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326 Public Administration in Southeast Asia

Hong Kong’s mixed-financed regulatory agencies, such as the HKMA and the SFC, because they employ professionals such as bank supervisors, lawyers, and accountants, who are highly employable in the private sector, rely much more heavily on the discipline of external labor markets to handle agency problems. Bankers and brokers participate in HKMA and SFC rulemaking through various means both formally (e.g., in working groups of industry insiders) and informally. The work of the employees of the two agencies is thus relatively transparent to potential employers once they leave government service. Although data for the HKMA is unavailable (it is “secret”), data for the SFC indicates that turnover there is considerably higher than for the civil service as a whole. It is likely, then, that the external labor market provides incentives for employees of these regulators to work hard, thus reducing agency problems. The same incentives probably also apply to Hong Kong’s state-owned enterprises.

Hong Kong’s mixed or sales-funded hybrid organizations, such as the HA and the Tourism Board, have more autonomy and thus are more susceptible to agency problems. I will return to this issue in the following section.

16.5.3 Compensation

Hong Kong’s civil service compensation system is made up of pay for the job paid on the job and various benefits such as housing or education allowances attached to middle-level and senior positions to defray the high cost of living; pensions on retirement for those employed before the 1999 reforms were introduced and smaller provident fund contributions for the more recently employed; and controls on the post-retirement employment opportunities available to senior officials, acknowledging the fact that individuals are interested in their lifetime income.

The absence of democratic institutions in Hong Kong has allowed public officials to reward themselves handsomely (see Hood and Peters, 2003). Hong Kong’s chief executive is the second highest paid in Asia (after Singapore), earning US$5.15 million per year plus benefits (in 2008), much higher than the salaries of the prime minister in the UK or the US president.10 Hong Kong’s central banker is the highest paid among the world’s central bankers, earning about US$1.2 million per annum. Rewards at the top in Hong Kong have been exceedingly generous.

Like governments in other market economies, Hong Kong’s civil service pay policy emphasizes paying “sufficient to attract, motivate, and retain” appropriate staff, broad comparison with the private sector, and equity. Turnover is low in the Hong Kong civil service, averaging from 2% to 4% per annum for the service as a whole including the elite AO grade.11 This indicates that generally salaries in the civil service compare well with those in the private sector. Indeed controversies in Hong Kong have focused on claims that the civil service is over-paid compared to the private sector, not underpaid. This is the result of policies that allow the civil service itself to determine the civil service pay-setting system.

The salaries and benefits of Hong Kong’s civil servants are set through an administrative mechanism that is mostly controlled by the civil service through the CSB. Authorities have relied in part on annual pay trend surveys that track pay movements in mostly large companies in the external labor market to determine pay increases in the civil service (see Lee, 2003; Cheung, 2005; Burns,

10In 2008 the US president was paid US400,000 plus an expense account while the UK prime minister was paid about US$370,000. The Singapore prime minister is paid US$1.1 million “basic” salary.

11In 2007/2008 wastage was 3.2% for the civil service as a whole, 76% of which was retirement. Only 12% of wastage was due to resignation or “brain drain.” During economic booms, of course, wastage may increase to 5% (see Civil Service Bureau 2008, p. 48).

©2011 by Taylor and Francis Group, LLC

Civil Service System in Hong Kong 327

2004). On only two occasions since the 1970s has the government resorted to comprehensive pay level surveys to determine whether the civil service was paying compensation broadly in line with the private sector. In both cases (in 1986 and 2006) the government carried out the surveys only after widespread criticism that the government was paying too much. However, by the time the surveys were carried out, evaluated, and reviewed, private sector wage levels had rebounded and the government saw no need to cut salaries. Nevertheless, the government has pledged to carry out comprehensive pay level surveys in the future, at 6-year intervals.

The Asian financial crisis and SARS caused a crisis in public finance, including the first serious government budget deficits since World War II. To manage the deficits, the government cut civil service salaries by 10%, putting them back to 1997 levels.12 The government took this unavoidable action, however, after ignoring pay trend survey results in 1999/2000 and 2000/2001, which indicated that private companies had cut their pay and then spread the cuts such as they were over 2 years. The government also cut starting salaries for many government jobs and abolished many benefits including pensions for all new hires. Given the dire financial situation at the time, the government had little choice but to act.

Unlike the practice in many other developed areas overseas, including most OECD countries, Hong Kong has not implemented performance-based pay for civil servants. After experimenting with team-based merit pay on a small scale from 2000 to 2005, officials declared that perfor- mance-based pay was too difficult to implement, and that, in any case, performance was rewarded through promotion. However, given the small number of promotion posts available and the high value placed on seniority, this policy is problematic. Officials also noted the strong opposition of civil service unions to performance-based pay. Indeed a police staff association pointed out that performance-based pay “would be very dangerous in the police. Favoritism, corruption and elitism must be avoided and variable pay for different units doing only slightly different jobs would result in serious conflicts… Experience overseas indicates that performance-based pay is difficult to manage, divisive, and does not bring improvements to efficiency” (Burns, 2004, 289). Neither the political executive nor civil servants saw much value in pushing forward with the reform, even as only a symbol of their intention to move toward a more performance-oriented culture.

Since the 1997 return of Hong Kong to Chinese sovereignty, most retiring senior civil servants have continued to live in Hong Kong. They usually retire at age 60, which by contemporary standards is relatively young, and those employed before 1999 receive generous pensions. Controversy has surrounded the government’s attempts to control the post-retirement employment of senior civil servants. In 2005 and again in 2008, critics accused the government of operating a system that appeared to allow senior officials who had given benefits to private businesses to take up jobs with these businesses on retirement. In the case of former director of housing, Leung Chin-man, government officials vetting his application for post-retirement employment appeared unaware that a perceived conflict of interest (or “transfer of benefit”) could have existed until Legco members and the media expressed alarm. While he was in government, Leung had arranged the sale of public housing to his new employer for an unexpectedly low price. Current proposals for yet another reform of the system call for maintaining a 6- to 12-month “sanitation” period during which retired senior officials may not take up paid employment, to be followed by more careful vetting of their job proposals to ensure appropriate outcomes (Committee on Review of Post-Civil Service Outside Work for Directorate Civil Servants, 2009). Similar controls also apply to political appointees, who would arguably have access to even more sensitive information. The government’s

12The Basic Law provides that civil service compensation after 1997 shall be “no less favorable than before” 1997 (Article 100), a provision widely interpreted to mean that no further cuts are possible.

©2011 by Taylor and Francis Group, LLC

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