The last three years have seen dramatic changes in our economic prospects.

Until 1997, the Singapore economy was growing strongly. Asia was booming, and Singapore rode the wave of prosperity.

Then the Asian crisis struck, and Singapore was not spared. We shifted gear to weather the storm. We reduced business costs by cutting government charges and taxes, reducing CPF contributions, and exercising wage restraint. This helped companies remain viable, saved jobs, and prevented our economy from crashing.

Now the crisis has passed, and the Singapore economy is growing strongly. We are benefiting from the sacrifices and cohesion of Singaporeans, who worked together to cut costs, accept the CPF reduction, and keep our industries competitive. We made healthy growth of 5.4% in 1999. This year, MTI has announced 9.1% growth for the first quarter, and raised the growth forecast for the year to 5.5-7.5%.

The quick recovery has caused the labour market to tighten. Retrenchments dropped by almost half, from 29,100 in 1998 to 14,600 in 1999. Seasonally adjusted unemployment fell from a high of 4.3% in December 1998 to 3.4% in March 2000. Total employment rose by 39,900 in 1999, after declining by 23,400 in 1998. Private sector wages are going up, in some cases sharply.

The global backdrop to these developments in Singapore and our region is the ferment of the New Economy and the process of globalisation. These have proceeded apace, regardless of the problems in Asia. The IT revolution has drastically changed the global economic landscape. It has unleashed tremendous dynamism, especially in the US, by raising productivity, opening up entirely new businesses, and revolutionising existing ways of doing businesses. Underlying the dot-com fever, a real and far-reaching transformation is taking place.

The spectacular success of companies like Microsoft and CISCO Systems, based on sheer brainpower rather than tangible assets, has attracted enterprising and ambitious people to start new ventures in the knowledge sector. The new economy is a powerful magnet drawing talent, especially young talent, from the old economy. These young people have a strong desire to be part of the IT revolution, to change the world, and of course to strike it big.

In the US, investment banks and law firms have traditionally been the most sought after employers, offering the best paid jobs. But now the investment banks are facing difficulties hiring graduates from business schools, which are their traditional source of recruits. And law firms are having to increase the pay of their junior lawyers, even at the expense of the earnings of their senior partners, to stop them from leaving to join dot-coms.

Globalisation has created a single global market for talent. Today, talent is highly mobile, in great demand everywhere, and commands a world price. Countries all over the world have opened their doors to talent. Silicon Valley is full of Asians, including some Singaporeans. The alternative to a job in one country is not another job in the same country, but a job nearly anywhere in the world.

In Singapore too, we are feeling the impact of these trends. More Singaporeans in the private sector are taking up opportunities abroad, and more civil servants are leaving the government to join the private sector. Singaporean students in the US are being head-hunted before they graduate. The Legal Service is losing lawyers to local law firms as well as foreign ones. British recruiters have come to Singapore, to hire our nurses to work in Britain.

Singaporeans sense the opportunity, and the excitement of the IT revolution. Enterprising and ambitious people are taking the plunge, and starting new companies. Some are senior executives who have left the security of their well-paying jobs to venture into the New Economy. But many others are young Singaporeans, hoping to become not just the next Sim Wong Hoo, but the next Bill Gates. This year alone, 8 Administrative Officers have already resigned, of whom 3 left to join start-ups. They are convinced that they are witnessing a revolution. They want to be part of this revolution, so that when they look back later they can say, "yes, we tried".

These developments pose new challenges to Singapore, and particularly to the public sector. Recruiting and retaining talent is vital to the civil service, as it is to any private sector company. But with the economic pick-up and the powerful forces of globalisation and the IT revolution, attracting and retaining talent is quickly becoming a real problem across the whole civil service.

The government has to respond promptly, to adjust and adapt to this new labour market and operating environment. This involves changing not just salaries and terms of service, but also the way we incentivise and reward officers, and even more fundamentally, our approach to managing the flow of talent in the public sector.

The public sector has thrived in the past by re-shaping itself to cope with a changing environment. It must continue to re-invent itself, faster than before, to stay up to date and relevant. The civil service needs to offer attractive, challenging prospects, to induce young Singaporeans to take up a public sector career. We have kept salaries in the public sector competitive, and we will continue to do so. However, we need to approximate not just private sector pay, but also relevant private sector personnel management practices. This is particularly so for the Administrative Service, which is our main avenue for managing and developing leadership in the public sector.

I will brief the House on the following changes:

a) A new approach to managing public sector leadership talent;

The Administrative Service is the premier service in the public sector. Administrative Officers occupy key posts in the ministries, helping to formulate policies and to supervise the running of the ministries and departments. The most senior and critical civil service appointments in the ministries are mostly occupied by Administrative Officers. These appointments include the Permanent Secretaries, Deputy Secretaries, CEOs of major statutory boards and heads of key departments, i.e. the top posts in the ministries and some of the posts one level below the top. We term them "Public Service Leadership (PSL)" jobs.

Identifying and developing officers for these PSL jobs is vital. Each year, the Government has sought to gather a fair share of top talent from the new cohort to join the Administrative Service. We hope that from among them, sufficient numbers will stay in service and eventually make the grade to fill the PSL positions.

Traditionally, officers appointed to PSL positions expected to stay on in these positions until they retired. However, this is no longer viable. Firstly, young officers nowadays do not think in terms of a lifetime career in the civil service, gradually advancing through the ranks till they reach their top post a few years before retiring to draw pension. They see a job in the civil service as just one of several steps toward fulfilling their lifetime career aspirations. They are energetic and ambitious. They want a faster sense of progression, and the chance to take on larger, more challenging responsibilities earlier in life.

Secondly, we need to advance officers to PSL jobs early, preferably by their early 40s, to keep leadership in the public sector young and vigorous. In the private sector, professionals and executives can expect to reach the peak of their careers by their 40s or early 50s.

Thirdly, not all officers appointed to PSL posts in their early 40s can realistically stay in these posts for 20 odd years till retirement. We need adequate turnover in these posts. This will prevent the organisation from becoming too settled in its ways, and to encourage young and capable officers to stay on in the service, in the realistic hope of reaching a PSL post.

We need to balance this need for turnover and renewal in the civil service, with adequate career security for the officers. We want to build a corps of highly motivated and dedicated officers who take a long view of the issues which they handle. It is not enough for officers to know that they can make it to the top if they have what it takes and give their best. They need predictability in their service career paths, both before and after reaching a PSL post. Officers must feel assured that their careers are being managed systematically, in a fair and transparent framework. We do not want civil servants to be less than totally dedicated to their tasks, because they are quietly pre-occupied making provisions for themselves just in case their careers take an untoward turn.

Bearing in mind both imperatives, the government has decided to introduce a "flow-through" mechanism of fixed-term appointments for PSL jobs.

Under this framework, the retirement age for Administrative Officers will remain at 62, like other jobs. Officers with the potential to be promoted to PSL posts will remain in the Administrative Service, while those judged unlikely to do so will be re-deployed to other parts of the civil service.

Administrative Officers who make it to PSL posts will be appointed for fixed terms. An officer appointed to a PSL post at the Deputy Secretary level will be given a 10-year term, during which he may hold two or three DS level appointments. If he is subsequently appointed to a PSL post at the Permanent Secretary level, that will also be for a 10-year term, starting at that point.

As a general rule, officers will relinquish their PSL appointments on completing their terms. Some may have their PSL terms extended, but this will be the exception. We seek to maintain a constant flow-through of talent and rejuvenation of public sector leadership. Officers who relinquish their PSL appointments but wish to stay on in the public service will be offered suitable non-PSL jobs, subject to availability. They can then serve until age 62. Officers who do not wish to take up a non-PSL job will be freely granted early retirement.

Remuneration at the PSL level will take into account the significantly heavier responsibilities of PSL jobs. PSL officers will generally receive larger performance bonuses than other Administrative Officers. They will also receive a special PSL Allowance, in addition to other components of their salaries, so long as they have not relinquished their PSL posts. The PSL Allowance will initially be 1 month per year, and will be built up later to 2 months per year.

In addition to introducing fixed-term appointments for PSL jobs, the government will also broaden training and development opportunities for Administrative Officers. This will help to develop talent for the service, and make the service a more attractive career. For example, every Administrative Officer with the potential to hold a PSL appointment will be sponsored for one postgraduate training programme while in Service. Some Permanent Secretaries will also be granted sabbatical leave, to recharge themselves intellectually, and update themselves on new developments in their policy fields.

The transition to fixed-term appointments for PSL posts must be managed judiciously and sensitively, to ensure stability and continuity in the public service. These changes will be implemented together with the salary revisions for the Administrative Service that I will be announcing later. We will make suitable transitional arrangements for the current incumbents of PSL posts, and address any concerns they may have over the new framework.

While we focus on the Public Service Leadership positions, we must not neglect the main body of public officers, at all levels and in many different services. For the whole system to work well, every public officer has to contribute his or her best. Every one of them needs to be properly managed, paid, and incentivised, and not just a few top officers.

The Government has conducted a full review of civil service salaries. Salaries of most schemes of service have not been revised for at least two years because of the economic downturn. However, with the strong economic recovery, private sector’s earnings have risen substantially.

CPF data indicate that except for secondary school leavers, the starting annual salaries of the Civil Service are generally lagging significantly behind the 75^th percentile salaries in the private sector. The gap is greatest for graduates with pass degrees, where the annual private sector starting salary is about 36% higher than the civil service; and those with technical diplomas, where the private sector is about 51% higher.

Resignation rates have also gone up across the entire civil service. For example, 284 officers from the Senior Officer Service (or 12% of total staff strength) resigned in the first 5 months of this year compared to 267 for the whole of last year.

While some outflow of staff is normal in a market economy, especially during a strong economic recovery, excessive outflow will undermine the civil service and cause public services to deteriorate. The civil service must be able to attract and retain sufficient talent to continue to function stably and effectively.

The Government has already announced salary revisions for several schemes of service, which face particularly critical problems of outflow and staff shortages. These include senior officers from the Commercial Affairs Department, the Legal Service, the Nursing Service, and the Medical Service. Now we have decided to make a general salary revision for all civil servants.

We are mindful that civil service salaries should follow private sector salary trends, and not lead them. We do not want excessive civil service pay adjustments to increase wage pressures on private sector firms. But it is also critical for civil service pay to keep pace with the private sector, and not to lag too far behind.

This civil service salary revision coincides with this year’s National Wages Council (NWC) award. The Government has accepted the NWC’s recommendation that "workers should be rewarded with wage increase in line with economic recovery". Instead of making a salary revision and a separate NWC adjustment, the Government will consolidate the two into a single salary revision exercise.

The consolidated salary adjustments will include a further restoration of the Annual Variable Component (AVC), increased performance bonuses, higher monthly salaries, and more portable medical benefits.

The civil service has been paying an AVC of 2 months every year since 1991. In 1998 the AVC was reduced to ¾ month because of the economic crisis. Last year (1999) we paid an AVC of 1 month, plus ¼ month of Special Bonus at the end of the year, when we found the economy recovering more strongly than expected.

This year, because of the positive economic outlook, the Government has decided to increase AVC by ¾ month. We will pay 1¾ month of AVC in total. ¾ month will be paid in July, and 1 month in December.

This will bring us close to restoring AVC to 2 months, where it was prior to the crisis.

Currently, only civil servants in the more senior grades are paid performance bonuses. The salaries for the rest of the officers do not depend on their performance. Our objective is to strengthen the link between pay and individual performance, by building up a performance-related component in the total wage package of every civil servant. This salary revision provides a good opportunity for us to do so.

The government will pay a performance bonus to all civil servants who currently do not receive any performance bonus. The base rate will be ½ month per year. This means that an average officer who has put in good performance will receive a performance bonus of ½ month, while officers who perform better than average will receive more.

For the civil servants who already receive a performance bonus, we will increase the base rate for their performance bonus by ½ month.

A ½ month performance bonus is only the first step, because ½ month is not quite large enough. As and when additional salary adjustments are justified in future, we intend to further build up the performance bonus component to a base rate of at least 1 month for all civil servants.

In addition to the performance bonus, we will increase monthly salaries for most schemes of service by an average of 5.4%. In keeping with the spirit of NWC recommendations, the 5.4% increase in monthly salaries will be in the form of $50 plus a 3.8% increase. This formula of a fixed quantum plus a percentage of pay will benefit the more junior and lower-income officers. The actual percentage increase in monthly salaries will range from 11% for lower division officers to 4% for senior Superscale officers.

The average total salary increase for a civil servant from this revision is about 13%. This includes the ¾ month AVC increase, the ½ month increase in performance bonus, and the 5.4% increase in monthly salaries. This revision will significantly narrow the salary gap between the civil service and the private sector, but it will not completely close it.

The SAF has traditionally paid a premium over civil service salaries, given the strategic need to attract a fair share of talent into the SAF in order to maintain a credible defence force. To maintain the premium, MINDEF will also be revising salaries of SAF personnel upward by an average of 13%.

Several services still face particularly serious staffing problems, or have salaries which are further out of line from the private sector. They will receive higher salary revisions than the general civil service.

The Intelligence Service and Foreign Service will receive salary revisions of between 11-31%.

The Management and Technical Support Services, which recruit polytechnic diploma holders, are also experiencing high attrition rates. The most serious gaps are in the lower grades. The salaries of the relevant grades for these two services will be increased by about 20%.

We expect some other services to require further adjustments beyond this salary revision. In this dynamic environment, waiting for the next annual cycle of salary reviews will be too slow. The Public Service Division will work with other Ministries to review their respective staffing situations within the next 3 – 6 months, and make adjustments where justified.

The Ministry of Home Affairs is reviewing the schemes of service for its uniformed personnel, to ensure that the Home Affairs Uniformed Services (HUS) remain attractive career choices and recruit their fair share of quality staff to ensure the safety and security of Singapore. MHA has engaged Towers Perrin to conduct the review, which is proceeding well on track. The consultants will present their overall recommendations at the end of August, covering mainly career structures, benefits, continuous learning and development, and work environment issues. The HUS Council will then consider the recommendations.

The Education Service will receive the average increase of 13% in this revision. However, teachers play an important role in educating our next generation of Singaporeans for the new knowledge-based economy. We must continue to attract and retain good and committed teachers. The Ministry of Education will undertake a further review of the pay structure of teachers, to shape it to better meet both MOE’s organisational needs and the teachers’ personal aspirations.

In addition to its core wage guidelines, the NWC recognised that with an ageing population, rising medical costs and increasing job mobility, there is a need to refine existing medical benefit schemes to make them more portable. It noted that the Ministry of Manpower had set up a Tripartite Committee on Portable Medical Benefits to study the issue.

The government agrees with the NWC that there is an urgent need to address the issue of medical benefits for workers. During the Budget Debate this year, Mr Yeo Guat Kwang and Mr Thomas Thomas had also suggested that the civil service review its medical benefits schemes. Mr Yeo Guat Kwang specifically suggested that "unused" portions of the annual $350 cap on outpatient subsidy for civil servants who are on the Medisave and Subsidised Outpatient Treatment (MSO) scheme be credited into the Medisave account of the officers. This would make medical benefits in the civil service more portable and encourage younger officers to stay healthy. I had replied that this suggestion had merit, and promised to review the matter.

The Government has decided to accept Mr Yeo Guat Kwang’s proposal. Starting this year, if an officer does not use up the full amount of his annual outpatient cap of $350, the balance will be credited into his Medisave account.

The average unused outpatient subsidy per MSO officer in 1999 was $276. As there are about 31,300 officers on the MSO Scheme, it will cost the Government about $8.6 million to transfer the unused balance into the Medisave accounts of the officers. This amount will increase over the years as the MSO population increases.

Let me turn now to the review of salary benchmarks and restructuring of salaries for the Administrative Service, Political and Statutory Appointment holders.

The 1994 White Paper on Competitive Salaries for Competent and Honest Government established two private sector salary benchmarks to peg Ministers’ and Administrative Officers’ salaries. The benchmarks were based on the salaries of top earners from a basket of 6 professions, chosen as far as possible to be similar to the nature of work performed by Ministers and senior Civil Servants. The 6 professions were: bankers, accountants, engineers, lawyers, MNCs, and local manufacturers.

Specifically, the White Paper recommended pegging the salary for a Superscale G Administrative Officer to the principal earned income of the 15th person aged 32 belonging to the same 6 professions (15P32). The salary for a Staff Grade I Minister was pegged at two-thirds the average principal earned income of the top four individuals from each of the 6 professions (2/3 AVE24). The formulas would be reviewed after 5 years, i.e. in year 2000.

The key advantage of this approach is that the benchmarks would be computed annually, based on IRAS data, and the salaries of Ministers and Administrative Officers would automatically follow the benchmarks up or down, albeit after a lag. This has taken place. In 1996, both benchmarks went up, and government salaries followed. In 1997, Superscale G and Staff Grade I and salaries were cut by 2% and 7% respectively. In 1998, the Superscale G benchmark decreased marginally, but the Staff Grade I benchmark increased. In view of the economic crisis, Superscale G salaries followed the benchmark down, but Staff Grade I salaries were frozen although its benchmark went up. Government salaries were again frozen in 1999, despite increases in both benchmarks.

However, while government salaries have been frozen since 1998, top private sector earnings have increased substantially, despite the economic crisis. The 2/3 AVE24 benchmark increased by 13% in 1998, 29% in 1999, and 23% this year.

The individuals in the benchmark were not salaried workers, whose employers had failed to exercise wage restraint. They are lawyers, accountants and engineers, who are professionals earning fees that depend on their volume of business. They are bankers, whose bonuses depend on the profits of their banks. They are CEOs of manufacturing firms, many of whom receive stock options. Why did their earnings go up? The immediate explanation is that their businesses did well. The more fundamental explanation can only be globalisation and the knowledge economy.

Based on the latest figures for the existing benchmarks, the Superscale G annual salary should be $363,000, 50% more than the current $242,000. The Staff Grade I annual salary should be $1.64 million, about 90% more than the current $861,000.

However, instead of simply accepting these figures, and increasing salaries to match them, the Government has thoroughly reviewed the salary benchmark methodology and framework.

We have found that the benchmark of 15P32 for Superscale G to be sound. It has been effective in attracting and retaining good officers in the Administrative Service for the past 5 years. We will retain the benchmark as it is.

In the case of the 2/3 AVE24 benchmark, the basic approach of comparing the salaries of Ministers and senior civil servants with a basket of top earners in the 6 professions is sound. The 6 professions remain relevant and appropriate, and the discount factor of 2/3 is reasonable. Empirically, the benchmark has been reliable, moving in line with wider trends of earnings of top professionals.

However, the robustness of the 2/3 AVE24 benchmark can be improved in several respects. Firstly, the base of the benchmark is narrow. Only the 4 highest earners are chosen from each profession. These 4 may not be representative of top members of the profession, but may just be the few individuals who happened to have had an exceptionally good year.

We therefore propose to broaden the base of the benchmark from the top 4 earners in 6 professions to the top 8 earners in 6 professions. We will thus be considering principal earned incomes of 48 individuals instead of 24. This will make the benchmark more representative of the top professionals.

Secondly, the benchmark uses the arithmetic average of the 24 incomes. This is satisfactory if the 24 incomes are clustered fairly close together. But if there are a few extremely high incomes in the group, this will affect the average, and make the average less representative of the group as a whole.

Therefore instead of using the arithmetic average, we will take the median income of the group, i.e. the 24^th highest income among the group of 48. This fixed rank approach will not be skewed by the presence of a few very high income earners, and will yield a more stable benchmark.

Thirdly, the benchmark treats stock option gains just like any other form of income, for example salary, bonus, or partnership share. But stock options are volatile. Executives may exercise in a single year stock options which they have accumulated over several years, especially in a bull market. To accept the full amount of stock option gains without any discount is unfair and will skew the benchmark upwards. In the past gains from stock options formed only a small part of the top earnings, but they may become more important in future.

Stock option gains form part of income, and are taxed as such. We therefore cannot ignore them in estimating private sector incomes. However, to allow for the uncertainty and volatility, we will discount by half any stock option gains before computing their median income. In effect we are assuming that the stock options being exercised have been accumulated over 2 years.

For example, if a person earns $1 million in salaries and bonuses and $1 million in stock option gains, his total income for the year will be $2 million. However, for purposes of the benchmark, we will discount the stock option gains by half, and use the figure of $1.5 million in our calculations.

As a result of these changes, the Ministers’ benchmark will be renamed 2/3 M48, instead of 2/3 AVE24. The latest value of 2/3 M48 is $1.21 million. $1.21 million ranks 206^th among private sector earners. In comparison, when we first set the 2/3 AVE24 benchmark, the figure was $811,000, which ranked 101^st among private sector earners.

Besides refining 2/3 AVE24 the formula, another significant improvement to the present scheme is to reduce the 18-month time-lag in applying the benchmark. Private sector earnings in Year X are reported to IRAS in Year X+1, and the benchmark is calculated and applied only in July of Year X+2. By then the private sector earnings will have moved, and the benchmarks will already be somewhat out of date, especially if the economy has changed direction, which can happen quite suddenly.

To make the salary comparisons more timely, we will reduce the lag in the process from 18 to 12 months. Instead of waiting for full IRAS data at the end of Year X+1, to be applied only from July of Year X+2, we will compute and apply the updated benchmark in January of Year X+2, based on partial IRAS returns.

In addition to reviewing the benchmarks, the Government has made fundamental revisions to our salary and grade structures. This will bring them closer to private sector practices, and give the government more flexibility to reward deserving officers.

We will change our structure from salary points to salary ranges. We will also increase the proportion variable pay in the annual salary, by introducing a new "GDP-related bonus", and by building up the performance bonus.

The Government has operated on a system of fixed salary points for its senior officers. Each Superscale or Staff Grade corresponds to a single salary point. The political and statutory appointment holders are also tied into the same fixed-point system. In this system, promotions and salary revisions coincide: we cannot give an officer a pay increase without also promoting him.

This system is rigid. Private firms and even some statutory boards use salary ranges, where each rank or grade corresponds to a range of salaries. Managers can then adjust an officer’s salary without having also to promote him.

The Government will introduce a system of salary ranges to replace the present system of salary points for Administrative Officers and political appointment holders. The existing 14 Superscale and Staff Grades will be banded and consolidated into 9 salary ranges. The existing 4 Timescale grades will be converted to 4 salary ranges. [See Annex 1 of Handout 1]

Such a salary range system will give us more flexibility in personnel management. We can reward officers with merit increments within their salary range each year, depending on their assessed potential and demonstrated performance. We will no longer need to wait several years to promote an officer, in order to increase his salary.

Staff Grade I will correspond to salary range MR4. The 2/3 M48 benchmark will be the "Ministers’ Benchmark", and will determine the lower end of the MR4 range, the entry grade for Ministers.

The political, statutory and judicial appointment holders will be merged into this framework. Ministers are currently on three salary points (Staff Grade I, Staff Grade II + 12%, and Staff Grade IV). They will be moved to three corresponding ranges of MR4, MR3 and MR2. Deputy Prime Ministers will be moved to the MR1 range.

The President, Prime Minister, Senior Minister, Chief Justice, Speaker, Chairman PSC, Attorney General and Auditor General will continue to be at fixed salary points. Their salaries will retain the same ratios to the Ministers’ Benchmark as in the existing salary structure.

Secondly, we will increase the variable component of annual salaries. This presently consists of the 13^th month NPAA, the AVC, and the performance bonus, which together make up about 30% of the total annual pay of senior officers.

We will increase this variable component to approximately 40% for senior officers (SR9 and above). This way a large part of the salary increase will be in variable pay, which will depend on the performance of the officer and the state of the economy, instead of in fixed pay which the officer will receive regardless of how he performs.

We will do so by creating a new "GDP-related bonus", and by building up the performance bonus further. We will also introduce a bonus pool so that performance bonuses are paid out over several years. The details are at Annex 2 of Handout 1.

Although the gap between the revised benchmarks and the present salary levels is large, this is because we have lagged behind the private sector, which moved ahead while we froze public sector salaries. This is an exercise to catch up, not to race ahead.

The civil service salary revisions will benefit 70,000 civil servants. While the 13% revision will make most salaries competitive, some schemes of service will need further revisions and special arrangements. We are proceeding with these, but in the interim we will not hold back the more general revisions.

For the Administrative Service, the more pressing changes are the ones that affect the younger officers. We must move urgently to retain the bright young officers who are the most mobile, and the most likely to consider leaving for the private sector. The Government will therefore move Superscale G salaries (now SR9 salaries) to the full 15P32 benchmark of $363,000 from 1 July.

For the more senior officers and the Ministers, the problem is less pressing. Also the government is mindful that while the economy is recovering strongly, the CPF restoration is still being phased in. We should not send the wrong signal that we can now abandon all restraint in wage settlements. However, we have to adjust salaries to reach the benchmarks over time, if the benchmarks are to be meaningful.

Therefore instead of implementing the full revised benchmark of 2/3 M48 immediately, we will phase it in over 3 years, in 4 steps. In the first step, we will move salaries to 80% of the Ministers’ Benchmark. This means an annual salary increase of 12% for a Staff Grade I (MR4) officer or Minister, from $861,000 to $968,000. At $968,000, he will rank 367^th among private sector earners. Nearly all of this increase is in the bonuses. The monthly salary will hardly change (it will increase by only 0.3%). [See Handout 2]

Salaries for grades between Superscale G and Staff Grade I will be adjusted by percentages in between the 50% increase for Superscale G and the 12% increase for Staff Grade I. For grades above Staff Grade I (MR4), including the statutory appointment holders and the higher grades for Ministers, salaries will be increased by 12%, proportional to the new Staff Grade I (MR4) salary.

After this revision, the Prime Minister’s salary will be $1.94 million, which will rank 63^rd among private sector earners.

The Government will subsequently reduce the discount on the 2/3 M48 benchmark to 10% in July 2001 and 5% in July 2002, and will fully achieve the benchmark in July 2003.

All the salary revisions for the Civil Service, Administrative Service and political appointees will be implemented with effect from 1 July 2000. They will be effected via payroll in August 2000, with back payment for the month of July.

The salary revisions for the entire civil service (excluding statutory and judicial appointees) will increase the government’s wage bill by about $400 million, or 13%.

The wage bill for political appointment holders will increase from $28 million to $34 million, or about 20%. This is higher than the 12% increase for the Ministers, because the political appointments below the Ministers, for example Ministers of State and Parliamentary Secretaries, will have larger increases.

While the details of this salary revision and review of benchmarks are complicated, the principles are simple and well-established. Our policy is to pay people according to their market value and contribution, in the case of political appointment holders, with a discount. Paying officers properly is essential to recruiting the quality of talent that we need to build a first-class public service.

This is not a new departure. The issue of public sector pay, and particularly Ministers’ pay, has been repeatedly debated in this House over the years. In 1994, the Government tabled the White Paper on Competitive Salaries for Honest and Competent Government. After a full debate, Parliament endorsed the White Paper "as the basis for setting salaries of Ministers and senior public officers". Today’s Ministerial Statement is entirely consistent with that policy.

The proof of this policy is in its results. Foreign investors and international ratings agencies like PERC, WEF and IMD regularly rate Singapore’s competitiveness highly, and an important element of these ratings is their high assessments of the quality of the government and political leadership. Even more important, the Government has consistently delivered results to Singaporeans. We have navigated the country safely through the Asian crisis, delivered strong economic growth year after year, and raised the standard of living of all Singaporeans, rich and poor. We could not have achieved any of this, without competent and dedicated political leaders and a first class civil service. These salary revisions will help us to maintain these critical strengths, and continue to score new wins in the years to come.

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*:Newly introduced range.

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The GDP-related bonus will directly link the pay of political and statutory appointment holders and senior Administrative Officers to the state of the economy.

The size of the bonus will depend on the real economic growth of the economy. The bonus will be 1 month if the Singapore economy grows by 5% in the calendar year, the mid-point of its estimated long-term growth potential (4 – 6%). It will be 0 month (the minimum) if the economy grows by 2% or less, and 2 months (the maximum) if the economy grows by 8% or more. In between, it will vary linearly with GDP growth.

The intention is to eventually build up this bonus to an average of 3 months, with a range of 0-6 months.

Performance bonuses were first introduced for Superscale officers in the Administrative Service in 1989. Since then, they have been extended to timescale Administrative Officers as well.

The performance bonus norms will be raised as follows:

Political and statutory appointment holders and Administrative Officers in Superscale C and above presently receive performance bonuses averaging 4 months of salary. This will be increased to an average of 5 months for those in Salary Range SR6 and above.

Administrative Officers up to Superscale D1 presently receive between 1 – 2 months of performance bonus on average, depending on their grades. This will be increased to an average of between 3 – 4 months.

How many months of performance bonus an officer actually receives will vary from person to person. Those with unsatisfactory performance will receive no bonus at all, while an outstanding officer will receive much more than the average quantum.

Several appointments currently receive fixed bonuses instead of a performance bonus: the President, PM, SM, Chief Justice, Speaker, Chairman PSC, Attorney General and Auditor General. This will continue under the revised framework. Their fixed bonus rate will be set at the average rate for senior officers.

Under the bonus pool system, an officer will be paid half his performance bonus for the year immediately. The Government will contribute the other half into a bonus pool. The officer will be entitled to receive the amount in the bonus pool in two equal instalments 12 and 24 months later, provided he continues in Service.

Officers who resign or are dismissed from the Service will not be allowed to withdraw any balance in the pool. However, officers who retire from the Service will be allowed to withdraw the balance.

The bonus pool system will not apply for the President, statutory appointment holders and judicial appointees.

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Annex 3

Table 2: Pay Comparison Before and After Salary Revision