On the Ministerial Salary Review

The recent ministerial salary review has sparked substantial discussion on the principles upon which political leaders should be remunerated as well as how this remuneration should be quantified. The Terms of Reference (TOR) of the committee appointed by the Government to perform this review stated that they were to (i) "take into account salaries of comparable jobs in the private sector and also other reference points such as the general wage levels in Singapore", as well as (ii) to recommend Ministerial salaries at "a significant discount to comparable private sector salaries to signify the value and ethos of political service".

It can be said that the committee did well within the ambit of their TOR. They proposed technical improvements such as reducing the volatility of the benchmark by basing it on a larger pool of top earners in the private sector and a slightly better metric for national progress which does not rely entirely on Gross Domestic Product (GDP), itself discredited as a measure of the size of a modern economy. Their report is available here. However, it is clear that their proposals were not well received by all. Many recent commentaries on the subject opine that the proposed ministerial salaries are still too high, and also that the TOR of the committee were too limiting and essentially presupposed a salary structure.

The intent of this article is to summarize the various positions taken on the ministerial salary review. I will compare the proposals of the government appointed committee (henceforth, GAC) with those in the November 2011 report by the Singapore Democratic Party (SDP) and the positions taken by the National Solidarity Party (NSP), those of the Reform Party (RP), those of the Workers' Party (WP) as well as those of others.

A Comparison of Proposals

I begin by comparing the guiding principles behind the two reports proposing systems for ministerial remuneration. These are presented below and they could not be any more different.

Guiding Principles
GAC	SDP
Take reference from comparable jobs in private sectors and other reference points. Recommended wage levels should be at a significant discount to comparable private sector salaries to "signify the value and ethos of political service".	"Place greater emphasis on public service." Propose a system that promotes transparency and accountability.

It is apparent that the TOR of the GAC greatly restricts the kind of solution that the GAC can present. At first glance, one might assume (correctly) that the resulting report would recommend a refinement of the current system and a tweaking of the parameters therein to incorporate the "significant discount" stipulated in the TOR. It turns out that this happens to be the case.

The SDP report, in contrast, begins by surveying practice in selected countries (with healthy Corruption Perception Indices) and distilling the principles underlying those remuneration systems. This methodology, essentially presupposes that ministerial salaries will not be pegged to those leading earners in the corporate world, but rather to either general wage levels or to salaries in the civil service. The recommendations of the report reflect this, adopting the former peg. In addition, the SDP report sets out to propose a system that promotes transparency and accountability, which is an institutional objective. The GAC report, however, does not include such an objective in its TOR and, as such, does not report on this matter.

The following table summarizes proposals on basic pay made by the GAC, SDP and others.

Proposals on Remuneration
GAC	SDP	NSP, RP, WP, Others
Pay for a entry-level minster (MR4) with good performance pegged to 60% of the median income of the top 1000 in the private sector. Allowances of MPs and salaries of other political appointments as multiples of the MR4 salary level. President's monthly salary will be set to be equal to that of the PM, but no performance bonuses will be given. No pensions.	Allowance of a Member of Parliament (MP) should be pegged to ten times the mean wage of the bottom 20th percentile of the workforce. Salaries of ministers and the president to be pegged to MP allowances.	(NSP) Median wage as a benchmark. (WP) Salaries of ministers should be pegged to MP allowances. MP allowances should be pegged to the salaries of divisional directors in the Civil Service. (RP) Small fixed component with larger variable component linked to a broader set of KPIs. (RP, WP) Introduce deferred components to address the time lag in impact of policies.
MP: $192,500 Minister of State: $770,000 Senior Minister of State: $935,000 Minster (MR4): $1,100,000 Minster (MR4): $1,100,000 Minster (MR3): $1,320,000 Minster (MR2): $1,540,000 Minster (MR1): $1,760,000 DPM: $1,870,000 PM: $2,200,000 President: $1,540,000	MP: $168,000 Cabinet Minster: $504,000 PM: $672,000 President: $756,000 (It is clear that these numbers are intended to be indicative, so the same resolution as in the GAC's report is not necessary.)	(Former NMP Siew Kum Hong) The salary should be enough for ministers to maintain a reasonable lifestyle. i.e.: "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 will be politically defensible and allow the minister to do his/her job without undue financial distractions.

There isn't much to say about the proposals by the GAC. As previously mentioned, the report proposes some technical improvements but does not deviate much from the pre-existing system. The underlying assumption that ministers sacrifice high corporate salaries (in the non-government-linked private sector) requires proof in the form of leaders from private sector taking pay cuts to serve as ministers. Only given such proof would the opportunity cost argument, underlying the system proposed, be acceptable. While the absence of such proof does not demolish the argument, it significantly weakens it.

The SDP report, having surveyed international practice, highlights that ministerial salaries are typically not pegged to those of the highest wage earners, but rather median incomes of citizens or to those of certain ranks in the civil service. It proposes pegging MP allowances to the mean wage of the lowest 20% of earners in the workforce and pegging ministerial salaries to MP allowances to link living standards of ministers with those of their constituents.

While I feel that this is a reasonable proposal, it is, like that of the GAC, entirely arbitrary. In this respect, a proposal by former NMP Siew Kum Hong strikes me as a more realistic method for arriving at numbers. He sketches how to ensure that a minister's salary should support a certain standard of living (as a function of his/her rank), which amounts to a system which will be simultaneously politically defensible and allow the minister to do his/her job without undue financial distractions. It also links the living standards of ministers to the prevailing cost of living.

Moving on, the following table summarizes proposals on performance bonuses made by the GAC, SDP and others.

Proposals on Performance Bonuses
GAC	SDP	NSP, RP, WP, Others
Annual Variable Component: up to 1.5 months Performance Bonus: up to 6 months (good performers typically get 3 months) National Bonus: up to 6 months	Discontinue variable bonuses.	(NSP) Include a variable component tied to national vote share, vote share being a "composite KPI, encompassing all issues that Singaporeans care about" (RP) Small fixed component with larger variable component linked to a broader set of KPIs. (RP, WP) Introduce deferred components to address the time lag in impact of policies.

The National Bonus Matrix (below) gives the payout levels for the National Bonus proposed by the GAC. The 100% level for each component corresponds to a payout of 0.75 months for a maximum total National Bonus payout of 6 months. Notably, it has been argued that the bonus targets are too easy to meet.

The SDP report recommends no performance bonuses as ministerial pay is remuneration for "public administration performance rather than private sector achievement". This argument is somewhat unconvincing. On the other hand, it might be argued that a well selected peg to incomes incorporates bonuses in the salary as income growth increases pay for ministers. (Furthermore, income growth is strongly positively related to growth and the standard of living.) I am under the impression that they have, in fact, made this alternate argument after the GAC published its report. However, I can't find a statement to that effect on the SDP website.

I feel that some element of pay for performance should be present. However, it should not be along the lines of the National Bonus which I feel is, to put it frankly, wimpy and uninspiring. Is an unemployment rate of less than 3.5% truly a stretch goal? A broad-based National Bonus would incorporate the diverse interests of the various groups of Singaporeans. One might develop such a bonus scheme though doing a massive survey of Singaporeans and distilling all that is important. Such a bonus scheme would be very broad based and robust to gaming, leading to office holders giving up gaming the system in favour of pursuing truly inclusive growth. Such a scheme would not deter public spirited individuals from stepping forward, but it might cause apprehension in those who are more concerned about easy money.

Furthermore, I believe that individual performance bonuses should be split into a discretionary component (decided by the PM) and a well defined KPI-based component. To properly measure relevant performance, the KPIs should be individualized based on the mission of each minister's ministry. Such KPIs might be easy for ministries like Transport to develop, but good KPIs are not so easy to develop for those such as Education. This is a challenge that I cannot shy away from. Furthermore, noting the (possibly long) time lags associated with the introduction of a policy and its impact, deferred payouts are not unreasonable and should be considered.

Finally, I come to the institutional proposals that have been made. Notably, the GAC makes none since their TOR makes no mention of institutions.

Institutional Proposals
GAC	SDP	NSP, RP, WP, Others
	Establish independent salary commission. Ministers to make public, through the commission, their commercial interests, shareholdings, directorships and other financial interests.	(NSP) Ministers to make public, through the commission, their commercial interests, shareholdings, directorships and other financial interests.

A major thrust of the SDP report are recommendations to the build government institutions that are robust to misbehavior. Aside from the recommendation to set up an independent salary commission, the SDP report also recommends that the Corrupt Practices Investigation Board (CPIB) be moved out of the Prime Minister's Office and be made directly answerable to Parliament. I agree with these proposals. Strong institutions provide an important layer of defence against a misbehavior and are important to have for a well-functioning government.

Other Comments

While income from directorships are included in the tax returns used to estimate the incomes of top earners in the private sector, directorships for ministers would provide additional income over their salaries. This provides an easy means to circumvent the pay cut. In fact, additional board appointments in Statutory Boards and Government-Linked Companies might be easily used to increase effective incomes. This is clearly open to abuse. I would regard service by ministers on the boards of Statutory Boards and Government-Linked Companies to be an important part of government. As such, no additional remuneration should be given to ministers for their service on such boards. In addition, to avoid conflicts of interest and unseemly chasing of private sector board positions, ministers should not be allowed to take up board appointments in private sector companies.

In addition, democratic values might also be a factor in remuneration. A "re-election top-up" for ministers who held ministerial positions in the last term could be a component of remuneration that reflects whether the electorate want a minister to continue as a minister. (This would be equivalent to a "freshman discount".) The NSP has made a similar proposal, noting that vote share was, in effect, a composite KPI. In contrast to them, I think it should be an element of basic pay.

Conclusion

This has been a somewhat long article (for a blog), and I thank the reader for joining me up to this point. I have summarized notable proposals for the review of salaries and presented our own perspectives. I hope that this has been interesting and/or useful.

In closing, I would like to quote a paragraph from the citation for the Man of the Year award by The Guardian (Nigeria). I think this is fitting as it would be ideal for our national leaders to be men and women who are, to put things in local public-service lingo, of "Man of the Year calibre"; men and women who leave lasting positive legacies of thought and action; men and women who are, simply, great:

Greatness is an attribute much in retreat in our society these days. But it is the quality that is imperative for a nation, for a people to make progress. Greatness is the depth of character that is unswayed by material attraction and superficial rewards, especially of the sort that is flaunted by persons of lesser pedigree, and craved by many, including sundry jobbers and petty crooks. Greatness is the strength to say no when everything and everyone else seems swept away by a certain madness that benumbs the senses. Greatness is the ability to look past the present and see beyond the future. It is the courage to envision a better society, to insist on what is right, on what is proper to realize that better society.