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Commonly Adopted Pay Policies, Structures and Systems

42.  Despite certain common history and heritage, each of our survey countries has evolved very different pay policies and systems to meet their specific needs.  It is important to note that these policies have changed significantly over time in response to various factors such as difficulties in recruitment and retention, overall labour market and macroeconomic trends, and prevailing political attitudes and priorities.  So, for example, the UK and New Zealand have moved decisively from policies driven by formal pay comparability with the private sector to those driven far more by the ability to pay and the need to recruit, retain and motivate suitable staff.  Despite these differences, we have also identified some important common themes, the most important of which are summarised below.

The decentralisation of pay policy and administration 

43.  A key, long term thrust of Civil Service pay reform in our survey countries (and, indeed, in many other countries) has centred on decentralising more responsibility for pay policy and administration with the objective of improving flexibility, accountability and overall performance and efficiency.  Some of our survey countries have been more radical than others: Australia, New Zealand and the UK have substantially dismantled their previous nationally-based pay negotiating arrangements and devolved most pay responsibilities to individual agencies and departments, within certain centrally determined parameters and guidance.  Singapore and Canada have retained more centralised systems, but they have also given more autonomy and flexibility to departments and agencies.

44.  One important exception to this common trend has been pay arrangements for senior civil servants.  All five of our survey countries have continued to centrally manage most or all of their senior Civil Service for pay purposes and, indeed, for broader human resource management.  This approach is perceived to have been an effective way both of keeping a ‘lid’ on public sector pay, and ensuring that the Civil Service operates in a coherent way with staff mobility between Departments and Agencies at the most senior levels.  The current pay and HRM arrangements for Directorate level staff in the Hong Kong Civil Service share some but not all of these characteristics.

The importance of the Civil Service as a good employer

45.  All of the countries we surveyed believe that in certain areas (eg equal opportunities) the Civil Service has a leadership role to play in behaving as a ‘good’ employer.  As a result, in a number of the countries we surveyed, the Civil Service is recognised as a leader in  areas, such as equal opportunities policies, emphasis on training and development, and merit-based approaches to appointment and promotion.  Significantly, all of these policies have implications for pay policy and structures.

Affordability or ability to pay

46.  All of the countries we surveyed have faced serious fiscal and public expenditure constraints in recent years.  This has often translated into reductions in the size of the Civil Service and very tight controls on Civil Service pay levels.  In Canada, for example, the core Civil Service has reduced in size by some 40% over the last decade or so and little or no pay increases were awarded for much of the 1990s.  Similarly, the UK Civil Service contracted by an average of some 4% a year during the same period.  Against this background, it is perhaps unsurprising that affordability has become a dominant feature of pay policy in these countries.  This is particularly so where pay responsibilities have been substantially devolved to individual Departments and Agencies (where budgetary limits have become the key control mechanism).

47.  The emphasis on tight public expenditure control in these countries has also limited the ability to implement more performance related pay systems as there simply have not been the resources available to fund such schemes adequately.  This appears to have had a negative impact on both the acceptability and perceived value of such schemes in the countries concerned.

External comparability

48.  As already indicated, reforms pursued in the 1980s and early 1990s reduced the emphasis on formal pay comparability with the private sector with affordability considerations increasingly taking precedence.  However, all the Governments we surveyed have continued to stress the importance of providing sufficient pay to attract, retain and motivate suitable staff.  In doing so, they have often tried to maintain “broad comparability” with the private sector although any explicit link has usually been dropped.  None of the countries we surveyed seek to lead the private sector: they either aim to broadly match the private sector (eg Singapore) or explicitly recognise the need for what in the UK is termed as a ‘public sector discount’, reflecting certain additional benefits of Civil Service employment such as increased job security and non-contributory pension entitlement. 

49.  There is however mounting concern in, for example, Australia and the UK that, as a result of these policies, pay for senior civil servants in particular is now lagging the private sector by too great a margin and there have been recent attempts to bridge this gap.  In Singapore, concerns about the same issue resulted in senior Civil Service salaries being pegged formally with top earners in the private sector, a move that has created some controversy but is in line with Singapore’s objectives of continuing to recruit the “best and brightest” to the Civil Service.

Internal relativities

50.  Internal relativities have been and will no doubt remain an important aspect of pay policy development in the Civil Service.  However, a common trend is that the relative importance of internal relativities in Civil Service pay determination appears to be diminishing, for two main reasons.  First, the process of decentralisation already referred to above, has reduced the importance of internal relativities between Departments and occupations (but not within Departments and Agencies).  Second, Governments have consciously sought to move away from an over-emphasis on internal relativities recognising the distorting impact that this can have on their ability to recruit in the external labour market. 


Linkages between pay and performance

51.  A common trend in pay policy reform in all of the countries we surveyed has been efforts to link pay more closely to performance - both individually and in terms of increased public sector productivity.  The underlying objectives have been: to improve efficiency and productivity; to help to generate a performance culture; and to increase flexibility.  The general trend in our survey countries has been to replace or supplement traditional fixed pay scales (with more or less automatic increments) with a range of performance-based pay arrangements including flexible pay ranges, performance bonuses and other reward schemes  (as described in more detail below).  The initial focus of such schemes has often been on the senior management levels. 

Flexibility and responsiveness

52.  The Governments we have surveyed have all sought to introduce more flexible pay policies in order to avoid getting locked into rigid or unnecessarily complex or bureaucratic approaches, as was typically the case historically.  The UK, Australia and New Zealand have all replaced such systems with more simple and flexible central approaches, consistent with a more devolved approach to Civil Service management.  However, the most striking example is Singapore which, initially driven by the impact of economic recession in the mid-1980s, has progressively introduced far reaching measures to ensure that the Government has considerable flexibility to adjust Civil Service pay to reflect economic conditions.  The discretionary elements of remuneration for senior civil servants in Singapore now amounts to some 30-40% of total remuneration, and is only partly consolidated into base pay (and is thus pensionable).

Consolidation and removal of allowances

53.  It is important to note that there is a striking difference between our survey countries and Hong Kong in terms of the provision of allowances and their historic significance.  Specifically, only a very small minority of civil servants in our survey countries receive allowances which in total exceed 10% of their total remuneration (excluding pension entitlement) and in some countries, such as the UK, allowances have now been largely eliminated.

54.  All of our survey countries have taken various initiatives to consolidate and remove allowances both in order to improve Civil Service transparency and accountability and to reduce administrative costs; for example, the Canadian Government estimate that processing of allowances consumes more than 1/3 of the total cost of delivering human resource services.  This policy generally appears to have been welcomed by staff as encashment or consolidation of allowances has provided them with greater freedom to spend their incomes as they wish.  For example, the Singapore Government has adopted a “clean wage” policy in which many allowances and perks (eg cars for senior civil servants) have been abolished or consolidated into basic pay, while New Zealand has allowed senior staff to decide how best to structure their own remuneration packages providing that there is no extra cost to the Department or agency concerned.

55.  Where allowances have been retained it is generally for a small number of specific reasons, for example, undertaking particularly difficult or unpleasant tasks, for working in remote or expensive locations, for overtime or excessive work requirements, and to help attract and retain particular skills which are in temporarily short supply.

Separate arrangements for the Disciplined Services

56.  Our research has shown that there is not a consistent model for handling pay arrangements in each of the survey countries for the broad equivalents to the Hong Kong Disciplined Services (Correctional Service, Customs and Excise, Fire Department, Government Flying Service, Immigration Department and the Hong Kong Police).  The general trend appears to be to provide separate pay arrangements for those Disciplined Services equivalents where the right to strike or take industrial action has been removed (for example, the UK Prisons Service have recently had their right to take industrial action removed through statute and, in recognition of this, their pay is now determined through a separate pay review board) and/or where there is a perceived need to ensure that pay determination is independent of Government and undue political interference. 

57.  In practice, this has led our survey countries (with the exception of Singapore) to establish separate pay arrangements for the Police Force.  But most of the other Disciplined Services equivalents are, with certain exceptions (eg UK Prisons Service), managed in the same way as other Departments or occupations within the Civil Service or broader public sector.  However, it is important to note that under the more decentralised arrangements described above, there has been scope for these Disciplined Services equivalents to tailor their pay arrangements to meet their specific circumstances.

58.  A specific issue of concern to the Police Force and some of the other Disciplined Services equivalents in our survey countries is the different pay arrangements that have operated historically for uniformed and non-uniformed or civilian officers.  The general perception appears to be that this has created a range of human resource management and efficiency issues and a number of our survey countries are taking steps to better integrate all staff within a single pay and HRM structure (eg Canada, where historically there have been two differently treated groups of civilian staff in the Royal Canadian Mounted Police, in addition to sworn officers). 

Implications for Hong Kong   

59.  In response to various external pressures, the countries we have surveyed have implemented major changes to their pay and grading policies in a range of areas.  Generally speaking, these reforms have been perceived as successful by the Governments concerned in the sense of contributing to improved Civil Service performance and productivity, and in some cases, these perceptions are backed up by more independent evaluation work.  Equally, however, it is fair to say that the reactions of individual staff and Trade Unions to these reforms has been more mixed with substantial resistance to change, particularly in the initial stages of implementation. 


60.  While the Hong Kong Government has implemented certain changes to its pay and grading policies in recent years, it is fair to say that the nature and extent of these changes has been more limited than our survey countries (with the possible exception of Canada).  Given that Hong Kong continues to face similar external pressures to those facing our comparator countries, and given the perceived success of the reforms by the countries themselves, we consider that there would be value in the Hong Kong Civil Service undertaking a more far reaching review of their pay policies and the fundamental principles underlying them.  In this event, the following questions will need to be addressed:

· Is there scope for further decentralisation of pay responsibilities to bureaux and departments?

· Are the Hong Kong Government’s overall employment policies consistent with that of a good employer?

· Should formal pay comparability with the private sector be continued and, if so, on what basis?

· Should the Hong Kong Government move away from a system of internal relativities built mainly around educational qualifications?

· Should affordability within budget constraints (i.e.  ‘ability to pay’) assume a dominant role in determining overall resources for pay adjustment?

· What scope is there to accelerate or extend current initiatives to rationalise, consolidate and simplify existing allowances?

· To what extent should the current Disciplined Services continue to be handled separately for pay purposes?

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