25 May 2011

Reviewing Ministerial Remuneration

On 21 May 2011, Prime Minister Lee Hsien Loong announced the setting up of a committee to review the salaries of cabinet ministers, other political appointment holders and members of parliament.

He said that while the country would always need committed and capable ministers, politics was not a job or a career promotion.  It was a calling to serve the larger good of Singapore.  As such, their salaries must reflect the values and ethos of public service.

Only earlier this month just days before General Election 2011, then-Senior Minister Goh Chok Tong said that the majority of the population were not concerned about the high ministerial salaries; by and large, the people understood.  Prime Minister Lee said that they were necessary for an honest and sound system which would enable Singapore to have the best team in the public sector.  It had delivered a Government which had served Singapore competently and well.

On 7 May 2011, the ruling People's Action Party secured the lowest share of the valid vote in a general election since Singapore's independence.

History of ministerial remuneration
In October 1994, a White Paper on Competitive Salaries for Competent and Honest Government was endorsed by Parliament.

The salary of an entry level cabinet minister, or Staff Grade 1 (MR4), was benchmarked at two-thirds the average principal income of the top four earners in six professions: banking, accountancy, engineering, law, managing local manufacturing companies and managing multinational corporations.  The one-third discount was meant to be a "visible demonstration of the sacrifice" entailed in becoming a cabinet minister.

The salary of a cabinet minister holding a higher appointment was set by using a predetermined ratio to the MR4 benchmark.

In 2000, the MR4 benchmark was changed to two-thirds of the median income of the top eight earners in six professions, from two-thirds of the average income of the top four earners previously.  Also, only 50 per cent of the stock options awarded would be taken into account in calculating the benchmark.

When Parliament debated the matter of ministerial remuneration at some length in April 2007, the ruling People's Action Party's members of parliament robustly defended the MR4 benchmark.  It may be instructive to revisit the debate [9 April], [10 April] and [11 April].

Why is there a need now to review how much cabinet ministers should be paid?

The results
The formula produced at least two anomalous results.

Firstly, Singapore's cabinet ministers, even entry-level ministers, earn several times as much as any of the heads of government of any of the OECD countries.

Secondly, Singapore's cabinet ministers, even entry-level ministers, earn $2 million to $3 million or more a year.  The median income of residents from full-time employment in June 2010 was $2,710 per month.

Such remuneration was paid from public funds, and determined by the cabinet ministers themselves.

Benchmarking against the best
The MR4 benchmark uses the median income of the top eight earners in six professions every year.  It is unlikely that any individual will consistently rank among the top eight earners in his profession every year.  The company that any specific individual works in may underperform in any one year, or the individual himself may underperform.  Yet the MR4 benchmark assumes that the cabinet ministers will always rank among the highest earners year after year.

A fifth of the cabinet ministers’ annual salaries depend on a GDP bonus of between zero months, if the economy grows by 2 per cent or less, and eight months, if it expands by 10 per cent or more.  (This statement by Minister in charge of the Civil Service Teo Chee Hean in 2007 is not clear.  Since the GDP bonus is variable, will the GDP bonus account for one-fifth of the ministers' salaries when the GDP bonus is zero or eight months?)

The performance of the Singapore economy is the result of many factors and the contributions of many people, not just the contributions of the cabinet ministers and other political appointment holders.

Survival of the organisation
An incumbent cabinet minister loses his job if he underperforms, he loses his parliamary seat or his party loses a general election or a vote of no confidence in parliament.  A person in the private sector loses his job if he underperforms or his organisation does not survive.

The concept of pension hardly exists in the private sector.

A cabinet minister or other political appointment holder is entitled to receive his pension upon reaching the age of 55 years.  Moreover, he is entitled to receive his pension in addition to his regular remuneration if he is still holding the political appointment.  Finally, he may exercise his option to receive a commuted pension gratuity instead of his pension.

The MR4 benchmark does not take into account the entitlement of a cabinet minister or other political appointment holder to receive his pension.

Member of parliament allowance
It seems that a cabinet minister or other political appointment holder also receives the member of parliament allowance.

The party whip, leader of the house and deputy leader of the house enjoy allowances for the additional duties they undertake in addition to being members of parliament.

Other allowance
It is not clear what other allowance, if any, a cabinet minster or other political appointment holder receives.

Cabinet ministers, other political appointment holders and other members of parliament in some countries are entitled to receive certain allowances and/or subsidies such as in relation to maintaining a second home.  However, their situation is different inasmuch as the constituencies which they represent may be located far away from the capital city where the parliament is located.

Civil service
The parliamentary debates in 2007 and 2011 on ministerial salary revisions started with, and was focused on justifying, the revisions of civil servants' salaries.

There is no reason for ministerial salaries to be linked to the salaries of senior civil servants, or vice versa.

The review of the remuneration of cabinet ministers and other political appointment holders appears to serve little or no purpose.

The question facing Prime Minister Lee is a political one.  What remuneration is acceptable to the public?  What remuneration is not too great a sacrifice for public office, now and in the future?

Despite what the prime ministers, other holders of political appointments and other People's Action Party members of parliament have said in support of ministerial salaries since 1994, it is difficult to justify ministerial salaries that are several multiples of the salaries of heads of government elsewhere, and they probably know that.

The use of any other criteria or benchmark is so subjective as to make it politically charged and almost indefensible.

One possible outcome of the review is that the committee will recommend a level of ministerial remuneration that is lower than current levels but higher than what other heads of government receive and higher than what is politically acceptable, but Prime Minister Lee will end up sensibly choosing a level that is politically acceptable.

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