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how well their operational objectives are being achieved and with what degree of cost effectiveness. The Efficiency Unit (1995: 43) stipulates two main categories of performance measures, namely,

Quality measures, used to monitor effectiveness—such as service trends and success rates to cover more strategic concerns, and response times and customer satisfaction levels to cover frontline service to the public.

Quantity measures, used to monitor efficiency—such as workload, costs, and productivity primarily of interest to managers responsible for service delivery, and indicating overall performance, which is of interest to the community.

The performance information has to be provided in the Controlling Officer’s Reports (CORs). These are reports prepared by heads of departments in their capacity as “controlling officer” of their budget allocation, to accompany their departmental expenditure estimates submitted to the Finance Committee of the Legislative Council (Legco) for scrutiny each year. Ideally, both legislators and the public should be concerned not just about the amount of resources (inputs) used by departments in program delivery, but also the outputs and outcomes actually achieved with these resources. To do so will be in line with the new “budgeting for results” orientation of budget reform.

In social services, following a comprehensive review of the social welfare subvention system by overseas consultants in the mid-1990s, a new Service Performance Monitoring System was set up to bring about more efficient “customer-focused, accountable and output-driven welfare services” (cited in Wong, 2007: 442). Two principal instruments have been used to enforce the new performance assessment strategy, namely, the Funding and Service Agreements (FSAs) drawn up between the Social Welfare Department and the subvented non-governmental organizations, and a generic set of Service Quality Standards (SQSs). In total there are 16 SQSs, grouped under four main areas—provision of information; service management; service to users; and respect for service users’ rights.

15.3.2 Adoption of Performance Pledges

The adoption of “performance pledges” in all government departments (later extended to other public sector agencies and public corporations) in 1992 was perhaps the most visible, and arguably impressive, part of public sector reform as far as the ordinary people were concerned. However, from the outset, the Hong Kong government had refrained from any talk of empowering citizens through the performance pledges initiative (Hayllar, 1995). When he introduced the “performance pledge” concept in 1992, modeled on the British citizen’s charter, the last British governor, Chris Patten, made clear a consumerist orientation:

An increasingly prosperous and sophisticated community quite rightly demands greater openness and accountability from the public sector which it pays for – and an official attitude of mind which regards the public as clients not supplicants. (Patten, 1992: para. 89, original emphasis)

He saw the need for a new “culture of service” that went beyond the provision of the bare minimum, and a culture that recognized the public as the paying customer. Performance pledges in practice, however, had mainly served to strengthen managerial autonomy, helping to re-empower

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(and re-legitimate) public bureaucratic managers (Cheung, 1996a), and to de-politicize public services through a new logic that played up citizens as service consumers rather than political voters (Cheung, 1996b).

After the change of sovereignty in 1997, greater emphasis has been placed on managing for results and managing by results within a Target-based Management Process (Tung, 1997). In this process, all government departments directly serving the public have to produce performance pledges, to inform their customers what services are available, the standards set, and how these standards are monitored. The aim is to ensure that the government provides the best possible services to the public. More specific objectives are:

Better manage relationships with customers

Impart a customer focus on staff

Act as a management tool in daily operations

Provide performance standards for staff

Provide a mechanism for reporting performance to customers and the community at large (Efficiency Unit, 1998)

In addition to publishing performance pledges, departments with a significant public interface are also encouraged and assisted by the Efficiency Unit to set up “user committees” and “customer liaison groups,” thus involving representatives of the public in the monitoring of performance and performance standards. A survey conducted by the Efficiency Unit of the public’s and departments’ reaction to the use of performance pledges in 1998—5 years after the launch of the pledges program—found that both the public as customers and service departments are generally satisfied with the use of performance pledges, at 84% and 87% rating, respectively (Efficiency Unit, 1998).

15.3.3 Linking Budget to Performance

Prior to the introduction of medium-term policy planning in the late 1970s, policy and spending decisions were dominated by the Central Budget Agency (CBA), namely, the Finance Branch of the Government Secretariat. According to Rabushka (1976: 136), the politics of budgeting at that time were played out through:

Seeking the approval by Government Secretariat or Executive Council of specific policy plans that favored the department

Screaming “politics”—to impress the government center of the political cost of inaction or insufficient services of the department, e.g., social unrest and instability

Using the authority of technical specialist skills to bluff the Finance Branch on professional items

Establishing credibility and good relations with the Finance Branch

This kind of bureaucratic negotiation was conducive to persistent internal conflicts and rivalries among government departments and agencies. However, by the 1980s, as government accumulated more fiscal surplus and adopted a less rigid “positive non-interventionist” approach toward the role, functions, and scope of activities of government, both the budget requesters and budget controllers had, in practice, learnt to mutually accommodate each other and to stabilize their negotiations within more manageable limits. Incremental budgetary behaviors were, of course, not

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unique to Hong Kong. They characterized most developed budgeting systems (Wildavsky, 1964) before the advent of the current era of budget reforms in favor of “budgeting for results” (Schick, 1990) and one-line budget allocations.

Following the Finance Branch Review of 1993, as part of the Public Sector Reform Program, more powers over resource allocation and control were transferred from the Finance Branch to various policy branches of the Government Secretariat. Since then, policy secretaries, i.e., the ministers, have a say over the relative priorities of different policy programs and executive departments and agencies within their respective portfolios, as reflected in the budget allocations they make to them within the block budget received from the financial secretary. In practice, though, the Finance Branch continues to advise them on the calculation of budget allocations to departments based on the “baseline budgeting” model (Finance Branch, 1995).

After the introduction of “operating expenditure envelopes” (a form of one-line budget) in 2003–2004, in line with the global trend of budget reforms again driven by NPM, the thrust of the budget exercise now lies less in the CBA-department’s/bureau’s negotiations as in the past, but more in the budget “pre-preparation” stage (Schick, 1986), where the fi nancial secretary, with the assistance of the CBA (now the Financial Services and Treasury Bureau—FSTB), determines and allocates to various bureaus a provisional operating expenditure envelope to guide their preparation of the annual estimates. Like NPM-inspired budget reforms elsewhere (Robinson, 2007; Kraan, 2007), the new budget language emphasizes relating resource allocation to performance and policy results. The Controlling Officer’s Report accompanying the annual expenditure estimates is required to specify the department’s program areas, the resources allocated to each program area, performance targets, PIs, and the actual performance in achieving those stated targets.

15.3.4 Relating Rewards to Performance

Hong Kong has adopted a civil service pay system inherited from the British Priestley approach whereby pay levels of civil servants are linked to relevant private sector counterparts through “fair comparison”—using pay level surveys and pay trend surveys, or, in the case of there being no suitable comparables, by way of internal comparison among civil service grades (Cheung, 2005a). Such comparisons can at best guarantee comparable levels of pay for the position, and not pay for performance. There is also the longstanding practice of annual salary progression (through increments) on the basis of length of service rather than strictly defined performance. Such a centralized pay determination system based on external comparisons and internal relativities has deprived civil service managers of an important tool to induce performance on the part of their staff, given that remuneration is determined by a standardized process without regard to actual staff performance. The only tool available to managers is promotion. However, promotion is not the most appropriate reward for satisfactory performance in the present rank (cf. Peter’s Principle). Relying on promotion as the key staff motivator would result in the unnecessary proliferation of higher ranks as a means to improve career prospect.

As the 1999 Civil Service Reform consultation document argued:

The existing system of increments in the civil service pay scale is not closely linked to performance. Under the existing system, the reward for good performance comes through accelerated promotion. But promotion prospects are highly dependent on the individual grade’s or department’s vacancy situation and does not provide a major incentive for all staff. (Civil Service Bureau, 1999a: para. 3.3)

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While linking pay to performance in the civil service has become a growing international trend (OECD, 2005; Fitzpatrick, 2007), there has been strong resistance from both management and frontline civil servants to any attempts to tamper with the existing pay system that is valued for its stability and uniformity. In the aftermath of the 1997–1998 Asian financial crisis, which triggered the most serious economic recession in Hong Kong for decades, large-scale wage cuts and redundancies in the private sector, and outcries for streamlining the civil service pay system as well, the government took advantage of the narrow window of opportunity to float the idea of introducing some form of performance-related pay in the 1999 Civil Service Reform consultation (Civil Service Bureau, 1999a). Not surprisingly, the idea did not go far and was soon withdrawn. As the Civil Service Bureau subsequently admitted on assessing the feedback received during the consultation period,

while there] is general agreement on the principle that there should be correlation between performance and pay; …there is widespread reservation and scepticism on the feasibility and practicability of introducing performance pay in the civil service. Some have pointed out that unlike the private sector where there could be clearly defined performance targets based on business results, there are no easily quantifiable yardsticks by which civil servants’ performance could be assessed, and in the absence of such yardsticks, the authority for determining performance pay might be abused. Some also refer to experiences overseas and note there are few, if any, success stories. The general view is that it is important to establish a fair and equitable performance assessment mechanism before proceeding to introduce performance pay and that this must be handled very carefully. (Civil Service Bureau, 1999b: 7)

Two more toned-down reform initiatives were, however, implemented to help recognize performance to a limited extent within the context of remuneration. One was to tighten the system of granting annual increments along the pay scale. The Civil Service Bureau had instructed all managers to follow more strictly the requirement of the Civil Service Regulations 451 and 452 and be vigilant in their application, such that each incremental jump in salary would only be granted on the basis of a conscious assessment of staff performance (covering conduct, diligence, and efficiency aspects) (Civil Service Bureau, 2000a: 6–7). A civil servant who received a 5th or 6th-level overall rating in the performance appraisal—defined variously in staff appraisal forms as “less than adequate,” “unsatisfactory,” “poor,” and “very poor”—would normally have the increment stopped or deferred until the next incremental date when another review takes place. Those staff receiving “moderate” ratings would be duly cautioned. However, no quota for the granting, stoppage, and deferment of an increment has been set service-wide; hence, the effectiveness of the requirement still depends very much on the supervisors’ mentality and judgment.

The other initiative was a pilot scheme on team-based performance rewards, introduced in the first half of 2001. Departments joined the scheme voluntarily, on agreement of the staff concerned. A team-based reward system was intended to avoid the problem of subjectivity in appraisal and to promote team effort. Staff of selected outstanding teams of the departments on the scheme would receive a reward set at about half the officer’s monthly substantive salary. Participating departments designed their own schemes to suit their management needs, selected the units to participate in the scheme, formulated their own performance targets, and decided on the detailed assessment criteria for bonus allocation subject to meeting some broad parameters (Civil Service Bureau, 2000c: 4). They had to fund the reward scheme using their own departmental budget, e.g., by utilizing

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