward to new heights.

5.                As Minister-in-charge of Civil Service matters, I often hear from my counterparts from other countries that Singapore is a place where things happen.  We don't just envision and talk, we act. Each time they re-visit us, what we talked about doing the last time would already be happening. This is possible because we have strong institutions, and a team of dedicated officers at all levels who will work through the details and carry out the plans – biopolis, marina bay, upgrading of our housing estates, skills redevelopment, workfare, preparing for an ageing society.

6.                Going forward, the opportunities and challenges confronting Singapore are increasingly complex.  There are no “ten-year series” or ‘model answers’.  The Public Service has to break new ground and draw upon the ideas and energies of the private and people sectors to address these challenges together - to develop our own solutions, challenge old paradigms, experiment with untested approaches and learn from our mistakes along the way. 

7.                Singaporeans have a Public Service they can be proud of.  The Political and Economic Risk Consultancy (PERC) 2007 Report, and the World Economic Forum’s 2006 Global Competitiveness Report ranked Singapore first in the quality and competence of its Public Service.

8.                Here, I would like to take the opportunity to acknowledge and thank every public officer for his or her contribution to Singapore. It does not matter which service or agency you work in. Every officer can and should be proud of being part of the Singapore Public Service, a highly respected and well regarded organisation.  

9.                We don’t have to just rely on comparisons by think tanks. Every Singaporean who travels abroad will, in his heart, be grateful for the quiet efficiency, courtesy and impartiality of our public officers when they cross the immigration and customs counters at their various ports of entry and exit. 

10.           But the Service can and must do better. Singaporeans are more informed, and vocal. The standards expected of the public service today are higher. And public officers can expect more to be asked of them. Demanding customers spur improvements. Public officers do not have all the answers. We have to do more to cultivate a serious listening ear, to better understand the needs of the public and to consider ideas and suggestions to improve the way we work and serve the public.  There is a need to constantly improve.

Good People are Key

11.           How do we do this? The key is to have good people in the Service, enough of them, with the right values and passion for Public Service - well led, well trained and well motivated. We need good people and leaders to helm our various services – principals for our schools, commanders of our police divisions, managers of our various line departments and customer touch points.  We also need the support of our rank and file officers who quietly do good work behind the scenes, or courteously at the counters, helping to implement and execute policies well.

12.           To bring it all together, to provide vision and coherence, and set the tone and direction, we also need exceptional public service leadership. This means having strong and capable leaders who can anticipate challenges and change, take a long term strategic view, tackle the complex issues, and yet at the same time come up with workable solutions that are needed now. We need leaders who can energize, organize and galvanize the Public Service to move the agenda forward and ensure that implementation accords with intent.

Sense of Meaning and Mission

13.           As a progressive employer, the Public Service’s human resource management practices must keep pace. We must commit to pay competitive wages for our officers and provide them with the development and training to improve and stretch themselves so that they can better contribute to their agencies. We must make the Public Service an organisation that provides our officers with a sense of meaning and mission, that ultimately it exists to serve the people of Singapore.

14.           We see such examples everyday in the work of our public officers. Many go the extra mile to work for the good of Singaporeans, not just at the policy level, but also at the individual level, helping to deal with and solve the problems of individual Singaporeans. We recognise the most outstanding of such efforts every year with the PS21 Star Service Awards. I hope to see more of such examples. Officers who work in our ministries and statutory boards must feel a sense of challenge and must believe that individually and collectively, they make a real difference in the lives of Singaporeans. We need to tap on their passion, energy and mobilise them to do their best, and achieve their best – for Singaporeans and for themselves. 

Making sure we can get and keep good people

15.           Attracting and retaining able people to build a team, especially those who have the potential to take up top leadership positions in the Public Service is however becoming more difficult.  Final year students in our local universities are invited to many tea sessions and career talks, and many are now offered jobs 3-6 months before graduation.  

16.           The competition for talent is not just within Singapore. Our people are being talent-hunted to work in Hong Kong, China or Vietnam and the Middle East. In February this year, a group of public officers attending one of the Civil Service College’s leadership training programmes, made a study trip to Dubai.  At a networking dinner, they met a fellow Singaporean who had been headhunted to take up a very senior position in a Dubai company.  He told our officials that his Chairman is very impressed with Singapore and the ability of Singaporeans.  So, he promised his Chairman that every time he is back in Singapore, he will speak with 2-3 Singaporeans to interest them in working for his company.  I do not know how often he comes home, but we should be worried.   

Paying competitive salaries

17.           For the Public Service to remain an attractive employer, our terms must keep pace with the private sector. That is why our policy is to pay public officers competitive salaries, salaries that are commensurate with private sector earnings.  We do not seek to lead the market, but to keep pace with it.

18.           Salaries in the private sector have been moving rapidly, especially in the last two years. In February this year, the two healthcare clusters adjusted nurses’ salaries upwards by 3-7 percent [2].  On 31 Jan 07, a Business Times report[3] cited that some law firms have raised salaries amid the growing demand for legal work and a shortage of lawyers. Reports from HR consultancies point to more firms hiring executives, and offering attractive salary packages to attract them.

19.           The financial and banking sector is growing rapidly and many potential job seekers are attracted to it. According to a 12 Feb Wall Street Journal report, there is a shortage of talent in the private banking sector. The earnings of some of the relationship managers in Singapore surpass the pay levels in Switzerland. Singaporeans are being attracted to these jobs including one young ex-SAF officer who was featured in the report.

20.           As I informed the House in March, the Civil Service is experiencing the effects of the tightening labour market. Our overall resignation rate has increased from 4.8% in 2005 to 5.7% in 2006.  We are losing our lawyers, accountants and management executives. The resignation rate of the Management Executive Scheme (which employs graduate officers across the ministries) was 10.6%, up from 7.4% in 2005.   At some of our entry grades, the situation is quite serious, with resignation rates as high as 25%.  Members of the House would also have read from the newspapers[4] that for our Home Team, there has been a 40% increase in the resignation of junior officers in January and February this year, compared to the same period last year.

21.           We need to act before the situation becomes more serious. The Government, as an employer, has to respond quickly and decisively to stay competitive and close the wage gaps. Otherwise, we will deplete the Service of the able people we need, and the service level to the public will be affected.

Civil Service Salary Adjustments

Approach

22.           The last major salary revision for the Civil Service was in 2000, seven years ago. During the recession years, civil service salaries were cut, and restored recently in 2005.  In recent years, we have made adjustments to specific schemes that have fallen behind their benchmarks.

23.           For this review, we have taken a comprehensive look at all the schemes, assessed the attrition rates and wage levels relative to their respective market comparisons, and identified the underlying issues affecting the schemes.  Let me explain the approach we have taken and the principles behind this round of revision.

24.           First, we are not making a uniform across-the-board revision, where everyone receives a standard ‘x%’ increase. Adjustments are made according to individual scheme’s needs.  Where the salaries are severely lagging the market, and there are high attrition rates, we will make larger adjustments.  Where the lag is smaller, we will make smaller adjustments.  Some schemes have been reviewed recently, and are already being paid close to market salaries. 

25.           Second, we will bring our salary structures more in line with our philosophy of linking pay to performance. Many of the adjustments will not be in the monthly salaries but in the form of a performance-related payment. Only those civil servants who have performed beyond the satisfactory level will receive this performance-based payment, with those performing very well receiving a higher amount. These payments allow us to close wage gaps quickly this year.  For subsequent years, these payments are likely to be incorporated into the performance bonus structure of the officers, if the market salary levels are sustained, so that those who are consistently good performers will continue to enjoy the higher salaries. For schemes which are lagging severely behind the market, we would have to adjust both monthly salaries and annual components in order to close the gap.

26.           Third, we recognize that salaries alone are not the panacea to our problems.  We need to look at the whole career proposition, such as sense of purpose, job scope, interesting assignments, exciting career prospects, and developmental opportunities.  These issues have to be addressed so that a career in the Civil Service will remain attractive not just to young people fresh out of school, but also to serving officers. 

27.           That is why, in conjunction with the pay increases, we will continue with our reviews to address the fundamental issues for specific services.  Let me give a recent example. The Education Service was reviewed in August last year.  We raised the starting salaries and increased the retention bonuses for the teachers.  But the review went beyond pay.  MOE solicited feedback from teachers and made changes beyond salaries: the study leave scheme was enhanced to allow teachers to take longer periods of study leave, a special fund was set up for teachers to use for learning and developmental needs, and promotional grades were added for classroom teachers.  This year, some 10,000 teachers have been promoted, many of whom to the new promotional grades introduced in the restructured scheme of service.

28.           I will now brief the House on the pay revisions for the different groups of civil servants. The revisions will apply to the Civil Service. Statutory Boards will review their salaries concurrently and make adjustments, where appropriate. A number of Statutory Boards (EDB, MAS) have already adjusted their salaries earlier this year.

Starting salary revisions

29.           As I mentioned earlier, at the entry level, the competition for fresh university graduates is getting more intense.  The recent surveys by SMU, and preliminary indications for NUS and NTU show that pay offers for fresh graduates have been rising. For example, the average salary offer for a SMU graduate is about $2,800. One graduate reportedly received a $12,000 salary offer!

30.           The Civil Service has adjusted starting salaries annually to keep in step with the market, both upwards and downwards.  We dropped starting salaries by 10% during the recession years, and increased them when the economy recovered in recent years. With effect from June this year, we will raise starting salaries to keep pace with the market.  For a graduate with a Good Honours degree who is appointed to the Management Executive Scheme, the starting salary will be raised by about 10%.  Starting salaries of other graduate schemes will be adjusted according to their market benchmarks.  We will also adjust the salaries of officers who have been appointed recently, to maintain relativities with the incoming batch of fresh graduates. We will continue to monitor our salaries at the entry grades and make adjustments as necessary to maintain competitiveness.

Schemes with In-Built Market Adjustment Components

31.           Some Civil Service professional schemes such as accountants, economists and statisticians have an in-built “market adjustment component”. The market salaries of these professions tend to be volatile – with large bonuses in boom times, but falling sharply during a recession.   The market adjustment component allows the annual salaries of these schemes to be adjusted rapidly, up or down, without affecting the monthly salaries.

32.           We will raise the market adjustment components of these schemes according to their individual benchmarks.  There is no further need to make other forms of adjustment for this group.

Schemes which are at or close to market -  “Basic tier payment” 

33.           According to Mercer HR Consulting, private sector salaries are projected to increase by 4% in 2007. For the officers in the Civil Service, we will make a basic payment amounting to 3-5% increase in the annual salaries. This payment will be performance-based. and will be in the range of 0.5 – 0.75 months.  Good performers will receive up to 0.5 month whilst better performers will receive up to 0.75 month. 

34.           This payment will apply to schemes which are currently at or close to their market benchmarks.  It will ensure civil service salaries are competitive.  On top of this payment, civil servants will continue to receive their annual increment and the mid year annual variable payment. Like other Singaporeans, they will also enjoy the 1.5% increase in the employer CPF contribution from July this year.

35.            The payment will apply to the Education Service, the Corporate Support Scheme and the Operations Support Scheme.

36.           The Education Service completed its review last year, but there are still issues to be addressed.  MOE will be adjusting starting salaries, and making corresponding adjustments for teachers who were recently appointed. We must also identify high-calibre teachers who have the potential to make it as our future leaders in education and develop and reward them in a timely manner.

37.           Corporate Support Officers and Operations Support Officers will also receive this basic tier. The payments will be made next month, in May. If the economy continues to do well and the higher market salaries are sustained, these payments will be incorporated into the annual performance bonuses of these officers.

38.           We will also be looking into re-designing the jobs and upgrading the skills of our officers in the Corporate Support, Operations Support and similar schemes. Traditionally, these schemes have been designed with rather narrow job scopes. We will work together with the public sector unions to prepare our officers to take on a wider scope of work and responsibilities, and provide more opportunities for progression.

39.           These schemes of service, which will receive the basic tier for officers who have shown more than satisfactory performance, account for approximately two thirds of the officers in the civil service.

Schemes which are lagging the market

40.           There is a group of schemes which is lagging the market, for which we will make larger increases than the basic tier to close the gap. I will highlight the key services, namely the Management Executive Scheme, the Management Support scheme, the Home Uniformed Services, and the Foreign Service. Collectively, these schemes account for almost one-third of the officers in the civil service.

41.             Graduate officers on the Management Executive scheme work across all ministries performing a wide range of jobs, including policy development and implementation, corporate services and operations work.  Salaries for this group of officers have fallen behind the market.  We need to make an upward adjustment of 16% this year in order to level up. As a first step, we will halve the gap through a 5-8% adjustment. This will be in the form of a performance-based payment of 0.75-1.25 months of salary. Good performers will receive up to 0.75 month, which is equivalent to a 5% increase, and the better performers will receive up to 1.25 months. 

42.           A more fundamental review of the Management Executive scheme is also ongoing. The review will look into all aspects, including pay, career advancement and progression, job challenges as well as training and development of officers. We want to make the scheme more attractive, both to fresh graduates, as well as to mid-career entrants to the Civil Service. In particular, we will need to identify, develop, and reward more substantially, those among the Management Executive officers who are performing very well and have demonstrated the capability to take on greater responsibilities. The review will be completed in the second half of 2007.  There will be a second round of adjustment later this year when the review is completed.  The form of the adjustment will depend on the findings of the review.

43.           In the same vein, we are making changes to the Management Support Scheme and Technical Support Scheme, which employ officers with diploma qualifications.  These schemes are also lagging their benchmarks, and we will make a performance-based payment of 0.5 – 1 month. Good performers will receive up to 0.5 month, and the better ones, up to 1 month.  Similarly, a more fundamental review of the Management Support Scheme is ongoing, and we will make a further adjustment before the end of the year. 

44.           The Home Affairs Uniformed Services, comprising the Police, Prisons, Civil Defence and Narcotics services, are lagging their benchmarks by up to 26% in certain grades. As the gap is large, these services require major adjustments. These services are now dealing with more complex and challenging tasks given the threat of terrorism and the increased security measures required.  We need to pay our home team officers competitively, so that the uniformed services will be well-staffed, and able to address any emergency.  The first step of this adjustment will be carried out now, amounting to 10-13%.

45.           Senior officers in the Home Uniformed Services will receive a performance-based payment of 1 – 1.5 months, with the higher quantum going to better performers.  Junior officers will also receive performance-based payments ranging between 0.75 to 1.5 months.  In addition, to address the market pay gap, we will increase their monthly salaries by 4% - 5%.

46.           Beyond pay, the Ministry of Home Affairs will also be looking at other aspects to better attract and retain their officers.  There will be more opportunities for junior officers to progress into the senior ranks. The Ministry is also streamlining its promotion and ranking process, and reviewing benefits and other terms, to make the Home Uniformed Services a mo,, , , ,, ,, , , ,, re attractive career.  After the review is completed, a second adjustment will be made later this year to close the remaining gap.

47.           The Singapore Armed Forces will make similar salary adjustments.

48.           The Foreign Service is also l, ag, ging the market substantially. ,  Our diplomats are a small but critical group of officers who promote and safeguard Singapore’s interests in the international arena.

49.           Foreign Service officers will receive a market adjustment of 0.75 months. In addition, the performance bonus structure has been revised to identify and reward the top performers better.  Annual increments have also been increased and tied to performance.  Other adjustments include a revision of the monthly salaries at the entry grades and a revamp of the retention bonus framework. On average, Foreign Service officers can expect an 8% salary increase.

Administrative Service and P/J/S Appointment Holders

Administrative Service

50.           Let me now move on to the salary adjustments for the Administrative Service, and Political, Judicial and Statutory Appointment Holders. 

51.           The Administrative Service is at the core of the Public Service.  Administrative Officers serve in many of the top Public Service leadership posts.  We set very high standards for admission into the Administrative Service. Officers with high ability and potential from all schemes in the Public Sector, as well as  private sector candidates are welcome, regardless of whether they had previously received scholarships or not. They are brought into the Administrative Service so long as they meet the stringent requirements and have a passion for and dedication and commitment to Public Service. Once brought in, they are developed, stretched in challenging responsibilities and tested for future top appointments in the Public Service.

52.           A lot is demanded from the Administrative Officers. They are expected not only to do their primary jobs well, but to also actively lead, participate and contribute to inter-agency issues and service-wide initiatives. This is a key role of the Administrative Service – to ensure that the whole Public Service operates with collective vision and coherence. The officers are assessed rigorously every year and those who do not meet the mark are asked to leave the Administrative Service. They may then be transferred to another scheme in the Public Service, if they wish. There are also officers who ask to leave the Administrative Service as they prefer a more specialised area of work. Those who make it to top positions as Deputy Secretaries and Permanent Secretaries have fixed term appointments, and are expected to step down at the end of the term to make way for younger officers. This provides for orderly succession and a pipeline of potential future Public Service leaders in order to maintain the drive and energy of the whole Public Service.

Administrative Service Salary Benchmarks

53.           The salaries of the Administrative Service were last adjusted in 2000. It is one of the schemes that have fallen behind their benchmarks.  The salaries of Administrative Officers are pegged to two market benchmarks.  [I will now ask for the slides to be projected.] At the SR9 grade, which is the entry level into the Superscale grades, the benchmark is defined as the salary of the 15^th person, aged 32 years, from 6 professions, namely bankers, lawyers, engineers, accountants, employees of MNCs and local manufacturers. [The next slide will illustrate how the benchmark is computed and derived.] Administrative Officers at the SR9 grade are typically in director-level positions in their organisations.

54.           The second benchmark is set at the higher end, the Staff Grade I, or MR4 grade.  This is the grade at which senior Permanent Secretaries are paid. This benchmark is defined as two-thirds of the median salary among the top 8 earners in the same 6 professions.  This is also the entry-level grade for ministers. 

55.           Last month, we released information on how the two benchmarks and actual salaries have moved over the last seven years.  This has been widely reported. I will briefly recap the trends and request Members to refer to the handouts. The income tax data that we are using for the benchmarks is for Year of Assessment 2006, that is, for income earned in 2005.  The benchmark salaries are therefore almost 2 years old. 

56.           In 2000, SR9 salaries were at 67% of the benchmark and we adjusted salaries then to close the gap fully. This benchmark dipped in 2004 – 2005, but has since risen. It currently stands at $361,000, similar to what it was in 2000 ($363,000).  The SR9 salaries were reduced during 2001-2003 due to the economic recession but the cuts have since been restored. Currently, the SR9 salaries are close to the benchmark. 

57.           At the MR4 grade, salaries were at 71% of the benchmark in 2000.   We raised salaries to 80% of the benchmark then, with the intent of closing the gap over a three-year period. We made the first adjustment in the first half of 2001, raising salaries to $1.2 million, according to plan. Thereafter, Ministers and senior civil servants took a pay cut of 10% after the Sep 11 attacks and another 10% cut after SARS. The two cuts were restored about two years later, in July 2004 and January 2005 respectively. Since then, there have not been any salary adjustments for the Administrative Service. Salaries at the MR4 level are at $1.2 million, the same level as in 2001.

58.           In the meantime, the benchmark for MR4 has moved.  It rose from $1.4 million in YA2000 to $1.9 million in YA2001, reflecting income that was earned during 2000, which was a particularly good year for Singapore.  Thereafter, the benchmark dipped during the recession years, but it never fell below the $1.4 million mark. In recent years, the benchmark has increased, in tandem with Singapore’s good economic growth.  Currently, it is at $2.2 million, based on income earned in 2005.  This also means that at the MR4 level, salaries are now at 55% of the benchmark, compared to 71% in 2000.

59.           The principle of benchmarking Ministers’ and senior civil servants’ pay has been established and widely debated in Parliament.  Our philosophy is to pay competitive salaries to facilitate the recruitment and retention of the quality of talent we need for the government and public sector.  To do so, we have to benchmark against the comparable top jobs in the private sector. These are the realistic alternatives that a student considering a scholarship, or a person considering a career in the public sector could pursue. Indeed for the public officers in their 20s and 30s, their peers in school and university would be pursuing such careers, and in a rising job market, these are the jobs that headhunters are targeting them for. For those considering whether to serve in political office, these are often the careers that they are currently pursuing with good prospects of rising further in the private sector. Some of those in their late 30s or 40s are at or near the top jobs in their companies or field of work.

60.           There is no perfect method for doing this benchmarking. The methodology of establishing these two market benchmarks at SR9 and MR4 was set out in the White Paper on ‘Competitive Salaries for Competent and Honest Government’ in 1994. The White Paper was thoroughly debated in this House. In 2000, when the last salary adjustments were made, the benchmarking methodology was reviewed. The benchmark of 15P32 for SR9 was found to be sound, while the benchmark for MR4 was modified to make it more robust by expanding the base to the current top 8 income earners in each of the 6 professions, to discount stock option gains by 50%, and using the median rather than the mean. We have looked carefully at the benchmarks again, and have found that they remain sound. They follow economic and employment market conditions up and down. After calculating the benchmark figure, we also do a check against private sector income earners. The ranking of the benchmark against the private sector earners is stable and does not fluctuate widely. 

61.           I understand many Members have views and suggestions on this issue and I look forward to hearing their views and ideas.

Salary Revisions - Adjustments for MR4

62.           Salaries at the MR4 Grade are currently at 55% of the benchmark.   Given the large gap, it is not realistic to close the gap fully in one go.  Instead, we will close half of the current gap, that is, from 55% of the benchmark, to 77% of the benchmark by the end of this year. This will be effected in two steps - one step now, and another step at the end of this year.  Next year, we aim to close half of the remaining gap, bringing salaries to 88% of the benchmark by end-2008.

63.           But for now, in the first step, we will increase the annual salaries for MR4 grades and above, by an average of 25%.  The percentage increase will range from 33% at MR4 decreasing to 14% at the higher grades. The annual salary at MR4 will be increased from $1.2 million to $1.6 million.  This will bring the MR4 salary to 73% of the benchmark, fairly close to the 77% of benchmark we want to be at the end of this year. 

64.           The revisions will be effected through adjustments to both monthly salaries and annual components.  Monthly salaries for the MR4 grade and above will be increased by an average of 15%.   Monthly salaries for the MR4 grade will be increased by 22.5% from $42,800 to $52,400.  This percentage increase in monthly salary tapers off progressively for the higher grades.

65.           We will restructure the pay to remove components which are no longer relevant and to build up performance-linked components.  We will make three main changes - removing the Car Allowance, increasing the GDP Bonus and increasing the performance bonus.

66.           First, the Car Allowance.  This is a legacy payment from the time when the Civil Service stopped providing senior officers with an official car.  The Car Allowance is currently 2.5 times the monthly salary of the officer. This is not market practice.  Typically, private sector companies pay car or transport allowance at a flat rate.    

67.           As the Car Allowance is no longer relevant, we will remove it formally.  In its place, we will increase the GDP Bonus which depends on the performance of the economy, and performance bonus which depends on their individual performance. This will apply to all appointment holders, the Administrative Service, as well as senior officers in all ministries and statutory boards. I should emphasise that the Car Allowance is already counted into the annual salary package of these officers. Hence this change does not change the total annual salary package but restructures it to be more performance-based.

68.           The President, Prime Minister and Speaker do not currently receive the Car Allowance as they are provided with an official car. The restructured salaries replace the Car Allowance with higher GDP Bonus and Performance Bonus. The President, Prime Minister and Speaker will draw this new restructured salary. The total salaries of the President and the Prime Minister will increase by about 25%, close to the average percentage for the MR4 grade and above.  They will continue to be accorded the use of an official car. This car benefit will be subject to tax.

69.           Second, we will revise the GDP Bonus. This bonus payment depends on the growth figure for the year. Currently, the norm payment is 2 months if the economy grows by 5%. There will be no GDP bonus if the economy grows by 2% or less, but a maximum of 4 months will be given out if the economy grows by 8% or more. In between, the bonus varies linearly with GDP growth. 

70.           We will put a major part of this salary increase into the GDP Bonus, to make a larger proportion of the annual salary package dependent on growth of the economy. Ultimately, every senior civil servant and appointment holder plays a role in ensuring that Singapore continues to thrive and prosper.  We will increase the bonus to a norm payment of 3 months if the economy grows by 5%. The minimum payment will remain at zero if the economy grows by 2% or less. The maximum will be increased to 8 months if the economy grows by 10% or more.  

71.           Third, in line with our philosophy of paying for performance, we will increase the Performance Bonus by 2 months for officers at this level, to a norm of 7 months.  

72.           With the above revisions, close to half (47%) of the annual package of MR4 grades and above will be variable compared to about one-third (34%) today.  20% of their salaries will be predicated on the GDP bonus. Another quarter of their salary is performance dependent. The Prime Minister decides on the level of performance bonus each minister receives.

73.           The President, Prime Minister, Judiciary and Statutory Appointment Holders currently receive a fixed Service Bonus of 5 months instead of Performance bonus. The Service Bonus will be increased to 7 months which is in line with the 2 month increase in Performance Bonus quantum that those in grades MR4 and above could qualify for. About 20% of their salaries will be predicated on the GDP bonus.

74.           All the salary revisions are non-pensionable.  There will be no increase in pension cost.  

75.           The new salary levels will bring the rankings of MR4 and above salaries amongst all income earners to a level comparable to their rankings in 2000.

76.           The Prime Minister’s salary currently ranks 164 among income earners. After the revision, the Prime Minister’s salary, at $3.1m will rank 102^nd among the private sector earners. In 2000, the PM’s salary ranked 63^rd.  The MR4 salary currently ranks 769th among income earners. The revised MR4 package will rank 438^th compared with 367^th in 2000.

Adjustments for SR9

77.           We have to make sure that salaries at the SR9 benchmark stay competitive to retain our top officers. For Administrative Officers who are bonded, their bonds will be ending when they are in their late 20s and early 30s.  This is a critical juncture in their careers, when they will ponder alternative career options. These officers are most mobile and likely to be drawn to all the attractions of the private sector, in particular the banking industry. 

78.           At the Superscale entry grade, or SR9 grade, our salaries are close to the benchmark level.  But we should be mindful that the benchmark measures salaries received in 2005, almost two years ago.  The market for talented young professionals is very competitive and we expect that market salaries have risen further in 2006 and 2007.  As the SR9 salary is currently near its benchmark we will not be making any adjustment to the monthly salaries at this grade or in the grades below.  But we will make a performance-based payment of 0.5 to 0.75 month.  This is in line with other civil servants whose schemes are at or close to their benchmarks.

79.            This payment, together with the higher GDP bonus paid out this year, will raise annual SR9 salaries by 3%, from $ $372,000 to $384,000. About 36% of the revised salary package will be variable depending on how well the economy and the individual perform. 

80.           The salaries for grades between SR9 and Staff Grade I will be adjusted by between 3% at SR9 and 33% at MR4.

81.           We will watch private sector salaries at the SR9 benchmark carefully. Should we see the market moving, we will move promptly to make a further adjustment, later this year if necessary. 

[I will now ask for  the tables on the Civil Service revisions and on the 2000, 2006 and revised 2007 salaries for PM, Minister (MR4), and SR9, including ranking info to be circulated.]

Adjustments for MP Allowance

82.           We will also adjust the allowance for Members of Parliament. The MP Allowance is pegged to the Administrative Service SR9 grade. MPs currently receive a monthly allowance, as well as the Non-Pensionable Annual Allowance or the 13^th month pay, as it is commonly known, and the Annual Variable Component which is paid in July and December each year. 

83.           In 1995, the annual package for MPs was $100,500, or 56% of the SR9 annual package.  Over the years, the SR9 annual package has risen with a large proportion of the increase paid as annual components – the GDP Bonus and performance bonus.  As MPs do not receive these components, their annual package has decreased as a proportion of the SR9 annual package.  The current MP annual allowance is now 47% of the SR9 annual package.

84.           We will bring the MPs’ allowance back to 56% of the SR9 annual salaries. The monthly MP allowance will be raised from the current $11,900 to $13,200.  The GDP Bonus will also be extended to MPs, so as to link their annual package to the state of the economy.  MPs will receive 1 month of GDP bonus if GDP grows at 5%, and up to 2 months of GDP bonus if the GDP growth reaches or exceeds 8% GDP. But if GDP growth is 2% or less, there will be no GDP bonus paid. The combined changes will bring the 2007 MP package back to 56% of the SR9 package, similar to the 1995 levels. We will make corresponding adjustments to the allowances for Non-constituency MPs and Nominated MPs.

85.           We will also increase the allowances for an MP to engage a Legislative Assistant from $1,000 to $1,300 and for a Secretarial Assistant from $350 to $500.

Costing

86.           All the adjustments will take effect from 1 April 07. The total salary revisions for the Civil Service will increase the Government’s wage bill by about $214 million or 4.7 %   The wage bill for political appointment holders will increase by $10.5 million (or 23%) to $56 million.

Ex-Gratia payment

87.           The pay revisions outlined above are to ensure that we continue to have a good public service for the future.  We should, however, not forget those who have laboured hard to lay the strong foundation for us.  One group comprises the former office holders and MPs who were elected between 1959 and 1980 and retired before Dec 1992 and are now drawing a pension. They were among the first generation of leaders who toiled during the early years of independent Singapore and did not have a chance to enjoy the fruits of their labour. Another group is the civil service pensioners who worked with the Government during the turbulent times of the 1950s and 1960s and who retired before Jan 1982. These pensioners served at a time where civil service pay was lagging well behind the private sector. Some did not enjoy the benefits of employers’ CPF contribution while others did not have their wage increase consolidated into their pensionable salaries. We would like to acknowledge these early pioneers and their dedicated service, even as the civil service adjusts its pay level for the current batch of officers.

88.           In 1996 and 2000, we made ex-gratia payments to these two groups as a tangible recognition of their contributions during the early years of nation building. This year, we will make another gesture in the form of an ex-gratia payment of the same quantum to these two groups. The payment is estimated to cost $2 mil for 43 retired MPs and office holders. About 2400 civil service pensioners are expected to receive the payment, costing $7.6 mil.

Conclusion

89.           Mr Speaker Sir, three weeks ago I met Dr Henri Ghesquire. He  had worked in the International Monetary Fund for over 27 years  advising and observing many countries. He served in Singapore in 2004 and 2005 as Director of the IMF-Singapore Regional Training Institute. In his recent book “Singapore’s Success – Engineering Economic Growth”, Dr Ghesquire analysed Singapore’s rapid development. In the concluding chapter, he wrote and I quote “Singapore succeeded because its leadership was assiduous, highly intelligent in a practical way, determined to achieve shared prosperity, and committed to act with integrity.  Leading with vision and fortitude is possible.  Its benefits can be invaluable.  This is Singapore’s ultimate lesson." [5]

90.           Sir, we know financial rewards cannot and should not be the main motivation of those in the Public Service. There are many intrinsic rewards that come from working in the public sector. However, that does not mean that we do not need to pay them market-competitive salaries.  We don’t want pay to be the reason for people to join us. But we also don’t want pay to be the reason for them not to join us, or to leave after joining us.

91.           Few countries have implemented our philosophy and practice of benchmarking and paying public officers salaries that are pegged to the market, but this system has worked for us.  Competitive wages have helped us bring in and retain able men and women in government and in the Public Service in Singa­pore. This policy has served us well.  We must maintain this competitive advantage – a clean, effective and efficient Public Service. We need a team of good people to develop the vision, ideas and plans, as well as to see through the execution.

92.           In the end, what is our objective? To have a public service that works, that works for the people of Singapore. This way, we will be better placed to realise our vision and dreams for Singapore.

end

Annexes