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decision in 1999 to abolish pensions for new recruits has weakened their control over the postretirement employment prospects of civil servants.
The public sector outside the civil service has considerable autonomy to determine pay systems and levels. Hong Kong’s regulatory agencies, such as the Monetary Authority and the SFC, offer merit increases, although they are smaller than those paid in the private sector. Hybrids such as the HA and the universities also implement performance-based pay systems through, for example, performance-related increment assessment schemes, merit awards, and incentive awards for senior executives.13
Their autonomy has, however, led to charges that the hybrids are unaccountable “independent kingdoms” and that monitoring them is like “a man dressed in black trying to catch a crow on a dark night” (Scott, 2006, 188). Politicians and the public have focused on pay levels especially for senior executives. In 2001, the government reported that 91 senior executives of five major public corporations were paid an average of US$400,000 per year and that bonuses were paid even by poor performing agencies, such as the Mandatory Provident Fund. In 2002, the government appointed Hay Management consultants to review the compensation of the top 100 executives of nine statutory bodies. This review pointed out that pay levels were comparable with those in the private sector, but debate continued (Scott, 2006). After much criticism of the HA, especially in the wake of SARS, the HA appointed a consultant to review the pay of its senior executives. A defensive HA acknowledged that “there remains misunderstanding” on the practice of paying incentive awards and in 2006 the HA abolished bonuses for its top 25 senior executives.
The Audit Commission has also criticized the generous pay and benefits of some hybrids. In 2007, for example, audit revealed details of an expensive healthcare package offered to the former executive director of the Tourism Board and her family and the fact that pay awards in the Tourism Board were apparently unrelated to performance. As one legislator pointed out, the executive director received 60% of allowed variable pay “despite failing to meet most of the performance indicators in 2006/07. How come a failed performance record was accompanied with additional pay?” (SCMP January 15, 2008). Legco convened public hearings stretching over several months on abuses in the Tourism Board in 2007/2008.
Hong Kong’s weak system of holding hybrids to account has allowed the government and other public bodies to pay themselves at very high levels. The economic troubles of 1999–2003 exposed various abuses and the ineffectiveness of both legislative and board monitoring mechanisms.
16.6 Conclusion
Improving its control over the civil service has been at least one of the objectives of Hong Kong’s public sector reforms. Introducing the POAS was clearly aimed at bringing the civil service under tighter political control. At the same time, the government has done little to reign in the “independent kingdom” hybrids.
The impact of Hong Kong’s modest civil service reforms on the management of agency problems has been mixed. On the one hand, reforms to the entry system now allow the government more time to observe candidates for permanent positions and have extended the coverage of the government’s basic entrance examination for junior manager and professional positions. On the
13Civil service policy also requires that only those who obtain a satisfactory performance appraisal may receive annual increments. In practice, however, virtually all civil servants receive annual increments until they are at the top of their incremental ladder.
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other hand, the government’s reluctance to implement performance-based pay in the face of very tight promotion opportunities has undermined their ability to align the incentives of supervisors and their subordinates. Other reforms have mainly focused on cutting administrative expenses.
The reforms were carried out in the context of a sharp economic downturn, downsizing through outsourcing, a general freeze on hiring on civil service terms, and across the board salary cuts. However, the reforms have left key elements of the civil service system intact, including a centrally managed service, generalists in control, permanent positions, position-based pay, and seniority-based promotions (Scott, 2005). By 2008, the government was able to produce a record surplus budget, the civil service was hiring again, salaries had gone up, and the incentive for further reform had all but dissipated.
Obstacles to reform in Hong Kong are similar to those found elsewhere: lack of political will, lack of popular support (and understanding), and bureaucratic resistance. With an unelected political executive recruited mostly from among retired civil servants, there is little desire or taste to impose pain on their former colleagues. The public is largely unconcerned about how the civil service is managed and only pays attention during economic bad times when the most outrageous abuses are revealed. Civil servants themselves, organized into relatively effective staff associations, lobby hard to exempt themselves from reform (e.g., the police and disciplined services won concessions on new entry terms in 1999) or to reduce the impact of reform. We can see that they have had some success.
Hong Kong’s undemocratic political system means that there is little organized pressure from outside the civil service for more reform. In the absence of a strong political executive with vision able to impose its will on the civil service, civil servants write their own ticket. They have been helped in this regard by obliging governors and chief executives and ex-colleagues who form the political executive. Salaries are high and life is good in the “iron rice bowl” of the Hong Kong civil service. Still, the government is concerned about the efficiency and probity of the public service on which the government’s legitimacy rests. This concern provides a powerful incentive to keep the service clean, implement meritocratic principles, and adopt various managerial reforms.
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