Tuesday, April 03, 2007
Is Ministers' Pay Hike Reasonable? -- Benchmarking Ministers' Pay
Is Ministers' Pay Hike Reasonable? -- Benchmarking Ministers' Pay
(You could sign the online petition against Ministers' Pay hike here)
So the spin is out in full force, trying to justify the impending ministers' pay hike. Expectedly, the civil servants' pay is being used as a collateral in PAP's argument for its ministers' pay hike.
There are a lot of emotional out burst from the middle class that protested against such obscene amount of “suggested” pay hike. The more likely result would be that PAP will just say that they are not going to implement a “full pay hike according to the benchmark” that they have set for themselves, but maybe half or even less of it. Even so, we must first examine whether pay hike is justifiable. If we want to do so, we must examine carefully the logic of the benchmark that they set.
As we know, in the private sector, remunerations are determined by performance and it is never about “how much a person could earn” from other companies. i.e. It is never about “opportunity cost” of individuals' value but rather, the value or performance the individuals could contribute to the company.
Thus, the benchmark that PAP government has set for themselves have laid on the wrong fundamental premise. If they want to be like the private sector, then they should benchmark their salary according to the private sector's standard of benchmarking and not the amount of the money that they are giving.
For the record, ministers are entitled to pensions after they have served 8 years and above 55 years old. In fact, according to PM Lee in one of the parliamentary sitting, there are ministers who are drawing a pension as well as a salary at the same time. Do we have any private companies here in Singapore that give pension as well as salary at the same time to their employees?
PAP has argued that they need to “attract talents” thus need to benchmark their ministers' pay to private sectors. This logic is flawed for the following reasons:
1)When a private firm employed their talents, they have set it clear the remuneration packages. But PAP Ministers were elected without telling voters how much they will cost taxpayers! No private firm will allow their CEOs to raise their remuneration package AFTER they are employed! They can't just say, hey, the other firm is offering their CEO XXX amount of salary, you should do the same. PAP should tell voters how much their ministers will cost voters during elections so that the voters will decide whether to “employ” them by voting them in.
2)Private firms benchmark their leaders according to their performances, so PAP government should do likewise.
3)By benchmarking ministers' pay according to the top earners, then it would mean that as long as PAP government could make sure the top income earners could get more each year, their own ministers' pay will increase accordingly. This is illogical as the government should take care of the interests and welfare of MOST Singaporeans and the ministers' should be benchmarked according to the interests of the majority of Singaporeans instead of the few top income earners.
4)We will end up with a situation that when income disparity widen, ministers' pay will continue to rise even though the average workers' income is stagnant or worse, regress over time. This is totally absurd and unacceptable.
5)Great politicians are recognised and respected for their visions, leadership and sacrifices to the common good, definitely not for hefty million dollar pay. No matter how small our nation is, if we could not cultivate such public spirit of serving, I do not think our Nation will last very long in time to come.
6)PAP government always wanted to claim that they are “First World Government”, it should only be logical for them to benchmark their ministers' pay to “First World Governments” around the world. Many people have shown that other ministers around the world do not need the kind of million dollar annual salary of our government to run a country with more people and higher GDP. Some have even achieved first in economic efficiency as well as competitiveness. It would simply mean that the “productivity” of our ministers will definitely lose out to these truly “First World Governments”! PAP government has always complained about “high wage cost” of workers and that wage increase should not be more than productivity growth. Why isn't ministers' pay benchmarked against GDP growth instead? Or overall productivity growth of the nation? Double standards?
7)The list of top income earners will change from time to time. It means that those in private sectors may face risk of pay cut or will earn less in the year. But the irony is that the ministers' pay will not go downwards together with the individuals who are listed as top income earners in any one year. They will always compare to those earning more, not lesser! This is inherently counter intuitive. Which jobs in the world will guarantee you that you will always be the top income earners in your country?
So, the next question is, how should the ministers' pay benchmarked? What is a reasonable benchmark in view of the job nature of the ministers?
In order to answer this question, we should first determine what is the primary role of the government? It is to take care of the interests and welfare of the citizens. Thus, in my view, ministers' pay should be pecked closely to indicators of the majority of citizens, instead of the privileged few.
From the statistical point of view, the median income should be the indicator that represents the income that most workers earn. Instead of using the mean or the higher percentile of income earners as an indicator for benchmarking, the median income should be used instead. (The Gini coefficient which means income distribution/income gap is based on the difference between median and mean income. If the Mean (average) income is very much greater than the Median income (income at the 50th percentile), it means that the income gap has worsen.)
The aim of the state is also to ensure that the economy could produce enough jobs for citizens. The most undesirable situation would be citizens being trapped in prolonged structural unemployment. Thus I think it is only logical to include the rate of structural unemployment into the calculation of ministers' pay.
Of course, the last criteria should be ministers' pay rise should not be above Total Factors Productivity (TFP) growth rate. This will only be consistent to the treatment to normal workers on the ground.
My suggestion here of benchmarking of ministers to “performance” may not be exhaustive in nature but the fundamental idea is that we should benchmark their salaries to their performance as leaders of the country instead of what other people are getting in private sectors.
Goh Meng Seng