Daily Lessons from Life 04 January 2012 - PM, ministers face pay cut of 36%-37%

"PM, ministers face pay cut of 36%-37% - CNA 04 January 2012

SINGAPORE: The committee reviewing Singapore ministers' salary has recommended cuts of up to 53 per cent -- the biggest reductions since salaries of office holders were pegged to private-sector pay in 1994.

This was disclosed on Wednesday by Ministerial Salary Review Committee chairman Gerard Ee at a news conference.

The eight-member committee was appointed by Prime Minister Lee Hsien Loong after the General Election last May.

The committee said the new pay formula is "more transparent and Singapore-centric". Describing the pay reductions as "severe" and "substantial", the committee said it was fully aware of the impact the cuts will have on the government's ability to attract talents.

But ultimately, the committee believes the recommended salary is a "reasonable" figure. The committee said it was guided by three principles.

Mr Ee said: "While it is a severe cut, (the pay) should be able to attract, not all, but some of the talents to come forward, but preserving the message that you're coming forward to serve in a political capacity and there are some sacrifices to be made."

"There is a significant cut and you've seen from the last general election, we could hardly get anyone from the private sector," he said. "So it's going to be a challenge and the emphasis is now going to be how strong is your calling to want to come and serve the nation."

CEO of Venture Corporation Wong Ngit Liong agrees. "This will be the real test that leaders stepping forward will be those that are keen in making great contribution to society and to Singapore at large."

The committee met 10 times over seven months, poring through hundreds of recommendations, including those made by past office holders, opposition MPs, academics and the man in the street.

The proposed pay formula takes into account a wider pool of top earners. It is based on the median salary of the top 1,000 earners, who are Singapore citizens, with a 40 per cent discount. The discount is to reflect the ethos of political service.

The committee said that with the discount, the pay is actually closer to the top 1,400th earner.

Currently, ministerial pay is calculated based on the median salary of the top 48 earners of only six professions, with a one-third discount.

The committee also recommended that pensions be scrapped. "We have decided to remove pensions altogether," Mr Ee said. "Political appointment holders appointed on or after 21 May 2011 should not receive any pension. That's our recommendation."

"Those appointed before 21 May 2011 should have their pensions frozen, no more accrual of pensions, so if you continue working, there is no more entitlement to it," added Mr Ee.

"What is really important here is whatever pension that has already been accrued, where previously once you reach 55 you are entitled to receive your pension, we say 'no'. It should only be paid when they step down or retire.

"So, you can continue working and the fact that you reach 55 doesn't mean you are going to touch your pension, you are not going to touch it until you step down."

The committee also recommended the GDP Bonus be replaced with a National Bonus that takes into account the socio-economic progress of Singaporeans.

That includes the real median income growth rate, the real income growth rate of the bottom 20th percentile and the unemployment rate of Singapore citizens as well as the real GDP growth rate.

Ministerial Salary Review Committee member Stephen Lee said: "It is quite logical to say that the minister's bonus can go up if Singaporeans, especially the medium and lower 20th percent, are also doing better."

So if the new formula is applied, the prime minister's pay will be revised to S$2.2 million from S$3.07 million a year -- a 36 per cent pay cut.

Ministers' annual pay will be reduced by 37 per cent to S$1.1 million, while a junior minister's annual salary could start at S$935,000.

The president's pay will be cut by 51 per cent to S$1.54 million.

The Speaker of Parliament will get the deepest cut of 53 per cent to S$550,000 a year.

With the new pay structure, the proposed variable component made up of bonuses and the Annual Variable Component (AVC) is capped at 13.5 months, down from the maximum of 23.5 months of variable pay a minister can earn presently.

Currently, ministers can earn an AVC of up to 1.5 months, a performance bonus of up to 14 months and a GDP Bonus of up to eight months.

Under the revised framework, the AVC will range from zero to 1.5 months, a performance bonus of up to six months and a National Bonus of up to six months.

However, there is no change to the current scheme of benefits. All political office holders receive S$70 a month -- credited into their Medisave account, capped at 17 months or S$1,190 per year -- to buy Medisave-approved medical insurance; outpatient subsidies of $350 a year; and a maximum subsidy of S$70 per year for dental care.

There is no hospitalisation benefit, no housing perks and no tax exemptions.

Despite the significant cuts, the committee stopped short of saying that ministers have been overpaid.

"The past is the past; we made no reference to it, we just look at what we thought moving forward should be the case," Mr Ee said.

One of the toughest challenges, the committee admitted, was to agree on the right benchmark.

"You are quite right in worrying whether we'll be able to find enough people or not, so this is about the limit that we think we can go to and if we go way below that, I think Singapore will head for a disastrous time in trying to get talents," Mr Ee said.

The new ministerial salaries will be backdated to 21 May last year when the new government took office.

In a letter to the committee, Prime Minister Lee said the government intends to adopt the recommendations.

The 47-page report will be put in a White Paper and motion-tabled in Parliament for Members of Parliament (MPs) to debate the issue on January 16.

The report can be downloaded from www.reviewcommittee2011.sg"

1st of all congratulation to the Ministerial Salary Review Committee for issuing the report just before 31 December 2011. It is long time coming.

Lessons for me are:

1. when you say Pay is the incentive to serve Singapore, it will be the case. If not, it will NOT.

2. it is obvious that the OLD pay structure was greatly FLAWED! Performance Bonus of up to 14 months! What is the JUSTIFICATION? Who are auditing these payments? How are these performance bonuses being determined and paid out? What about the pension scheme? Is it true that the incumbent who is entitled to it gets the pension as well as the current working salary? If so, this is so so wrong!! No?

3. when we talk about PAY, we MUST talk about: Fixed and Variable. If there is NO FIXED pay cut, there is NO CUT of PAY! Period!! Variable bonuses fluctuate. That is why it is called: variable bonuses. We MUST be very clear about this and NOT make the mistake of speaking about pay as if they are the same!!

Based on the previous batch of PAP candidates in the last GE, it is clear that it CANNOT attract talents from the private sectors except those from the GLC and NTUC-linked entities. Are they NOT paid enough because they are USED to being paid HIGH? Maybe the 'high pay to get "clean" talents' since 1994 had bred such expectation? BUT then what about Mr Chen of WP who were paid handsomely in private practice. Why DID he forfeit the HIGH PAY to become a WP MP? He with degrees from Harvard, Oxford and Standford!

Let the debates begin ... It is a start though I like to see Transparent Key Performance Indicators (KPIs) or Key Result Areas (KRAs) for each Ministry, minus the sensitive ones like Ministry of Defence and maybe Home Affairs.