Cut in ministers’ pay is good, but detailed mechanisms matter

The revised ministerial salaries are probably at the upper end of Singaporeans’ tolerable range. While there have been the expected criticisms of the proposals issued by the Gerard Ee committee, the gross amounts being proposed are likely to take the sting out of this issue for the next general election.  The salary cuts of around 30% for cabinet ministers will assuage quite a lot of people.

It was never possible to arrive at a pay recommendation, or even a formula, that would leave everybody happy. The art of politics simply required that the government did enough to satisfy enough people, in order to reduce the penalty they have to pay at the next general election. My guess is that a 30% reduction is enough, but only time will tell.

On the other hand, it should be remembered that the sensitivity of this subject is not an independent variable. It is dependent on the competitiveness of the political landscape. Voters are less likely to take issue with high salaries if they feel they have real power to throw out incompetents or scoundrels at an election. One reason why high salaries became such an acute issue over the last two decades was because Singaporeans felt that the People’s Action Party (PAP) was raising its own leaders’ remuneration out of a sense of entitlement more than anything else, at the same time protecting their incumbency with all sorts of anti-democratic measures and guaranteeing themselves iron-clad job security.

This argument would therefore suggest the opposite conclusion. The issue of salaries, even if less feverish in the future, may remain a sore point so long as the political landscape is less than fully democratic. But how many votes that soreness may cost the PAP — ah, that’s the $64,000 question.

Although I think it is the general salary level rather than the specific mechanisms and formulae that most Singaporeans are interested in, there were a few specifics emerging from the report and the recent parliamentary debate that made me raise my eyebrows. I will discuss two of them below.

First however, let me outline the general principles behind the revised salary scheme.

Key features of the new salary scheme

A key reference — the report calls it a benchmark — is the total salary for an entry-level minister (MR4 grade). This will be 60 percent of the “median income of the top 1,000 Singapore citizen income earners”, said the report. Based on data from the income tax Year of Assessment 2011, the 60% figure is $1,100,000.

Total annual pay for other political appointments will be based on this benchmark through a scale of ratios.

By definition, the benchmarked total annual salaries are assumed to comprise 20 months’ salaries. Thus, the monthly salary for any particular grade is one-twentieth of the respective benchmark, as you can see in the right-most column of the table above.

The guaranteed salary is 13 months of that, not 20 months, since the total annual salary assumes 7 months of bonus payments. In other words, the basic salary of an MR4 minister is 13 x $55,000, or $715,000.

There are three different variable components of the total annual salary. The annual variable component is a government-wide bonus. The review committee assumes one month to be typical, but I have the impression that some years, they are in the three or four-months range. Perhaps readers can advise what the historical trends have been.

The performance bonus is determined by the prime minister for each individual office holder. Although the benchmark assumes 3 months’ performance bonus, as many as six months’ can be given out.

The national targets bonus will be based on four measures, of equal weight:

  • Real median income growth rate
  • Real growth rate of the lowest 20th percentile income
  • Unemployment rate
  • Real GDP growth rate

The review committee argued that these four measures will be sufficient to link ministerial salaries to the wellbeing of all Singaporeans. Among the suggestions it rejected was that of using the Gini coefficient as one of the measures. In doing so, it said,

Although some members of the public suggested that political salaries should reflect the level of income inequality, we prefer having real median income growth and real growth rate of the lowest 20th percentile income as indicators, as they focus more directly on raising the incomes of both average and vulnerable Singaporeans.

I shall come back to this further on.

Like the performance bonus, although the benchmark assumes 3 months’ national targets bonus, as many as six months’ can be given out.

This means that in a very good year, ministers can be paid:

  • 13 months of salary
  • Maybe 4 months (?) annual variable component
  • 6 months’ performance bonus
  • 6 months’ national targets bonus

For a minister at the MR4 grade, his total salary for that year would be 29 months’ pay, or $1.595 million (going by the 2011 monthly basic of $55,000). For the prime minister, it would be twice that, or over $3 million.

The president’s salary

For the record, let me just add briefly that the president’s salary will now be as follows: His monthly salary will be the same as the prime minister’s monthly salary (i.e. twice the MR4 monthly salary), with 13th month pay and the annual variable bonus. The president will not get performance bonus or national targets bonus.

The top 1,000

One of the two things that made me raise my eyebrows was the job distribution of the top 1,000 income earners. These, as recommended by the committee, would set the benchmark for ministerial salaries.

As you can see from the table published by the Straits Times (at right), those from the financial sector made up 38 percent of them.

It struck me that such a high proportion would mean an over-representation, a hunch I verified by looking at employment data by industry published by the Ministry of Manpower (below). In the third quarter of 2011, only 5.6% of employed persons in Singapore (not just citizens) were in the financial sector.

In an era when there is general disgust at the way bankers and money traders have brought the world economy to the edge of an abyss by their greed and short-termism, and at the way they have been paying themselves fat bonuses even through bad times,  it seems rather questionable to link ministers’ salaries to this breed.

Fat and easy national target bonuses

As mentioned above, the national target bonus is based on 4 measures. In the annex to its report, the committee set them out in greater detail, thus:

My immediate impression is that the mid-target (i.e. to earn three months’ bonus) is actually quite easy to achieve. Take the last measure — real GDP growth rate (i.e. adjusted for inflation). It’s a relatively low 3 percent.

The measure for unemployment rate is also problematic, because Singapore offers no unemployment benefit to those laid off and we have no system for people to register as unemployed. My guess is that our unemployment statistics are based on periodic sampling surveys. Besides the uncertainty that such a method produces, there is also the risk that the figure can change depending on how definitions are tweaked.

Then, the  targets for income growth rates for the median income earner and the 20th percentile earner are the same. This means there is no incentive to close the income gap. Not only did the review committee dismiss using the Gini coefficient, the measures it chose to use do nothing to incentivise a closing of the income gap.

There is also the difference between the GDP growth target and the income growth targets, with the former being higher than the latter. Why, if GDP grows 3%, should the median Singaporean’s income only grow by 2%? Well, it can happen, if the population of Singaporeans grow (and the growing national pie is divided by a faster-growing population), but with our extremely low birth-rate, we know this is not a likely explanation. You’d be forgiven if you believed that the median Singaporean ought to see a 3% rise in his income too, all things being fair, and that ministers’ bonus incentives should reflect that.

So where would the excess go? Which segments of our economy would grow by more than the GDP rate, to balance out median income growth that lags GDP growth? There are four likely categories: (a) the richer segments, (b) corporate profits, (c) increasing numbers of foreigners, and (d) the taxman. In other words, the incentive structure appears hard-wired to reward ministers for “business as usual”: Widen the income gap, keep up immigration, continue shovelling profits to corporates at the expense of personal pockets, and raise taxes and government fees.

34 Responses to “Cut in ministers’ pay is good, but detailed mechanisms matter”


  1. 1 georgelambeorge 21 January 2012 at 18:11

    You rightly asked why the pay of those in the financial sectors is being controversially over-represented to an obscene degree – 5% representation in the actual workforce but up to 38% in the committee’s 1000.

    My guess would be that the committee instead of using rational data to spontaneously point to it what should the ministerial pay be like, actually did a reversed engineering of sort by first of all predetermining what it want the recommended new pay to be, and from there find the constants or variable that would deliver the results it has already PRE-DETERMINED beforehand!

    In the SAF, this is known as ‘situating the appreciation’ as opposed to a plan formulation methodology practised by military commanders known as the ‘ appreciation of a situation’. Perceival was said to have performed such a plan for Singapore in WWII, but apparently it was never adhered to by his superiors. So one can assume that Gerard Ee’s and his committee knew only too well that the Lee govt would not be able to handle the ‘truth’ so they merely provided what was expected of them!

    It is a sly way of acting by the committee since, by doing so they know that the govt knows that it now owes them a favour or were returning it a favour!

  2. 2 Anonymous 21 January 2012 at 19:44

    Vikram Nair had pointed out that the WP’s proposed $55,000 monthly salary for an entry-level minister was more than the $46,750 proposed by the committee. From your table above, it seems that “an entry-level minister” is interpreted by PAP to be a Senior Minister of State on code SMS while WP’s proposal is certainly referring to an entry-level Minister on code MR4.

    Is Mr Nair being intellectually dishonest and trying to confuse the public that there is not much difference in the overall salary amount proposed by the two parties. Is Mr Teo Chee Hean bluffing his way when he said there is a convergence in thinking?

  3. 3 Anonymous 21 January 2012 at 20:27

    Actually, the median of the top 1,000 is simply the average of the 500th and 501st highest earners. The minsters’ benchmark is determined not even by the top 1,000 but by the 501 highest paid people in Singapore. Let’s say the top 501 make $1M each and the next 499 make $1 each. Guess what is the median of the top 1,000 ? That’s right, it’s not in between $1M and $1, it’s $1M because only the pay of the 500th and 501st matter in the calculation.

    I would be even more interested to find out how many of the top 501 are in the financial sector. I would be willing to bet it’s even more than 38%.

  4. 4 Lim Bt 21 January 2012 at 20:41

    Alex, I never get tired of reading your analysis on any topic. Excellent,great. I have not seen such in-depth analysis although this issue was debated/discussed/argued in other forums. Your analysis should be made known to all Singaporeans. Singaporeans need to understand and look beyond the 30% cut and all the mumbo jumbo.

  5. 5 Alan Wong 21 January 2012 at 23:34

    Under the column “Ratio (not Raio?) compared to MR4” should it not be 1.00 instead of 0.00 for Minister Code MR4 ?

  6. 9 yuen 21 January 2012 at 23:49

    despite the cut, my guess is most people still think ministers are overpaid; and whatever formula they might choose, there will be people who think it is loaded in the ministers’ favour; the crucial issue is whether the change has reduced the political weight of the issue, whether PAP’s electoral vulnerability has been reduced. I guess for the moment this objective has been achieved, but if between now and 2016 serious public failures like MRT breakdowns and flooding (and similar impact events like big GLC investment losses) continue to occur, the issue can again become an election issue

  7. 10 Anonymous 22 January 2012 at 01:05

    So we’ll go from pegging miniterial salaries to the top SIX earners, to pegging them to the top 1000 (or more rightly 501 as the above comment points out). There is no basis for this whatsoever as the top howver many earners can change YEAR-ON-YEAR but ministers/MPs are completely insulated from market forces for at least four years… and let’s not forget that 501 is less than not 1% but LESS THAN 0.1% of the working citizen population. Only in dictatorships are a country’s leaders rewarded more higly than the risk-taking private sector. This is no different from institutionalising corruption — just because it gets written into regulations doesn’t make it clean, they are still morally corrupt.

  8. 11 georgelamb 22 January 2012 at 11:52

    Isn’t there a parliament paper that would be released with all the details of the committee’s work for public perusal?

  9. 12 wikigam 22 January 2012 at 15:14

    This topic will not end. In fact, if any government can ensure all singaporean have min wage $15 thousand a month based on current economy condition ( value of Currentcy singapore dollar). nobody will care how high is their (MM, MP …e tc) pay.

    only min income gap of whole singapore citizen can solve the problem.

  10. 13 ape 22 January 2012 at 16:27

    Apologies. No hard facts to prove but as far as I can recall, the highest AVC ever paid was 3.5 mths and it occurred only once for the last 20 years. Most of the times, it was less than 3…. if we do not consider 13th mth into AVC

  11. 14 anonymous 22 January 2012 at 16:33

    Excellent analysis on how the bonus variable components reflect the mindset of the committee, very insightful. I think Denise Phua’s speech in parliament was objective and well-delivered, one of the best amongst the speakers, she mentioned that the govt should peg pay to the Top 300 civil service individuals too, not just the top 1000 in the private sector.

    Personally, I think that to ensure a good-representation of Singapore as a whole, on top of the above two criterion, the formula should have included the median pay at the 80th, 60th, 40th and 20th percentile to get an accurate reflection of the sort of salaries individuals at various strata in society are receiving. Just taking any top few (or even bottom few, as many have suggested) is not good enough.

    However, formula aside, PM Lee does have a point that cutting the pay too much would deter the “top-notch talent” necessary to run our country. The following is an extract of evidence I quote from my friend

    “Most ministers we are paying would have earned MUCH more going out of Singapore or even working IN Singapore but at other branches. For example; Grace Fu who would be easily drawing a salary of close to 4 million a year.
    Tony Tan was earning close to 13 million a year before the PAP begged him to come out and earn what will be almost 1/10th of what he was earning becoming President.
    Even looking back to our past ministers, Goh Keng Swee for example, when he left politics and went to China as a consultant, he was easily drawing almost 3-4times as much as what he was earning as a minister.

    So, with that being put into consideration, future leaders may be put off. Don’t forget, we are getting Doctors, Professors etc etc who would earn easily two-three times the amount they are earning as ministers. Not considering the fact they have to endure with the stick they are getting from the Singaporeans

    People question public service? Honestly speaking, after reading up, you have got to be kidding me. Almost all the members in there are taking about 50-60% of what they would be getting working in their area of speciality. Who knows, they might even be experts in that area and its their passion. But they’ve come out of that, taking close to a 50% pay cut to serve the nation.”

    Thus, despite whatever flaws left embedded within this topic, in all fairness, I think the government and the review committee has each done a fair job and we should give credit when credit is due.

    • 15 Anonymous 22 January 2012 at 19:38

      Extract of evidence from your friend? Or is it just unverified anecdotes? Whatever the case, the so called talents have to be rewarded such obscene salaries is not due to the lack of talents, but PAP restricting itself to people who shares its ideology, which is flawed to begin with. How else do you justify the opposition parties being able to get talents (Chen Show Mao – top corporate lawyer, Kenneth Jayaratnam – top banker) from private sector to join them? Why not make Mr Chen a minister since he is a top talent and has the right moral qualities?

    • 16 Poker Player 23 January 2012 at 09:05

      How much does a Scandinavian Minister cost – even with all the perks included?

      Maybe we should let all these highly paid people stay in the private sector and import politicians instead.

      A far more efficient use of the tax dollar.

      • 17 yuen 24 January 2012 at 12:13

        an excellent suggestion; there are for example many PRC officials who made a lot of money through “free enterprise” and desire a refuge where their wealth would be safe I am sure they would gladly join the SG cabinet; maybe Poker Player would go to China and seek these people out

      • 18 Poker Player 24 January 2012 at 21:53

        Yuen ‘s typical strawman tactics again. Ignored “Scandinavian” and “even with all the perks included” just to get a comment in…

      • 19 Poker Player 24 January 2012 at 21:59

        Yuen needs to look up the difference between

        “cheap”

        and

        “value for money”

      • 20 Poker Player 24 January 2012 at 22:07

        And finally Yuen needs to know when a rhetorical device is obviously being used…

  12. 21 Chanel 22 January 2012 at 16:51

    Alex,

    I think you are also confused by Table 3 of the Committee’s report, which purported compares ministerial 2010 actual pay with the hypothetical pay computed under the proposed formula. The circa 30% “reduction” in pay is misleading because the Committee did disclose how much bonus was imputed in the actual 2010 pay. Readers only know the bonus assumption under the hypothetical pay under the proposed formula. However, we do know that 2010 was one of the best years in terms of S’pore economic performance, meaning the bonus awarded was likely in the high end. Thus, Table 3 is essentially comparing a great year’s pay to a middling hypothetical pay under the new formula

  13. 22 Anonymous 23 January 2012 at 18:34

    Pardon me for my stupidity, but I can never understand this. Why are people so unhappy with the high salaries of our ministers?

    Look, we are talking about individuals heavily entrusted with the incomparably difficult task of safeguarding the survival and future of our homeland.

    We are talking about highly talented and capable people drawn from the top professions – medicine, law, banking, academia – people who can easily earn millions if they choose to continue in their own professions.

    And not least of which we are talking about people hugely responsible for making critical decisions impacting our very lives – in the same way that medical doctors and aircraft pilots are making life-and-death decisions.

    If we aren’t upset with movie stars and those in the entertainment industry earning millions – why are we begrudging the salaries that our top brains deserve no less – for the sake of our collective well being?

    Are some of us betraying a blatantly inverted sense of priority here?

    Don’t let personal envy cloud our better judgement. Ours is a truly meritocratic society. Anyone with the brains and capability – whether he be the son of a construction worker, a plumber or a garung guni man – can come forward and serve in cabinet – and be handsomely rewarded for a difficult job well done.

    Tell me, where else can we find a fairer system?

    It is us, our children and our grandchildren who will ultimately pay the price if we do not pay those who make life-and-death decisions a generous salary.

    In an increasingly hostile and unpredictable global environment, our island nation takes the first step to stagnation and eventual decline when we stop attracting the best people to the most critical positions in our society.

    I’m not suggesting that we pay our top talents “obscenely” – there is no need for lavishness.

    But let’s get real – it is next to impossible to find a human being with the perfect combination of brains, talents, leadership capability, passion and compassion who will gladly sacrifice his personal and family’s welfare for the rest of society.

    Imagine yourself on board a plane in a turbulent storm – and all the engines have failed. Wouldn’t it help to know that whoever is flying that complex piece of machinery you’re sitting on is the best that mankind can offer in terms of a pilot?

    Would you begrudge paying good money to attract the best person for such a critical job?

    Entry to medical school continues to be highly competitive all around the world for a very good reason.

    In a critically dangerous setting with zero tolerance for errors – such as in open-heart surgery – who would you want to be wielding the scapel?

    Who but the best and brightest amongst us will provide mankind with hopes of a cure for cancer or AIDS someday?

    Do we expect to attract the best brains to medicine with mediocre salaries or a lifestyle comparable to construction workers or plumbers?

    In the same way that we want the best people to occupy critical positions in our cockpits and operating theatres, we want the best and most capable people to take up critical positions in cabinet.

    I see that our greatest challenges down the road is attracting intellectual and political giants which measure up to the calibre of our founding fathers.

    Instead of becoming divided and wasting precious energy haggling over our ministers’ pay, why don’t we unite together in our common quest to identify and attract our young, talented Singaporeans to be our great leaders of tomorrow?

    Why don’t we put our heads together and focus on fine-tuning the mechanisms for measuring the performance of our ministers?

    After all, what we want is to have ministers who perform extra-ordinarily well in managing the real life challenges that we face as a nation. We want ministers who perform extra-ordinarily well in bettering the lives of all Singaporeans.

    And if they meet our expectations, then what is there to stop us from paying our ministers extra-ordinarily well in terms of salaries?

    The survival and prosperity of our small island nation depends on each one of us. We should get our priorities right.

    • 23 Chanel 24 January 2012 at 15:49

      You sound like a broken recorder regurgitating what those men in white say. Tell us why the leaders of other countries are paid just a fraction of what our mnsters make. Oh wait, are you going to tell us that these leaders enjoy “hidden” perks? If these perks are indeed “hidden”, how did you and aP know about this? Was is from WikiLeaks? Assuming it was true, how much would all these “hidden” perks add up to?

      The hard truth is that power office means status, prestige and power, which by themselves are worth a lot of money!

    • 24 Anonymous 24 January 2012 at 16:50

      The problem is these so called talents are not the best we got. They probably wouldn’t earn much more in the private sector. These people are recruited, not from private sector, but mainly from GLCs, stat boards and SAF. They are selected because they subscribe to PAP mentality. Their priority is to look after themselves first, not the nation. PAP need to be voted out so that more talents can step forward to serve. Chen Show Mao took the first step forward. We need more people like him. Not more people like Grace Fu.

    • 25 Poker Player 24 January 2012 at 21:56

      “Tell me, where else can we find a fairer system?”

      Scandinavia.

    • 26 pauls 27 January 2012 at 23:41

      Here’s a pat on the head for spouting the party line so eloquently. Maybe ST can reprint your comment as an editorial.

      More seriously:

      (1) You’re assuming that we are indeed attracting the ‘best brains’ to make ‘life-and-death decisions’. Many would probably disagree. Singapore is beset by so many problems that are inadequately addressed, swept under the rug or whitewashed over that people have begun to lose faith in their political leadership. There have been far too many situations or circumstances in recent years that smack of chronic mismanagement and misjudgment. It’s one thing to handsomely reward people who have indeed made the right decisions; it’s another thing to do so when those people have long been bringing in diminishing returns yet loudly trumpeting their supposed successes. Short of taking action at the ballot box, making noise about salaries is about the only way for people to put their political leaders on notice.

      (2) Lest one get carried away with comparisons to private sector earners, don’t forget that private sector salaries are funded by profits. Movie stars are ‘worth’ millions because they can, quite literally, draw in the millions for the movie studios. Politicians are not self-funding in the same way, but are funded by the public. Taxpayers have every right to be concerned about how their money is being used.

  14. 27 yawningbread 24 January 2012 at 19:56

    The problem is that just because so-and-so earned $ millions as a lawyer or eye surgeon, which may mark him as good in that field, is no reason to think he is good as a political leader of even an administrator. So, to argue that when somebody up there makes him a cabinet minister, he must surely be an excellent one because he earned millions as an eye surgeon, and since it’s been proven (by the aforementioned argument) that he is an excellent political leader, he deserves to be paid $ millions too. . . .

    Do you not spot the confounding excursion in logic?

    Why don’t we hire some top notch assets and derivatives traders — you know, the kind who can make $ millions in commissions even as the broader economy nosedives — and declare them to be excellent ministers too? And then pay them the same $ millions?

    It only testifies to the moral rot we have descended into, when we apply wealth and the ability to extract wealth as a measure of capability or righteousness.

    • 28 Chanel 25 January 2012 at 09:06

      Exactly, Alex. Many people forget tht ministers are aided by an army of very capable civil servants. I would argue that we should pay civil servants more than ministers if they perform well in their roles. This is the case in banking, where many top salesmen and traders make more than their firm CEOs. Ministers should not resent this group of talented civil servants earning more because without them, ministers’ job would be impossible

    • 29 Anonymous 29 January 2012 at 02:33

      Notwithstanding their amazing “wealth-extracting” powers, derivative traders and eye surgeons are nonetheless fundamentally different in terms of calibre. Doctors, lawyers, top civil servants and Brigadier Generals are a high-calibre breed for whom “wealth-extracting” ability is merely incidental. We must be very foolish indeed to hire people in critical leadership positions on the sheer basis of “wealth-extracting” ability.

  15. 30 Anonymous 25 January 2012 at 09:52

    Hi Anonymous
    23 January 2012 at 18:34

    “Ours is a truly meritocratic society. Anyone with the brains and capability – whether he be the son of a construction worker, a plumber or a garung guni man – can come forward and serve in cabinet – and be handsomely rewarded for a difficult job well done.”

    Could you kindly explain why our meritocratic system allowed Tin Pei Ling to represent the people instead of Nicole Seah please? Could you explain clearly the qualities that Tin Pel Ling has that makes her even a worthy candidate to participate in the general elections? Surely the PAP cannot be in such dire state that they so not have a SINGLE grassroot representative in Marine Parade that brings more to the table than Tin Pei Ling does.

    I remember that there was a doctor that was rushed into Tanjong Pagar GRC during nomination. Did the truly meritocratic system think Tin Pei Ling is a better candidate than he is? If so, the PAP must be really really short of talent. Imagine that. He is deemed someone with far lower in capabilities than Tin Pei Ling!!

  16. 31 Did our ministers really suffer a pay cut when they enter political service? 25 January 2012 at 12:21

    The pay of a Brigadier General/Rear Admiral is around S$400,000 plus minus (unless SAF pays each of its BGs so differently). Compared with say the new ministerial pay for a entry level MOS – is there a pay cut? How many of our ministers were from the private sector (excluding GLCs please)?

  17. 32 Leuk75 25 January 2012 at 23:51

    Top private banker, top sales person, great surgeons and teachers are paid top dollars for doing a great job in their area. This does not mean that they will do an equally great job in leading a team. For example, the best sales person may not necessarily make a good product manager who needs to coach, inspire and also strategise for the team. It is a different skill set.

    Yeah, setting minister’s pay to more realistic levels is great. But it will only work out if the pay for performance incentives are set within the right framework. E.g. KPI to reduce GINI coefficient by 20%. If it is forever tagged to GDP, then there is no incentive to improve output and reduced costs.

  18. 33 james 31 January 2012 at 16:21

    Since it’s singaporeans who vote, we should only consider citizens in the employment data. Given the large number of foreigners in retail, F&B, social care sectors, etc, I’m sure the proportion of citizens in financial services would be much higher than 5.6%.

  19. 34 Anonymous 18 February 2013 at 20:22

    KPI should include the happiness of Singaporeans as a huge percentage


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