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Systems and Mechanisms for Determining Pay Levels and Adjustments

66.  Historically, all our comparator countries had a highly centralised, national level pay and wage determination for the Civil Service.  These systems tended to rely heavily on formula-based approaches to pay determination, and were often based on formal pay comparability with the private sector.  With the exception of Singapore, the other four countries operate a collective bargaining model with formal employer and Trade Union representation.

67.  In the late 1980s and early 1990s, faced with various external pressures already alluded to, all five countries took steps to decentralise the determination of pay levels and adjustments to individual departments and agencies.  One consequence of this has been that the UK, New Zealand, Australia, and, to a much lesser extent, Canada and Singapore, have moved away from a central, formula-based approach to pay setting (as is still the case in Hong Kong), driven by pay trend and level comparison with the private sector.  In place of this, individual Departments now have greater delegated responsibility for pay determination, with affordability, achievement of performance goals, and recruitment, retention and motivation as the key considerations.  Collective and individual negotiation and multi-year agreements with staff, within centrally determined bargaining and budgetary parameters, are now a common feature.   By their nature these negotiated settlements mean that while comparative pay trend surveys and pay level benchmarking with the private sector are still undertaken the results broadly inform rather than dictate the pay adjustment process.

68.  The role of the central agencies has changed, and continues to change, as a result.  Typically, their roles in pay determination now include the following:

· Determining pay levels and adjustments for the senior Civil Service.  This is handled differently in different countries: for example; the UK Government takes advice from an independent Board while Australia and New Zealand utilise individually negotiated agreements

· Determining pay levels and adjustments for specific groups of staff that are handled differently from the remainder of the Civil Service.  For example, in the UK there are six independent pay review bodies covering professional groups who are not allowed, or at least not expected to resort to industrial action i.e. the Senior Civil Service, doctors and dentists, nurses, the Armed Services, teachers and the Prison Service

· Developing the overall framework and policies within which Departments and Agencies can determine their specific pay arrangements.  The detailed operations vary considerably by country.  For example, in the case of Australia and New Zealand the overall framework emphasises affordability and certain minimum requirements (e.g. the requirement to link increases in pay to improved productivity) but Departments are substantially free to determine their own arrangements.  By contrast, in the UK and Singapore, Departments are required to discuss and agree in advance with the central agencies any significant additional flexibilities

· Undertaking research into pay levels and movements.  Typically this research covers both the private and public sectors, is based on a variety of surveys and data sources and is publicly available.  The information is used as an input to the central pay determination described above and provides influential guidance to other Departments and Agencies but, generally, any explicit formula-based link between pay research results and pay adjustments has been dropped.  Individual Departments and Agencies will also undertake their own pay research to examine their competitiveness in their target labour markets

· Providing advice and guidance to Departments and Agencies on pay issues.  In Australia for example, the Department of Employment and Workplace Relations (DEWR) has been influential in developing the performance related pay agenda in the public sector.

69.  The major benefits of adopting these more decentralised arrangements have been to place more authority (and accountability) with individual Departments and Agencies and to provide more flexibility for Departments to tailor pay policies and systems to their own circumstances.  The changes have also simplified substantially the central arrangements but, equally, they have resulted in a very complex and fragmented pay system.  For example, the UK has moved from a single, central system to more than 170 separate pay negotiating units.  Another important learning point is the importance of retaining tight expenditure controls, particularly in the early stages where Civil Service managers are learning to operate in a very different environment. 

Implications for Hong Kong

70.  In considering the potential learning points and implications for Hong Kong, it is important to note that Hong Kong is, in effect, a ‘city state’ with a unitary Government (i.e. no separate regional or local tiers) and with no formal collective bargaining arrangements.  Equally, however, the fact that in order to improve Civil Service efficiency and performance, all of our survey countries are moving to more decentralised pay adjustment mechanisms with less emphasis on formal private sector pay comparability, suggests that this is an area worth exploring further.  Given mounting public concerns in this area, we believe that this is therefore an appropriate time to review the current mechanisms for determining pay levels and adjustments in the Hong Kong Civil Service.  


71.  In doing so, our international research suggests that some of the key questions to be addressed are as follows:

· Should the Hong Kong Government continue to use a formula-based approach to inform pay determination and, if so, does the formula need to be revised and applied differently?

· How much autonomy, if any, should be given to individual Bureaux and Departments to determine their own pay levels and adjustments?

· What role should the central agencies – such as Civil Service Bureau and Finance Bureau – play in future pay determination? 

· Should the Government continue to centrally determine pay levels and adjustments for certain categories of staff (e.g. the Directorate) and do the current arrangements need any modification?

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