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.
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.