The government of
Singapore in April increased salaries across the
board, with lavish increases heaped upon the
country's ministers who clocked up a 60% pay
increase. No, that's not a typo, it was really
that much, and that too from an already high base.
The average salary of a government minister in
Singapore, set at US$1.25 million, is about five
times what a senior government functionary can
expect to get in the United States, and between 20
and 50 times what an equivalent member of
China's or India's government
would expect, at least officially. [1]
Explaining the rationale for setting
government pay at such high levels in Singapore,
the country's redoubtable founder said of the idea
of paying Singaporean ministers the same as those
in neighboring Southeast Asian countries: [2]
"Your apartment will be worth a fraction of what
it is," he said. "Your jobs will be in peril, your
security will be at risk and our women will become
maids in other people's countries." The
translation, for anyone outside Singapore, was
that you'd have to risk becoming a poor Filipino
maid or a corrupt Indonesian trader to question
the right of Singaporean ministers to such
gargantuan salaries.
While the explanation
may strike normal people as a tad excessive, it
resonates strongly across Asian government circles
a full three months after the comments were
published. The reason, of course, is that
government officials perennially feel
under-appreciated for their work, despite
multitudinous achievements that they can point to
such as the grass growing in a Manila lawn. Of
course, 60% pay increases also feel right as a way
of explaining your expectations to the taxpaying
public - not exactly double, but still high and
specific enough to appear as if one has done
proper research into what the hike should be.
Why government Before
determining the right strategy for paying people,
it is customary in the private sector to question
what is being attempted in the first place. In
other words, what exactly does government do?
The answer is delightfully imprecise, and
depends very much on the country in question. That
diffusion in objectives, ranging from the very
limited state apparatus for such countries as
Switzerland against the all-encompassing
governments more prevalent in Asia, is an
important differentiating point all by itself.
Simply put, more focused governments have to pay
less to attract workers, as compared with "one
size fits all" governments that necessarily have
to pay more to attract better-quality talent.
A related albeit secondary consideration
is the actual availability of employable residents
in the country, which helps to determine the
scarcity value of any government job, in turn
helping to set the pay. For countries like
Singapore, where economic growth has been
substantial and opportunities for participating in
the private sector are very high, the issue is
more relevant than for other countries like India
where available talent far outstrips demand from
the private sector (at least until very recently).
The third factor is to determine why
people want to join the government, and indeed
what kind of people do. To a large extent, that is
determined by the objectives laid out above, but
there is no accounting for human emotions.
Thuggish governments inevitably attract schoolyard
bullies as recruits, while overambitious
governments attract romantics. This is no idle
consideration, as pay is an incidental benefit to
government employees keen on beating up fellow
citizens or, worse, the ones who see themselves as
performing a public service. It is only for the
people in the middle that pay becomes relevant.
The fourth and last consideration is of
course how long the intended service would be. It
is generally assumed that government work is for
life, but that view has changed across the United
States and Europe over the past few years. As
government needs become more diversified, for
example in establishing new security protocols on
Internet applications, there is a need to hire
temporary workers with the right skill set.
Usually, this is done on a project basis, so that
governments do not hire people but merely rent
them for the purpose of achieving the objectives.
Going back to the original point about length of
service, pay is set according to the expectation
of a long service.
Setting correct
pay Controversies around the right pay
levels for government employees are not new, [3]
but certainly have acquired increased urgency in
an environment where comparisons across countries
have become easier to do, as has mobility of
labor. That said, it is also easy to overestimate
the mobility of labor, as Singapore appears to
have done recently. After all, US$1.25 million is
a princely sum in even the private sector, and
when one considers the specialist skills that are
demanded for such amounts, it is very difficult to
believe that more than a handful of government
officials would ever attract such salaries while
in the private sector.
That aside, the
point is to pay government workers enough to keep
them motivated, but not excessively as to attract
complacence. In other words, a portion of pay must
always be variable against the achievement of
quantifiable objectives, be they roads or
irrigation canals or, indeed, law and order. But
this is also where the problem arises for
governments that attempt too many things.
In particular, Asian governments are
finding it increasingly difficult to retain
managerial talent in state-owned enterprises.
China has seen a succession of poorly paid
managers at top banks who failed to meet required
standards of prudence and propriety. Two such bank
chiefs were arrested and executed for embezzlement
over the past 10 years. Similar problems of poorly
paid managers taking excessive risks to supplement
their incomes have hurt the performance of other
Chinese companies based in Singapore and
elsewhere.
More recently, the Indian
government failed to find appropriate candidates
for a number of top jobs in state-owned companies
because the level of pay was too low to attract
the right kind of talent. With a number of
activist investors on the loose across the region,
[4] good managerial talent has been snapped up,
leaving only the dregs for governments to hang on
to.
Thus the key mistake made by the two
giants is to assume that anyone with even half a
brain would want to head up a company owned by a
government department. This process, which is
called adverse selection by game theorists,
logically leads to governments attracting only the
inept and the corrupt into service. In turn, the
prevalence of such people in power puts off any
qualified applicants.
The experience of
Singapore in overpaying its officials should serve
as a warning for other Asian countries, as must
the rampant failures across China and India of
senior government officials who simply fail to
perform or even show up. Perhaps the most
important lesson is for governments to trim down
and focus on the most important deliverables only,
such as law and order, defense and related
security matters, thereby leaving the rest of the
economy open to market forces.
Notes 1. The wages of corruption,
Asia Times Online, August 19, 2006. 2. Lee
Kuan Yew, in the International Herald Tribune
dated April 9, 2007. 3. Kautilya's ancient
epic the Arthashastra was perhaps the first
formal codification of government pay, albeit one
that focuses exclusively on the revenue-based
method of determining pay. 4. Barbarians at Asia's
gates, ATol, January 27, 2007.
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