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Chapter 2


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(This chapter gives an account of the development of the civil service pay policy and system in Hong Kong since the middle of the 20th century, with focus on the five areas under study)


2.1                   We consider it useful to first revisit the history in the development of the civil service pay policy and system in Hong Kong, particularly as regards the five areas covered in Phase One of the review.  This will provide us with a solid basis for comparison with the latest developments in the five countries which the consultant has been asked to look into.


A.  Pay Policies, System and Structure

I.  Policy and System

2.2                   We understand that the existing civil service pay policy is to "offer sufficient remuneration to attract, retain and motivate staff of a suitable calibre to provide the public with an efficient and effective service.  Such remuneration should be regarded as fair both by civil servants and by the public which they serve.  Within these parameters, broad comparability with the private sector is an important factor in setting civil service pay.�� (see note 1) There are two parts to this policy statement.  The first sentence embodies the objective of the pay policy, and the second and third sentences set out the principles involved in determining remuneration.



2.3                   As far as we can trace, the substance of the existing objective of the civil service pay policy dated back to the 1960s.  The same ideas were contained in a more elaborate statement drawn up by the Government in 1968.  The objective has been revisited and reaffirmed in various civil service pay reviews since then.  Indeed there has been no dispute that the objective of the civil service pay policy should be to offer sufficient remuneration to attract, retain and motivate staff of a suitable calibre to provide the public with an efficient and effective service.



2.4                   We turn therefore to the evolution of the principles and system of determining civil service pay, starting from the middle of the 20th century.


Principle: Fair Comparison with Private Sector

2.5                   In the 1950s and 1960s, the Government appointed a Salaries Commission every few years to review the general levels of civil service pay, and the salaries and structures of individual grades.  The 1965 Salaries Commission recommended that civil service pay should be based on the principle of fair comparison with the private sector.  This was further recommended by the 1968 Salaries Commission and accepted by the Government, which drew up an elaborate statement containing the following basic principles �V


          (a) the Government subscribes to the principle of fair comparison with the current remuneration of private sector staff employed on broadly comparable work, taking account of differences in other conditions of service; and


          (b) the public service has a reasonable claim to the maintenance of real income on the evidence of cost of living indices, provided it can be demonstrated that this is also the experience of other employees.


2.6                   Comparability is itself a complicated issue.  As early as 1971, the Salaries Commission��s Report pointed out that ��it is often difficult to establish comparability.  For many Government activities, there is no comparable activity in the private sector �K.. there are no analogues for the disciplined services and the Administrative Officer in Government has a unique part to play �K.. in many respects the service of Government is quite distinct from work in the private sector �K.. Government looks for a continuity of service and hopes to attract it by the provision of incremental scales, reasonable security of tenure, good prospects of promotion and pensions.  These are not necessarily the most prominent factors in the mind of private employers.��(see note 2)


2.7                   While noting the difficulty in establishing comparability, the 1971 Salaries Commission endorsed the principle of fair comparison with the private sector.  In 1971-74, the Government accepted the 1971 Salaries Commission's recommendation to adopt the occupational class method in making pay comparison with the private sector.  The system divided the civil service into occupational classes, each of which included a range of jobs with private sector analogues.  The Government carried out a series of occupational class surveys; but since there were problems in finding comparable jobs in the private sector, the attempt to compare pay on the occupational class basis was not pursued.  Adjustment of civil service pay was made on the basis of cost of living data.


2.8                   As can be seen from the above, two major tasks are involved in establishing comparability with private sector pay �V


          (a) identifying comparable work in the private sector and assessing corresponding pay levels (pay level assessment); and


          (b) assessing general pay movements in the private sector to ensure that civil service pay moved broadly in line (pay trend assessment).


The recommendation by the 1971 Salaries Commission to adopt the occupational class system as a basis of comparison with the private sector represented an (unsuccessful) attempt to deal with task (a).  This is evidently a complicated task.  Before looking further into how this task has been tackled, we would follow the chronological order of events and turn to task (b).



Pay Trend Assessment


2.9                   In 1974, the Government decided to conduct a private sector pay trend survey in order to ensure that civil service pay moved broadly in line with that of the private sector.  The first pay trend survey was conducted that year.  Since then, a pay trend survey has been conducted every year.  A more detailed account of evolution of the pay adjustment system and mechanism is provided in section C of this chapter.


Pay Level Assessment

2.10                   As regards task (a) mentioned in paragraph 2.8, in 1986 a pay level survey was conducted in response to staff request for an increase in salaries following an increase for the directorate.  A consultant was appointed in May that year to carry out the survey.


2.11                   Since many civil service jobs did not have analogues in the private sector, it was decided not to directly match jobs in the civil service with those in the private sector.  Instead, a method of job evaluation was employed (the factor-point method), under which a representative sample of civil service jobs was compared with a similarly representative sample of jobs in the private sector based on three elements: (a) know-how, (b) problem solving, and (c) accountability.  The total points scored for each job were then calculated and matched with the salary and the total remuneration of the job.  As regards fringe benefits, they were mainly valued on the basis of the maximum notional value to employees.


2.12                   The results of the 1986 pay level survey showed that generally, with the exception of Model Scale 1 and D3 and D4, the civil service remuneration package compared favourably with the those in the private sector.  Sufficient information had not been collected for ranks above D4.  The Government accepted in principle the results of the pay level survey in April 1987.


2.13                   In 1988, an improvement package was implemented for Model Scale 1 staff (both in terms of pay and conditioned hours) having regard to the results of the 1986 pay level survey.


2.14                   The findings outlined in paragraph 2.12 above were rejected by the Staff Sides of both the Senior Civil Service Council and the Police Force Council.  The main complaint about the 1986 pay level survey was centred on the defects which were perceived in the pay level survey methodology, in particular, the method of job evaluation and the valuation of fringe benefits.  More specifically, the Staff Sides felt that �V


       (a) the methodology of the survey was too broadbrush and had a limited statistical basis.  The consultant��s methodology took into account only three factors, i.e. know-how, problem solving and accountability.  This method was highly subjective, prone to error and open to manipulation.  This ignored other important factors, e.g. physical effort, working conditions, etc.  It was therefore unsuitable for evaluating complex civil service jobs;


       (b) the use of maximum notional value as a means of calculating the value or benefits was biased against civil servants and the valuation of civil service benefits in particular quarters, private tenancy allowances, and pensions were inflated;


       (c) the time-table for the Staff Sides to comment on the survey was too tight and they were not provided with adequate information; and


       (d) the methodology did not take into account the special features of disciplined services work, e.g. danger, stress, on call, restriction of personal freedom.


2.15                   The Staff Sides reacted strongly to the Government��s decision to accept in principle the general results of the survey and indicated that implementation would seriously affect staff morale and would be strongly resisted.  While discussion on this continued, there was further disagreement between the Administration and the Staff Sides over the size of the 1988 pay adjustment.  In the event, a Committee of Inquiry (C of I) was appointed in August 1988 to examine, inter alia, the methodology and findings of the 1986 pay level survey and comment on their validity as a basis for making adjustments to civil service pay.



2.16                   The C of I submitted an Interim Report in November 1988 and a Final Report in March 1989.  It concluded that �V


       (a) the methodology used for the pay comparisons was sound and reputable but job-for-job comparisons would have been preferable and would have created greater confidence in the results;


       (b) the methodology used for the evaluation of fringe benefits tended to overvalue civil service benefits especially in relation to housing; and


       (c) there were nevertheless no convincing grounds for disputing the general tenor of the results though the degrees of discrepancy between the private sector and the civil service must be in doubt.


2.17                   The Government accepted in April 1989 the C of I��s recommendations, subject to the improvement already awarded to Model Scale 1 staff remaining intact.


2.18                   The C of I also recommended in its report that pay level surveys, based on job-for-job comparisons, should be the foundation of the civil service pay system and that it should be conducted at three-year intervals.  The Government took note of this recommendation.  As the Government had then already invited the Standing Commission to conduct an overall review of the salary structure of the civil service, it would not be desirable to conduct a pay level survey at the same time.


2.19                   After examining further the practicability of this recommendation of the C of I, the Standing Commission expressed the following doubts over aspects of the recommendation �V


       (a) there would be practical difficulty in finding enough private sector job analogues for making job-for-job comparisons.  As a matter of fact, this long-standing difficulty was the reason behind the use of a factor-point system in the 1986 pay level survey;


       (b) it was noted that the C of I had put over-riding importance on the need for maintaining broad comparability with the private sector.  However, frequent adjustments to external relativities at the cost of inevitable disruption to internal relativities would not be conducive to the stability of the civil service; and


       (c) while the proposed system would bring about considerable changes to the existing patterns of civil service pay structure, staff consultation and pay determination, there was no guarantee that the new system would be more effective than the existing one in meeting the policy objective given the difficulties mentioned above, nor would it be more acceptable to staff as demonstrated by the reservations expressed by them over the proposal.


2.20                   In 1988, having regard to the responsibilities and workload of the disciplined services, and the fact that the 1986 pay level survey was unable to obtain information from the private sector on special factors applicable to the disciplined services, such as danger, stress, and restraint on personal freedom, the Government invited the Standing Commission to commission an independent review on the pay and conditions of service of the disciplined services.  The review committee (Rennie Committee) recommended the creation separately of a Police Pay Scale (PPS) and a General Disciplined Services Pay Scale (GDS).  It also recommended the setting up of the SCDS.


2.21                   The SCDS was established in 1989.  On the request of the Government, it conducted a job evaluation of the directorate, Senior Superintendent and Superintendent ranks and their equivalents in the disciplined services.  The job evaluation was conducted in conjunction with the disciplined service managements and a consultant.


2.22                   The results indicated that the Senior Superintendent and Superintendent or equivalent were paid at a level at, or above, 75% of equivalent jobs in Hong Kong.  Directorate jobs appeared to be less well paid, particularly at more senior levels.  The disciplined services claimed that the job evaluation results had not adequately reflected the special, unquantifiable factors which made their jobs different from those of their civilian counterparts.  They proposed pay increases of up to 26% in some ranks.


2.23                   The SCDS considered it appropriate for directorate salaries in the disciplined services to follow the median market line.  In 1990, it recommended to the Government new pay scales for the directorate ranks in the disciplined services.  It recommended no change to the pay scales for the Senior Superintendent and Superintendent, and equivalent ranks.


2.24                   In the same year, following submissions from various disciplined services for revising the pay scales of non-directorate staff, the Government also requested the SCDS to consider the pay for the rank and file first and then the officer cadre.  With respect to the rank and file, the SCDS considered it appropriate to apply the corresponding benchmarks which the Standing Commission had recommended for civilian grades, but with the pay advantage enjoyed by the disciplined services maintained.  The SCDS also recommended a reduction in the number of entry points, and pay improvement to junior police officers to recognise their heavier and wider range of responsibilities.


2.25                   For the officer cadre in the disciplined services, the SCDS concluded that, with the exception of the basic recruitment rank level, their duties and responsibilities were broadly comparable at each rank level.  Their pay should reflect this.  It also made recommendations which brought equivalent ranks in the various disciplined services up to par with each other.


2.26                   In the few years following 1989, the focus of the Standing Commission��s work was on the salary structure review which the Government had invited it to conduct.  (The subject of pay structure is covered in paragraphs 2.30 to 2.33.)  The next review relating to pay levels was conducted in 1999 on starting salaries, in which the principle of comparing with the private sector was adhered to.  For instance, the Standing Commission recommended doing away with qualification groups (QGs) in the civil service that consistently had no comparisons with the private sector (e.g. QGs 4, 6 and 12).  Realising that there may continue to be concerns about the salary levels of the civil service above the entry level, the Standing Commission also recommended that ��consideration should be given to whether and how the question of comparability between salaries for the civil service and the private sector above the entry level may be appraised�� (see note 3).


2.27                   The review resulted in the downward adjustment of benchmarks/starting pay for the majority of the civilian grades ranging from 6% to 31%.  Having regard to the recommendations of the Standing Commission on the starting salaries for civilian grades, SCDS recommended a new set of starting salaries for the disciplined grades, representing reductions ranging from 3% to 17%.  The revised starting salaries were implemented in April 2000.  The Government also accepted the recommendation by the Standing Commission to delink starting pay from the annual pay trend adjustment.


Principle: Follow, Not Lead Private Sector

2.28                   Another principle periodically reviewed in the past is that ��civil service pay should follow rather than lead the private sector.  Government should set an acceptable standard and be among the better paying employers in relation to the lowest pay��.  In the 1971 review, the same concept was reaffirmed but worded slightly differently: ��As regards levels of salary, the principle of fair comparison with comparable employment in the private sector is over-riding, and Government should follow and not lead�� (see note 4).


2.29                   As can be seen from section C of this chapter, the design/methodology of the annual pay trend survey reflects the principle of following rather than leading the private sector.


II.  Pay Structure

2.30                   Upon the establishment of the Standing Commission in 1979, it conducted the first salary structure review and recommended that the Government should adopt the educational qualification method.


2.31                   In recommending the adoption of this system, the Standing Commission had considered two other possible methods:  the occupational class method which had proved unworkable (see paragraphs 2.8 above); and the core grade method, which required the identification of some core grades for which private sector analogues were available to be used as a guide for setting the pay for other grades.  The Standing Commission��s conclusion was that the educational qualification method was the only practicable method at the moment, but did not rule out the possibility of using the core grade method at some future date, whether on its own or in combination with the educational qualification method.


2.32                   The next review was conducted in 1989, when the Standing Commission accepted the Government��s invitation to conduct an overall review of salary structure.  From 1989 to 1990, the Standing Commission reaffirmed the use of the educational qualification method, and made recommendations on revised benchmarks for each qualification group and a revised salary structure having regard to the revised structure of individual grades.  These recommendations were accepted by the Government.


2.33                   The account would not be complete without a brief mention of the progress made in recent years in removing the differentiation between ��overseas�� and ��local�� terms and conditions of employment.  The Standing Commission gave full support when the Government first proposed in 1994 the Common Terms of Appointment and Conditions of Service (Common Terms) with a view to removing the said differentiation.  In 1998, the Government proposed to implement the Common Terms with modification to the scope of application originally proposed.  After consultation of the Staff Sides, and with the support of the Standing Commission, the Common Terms have been implemented with effect from 1 January 1999 for new appointments to the civil service.


B.  Replacing Fixed Scales with Pay Ranges

2.34                   Our study of the development of the civil service pay system has not shown any significant data relating to experience in replacing fixed scales with pay ranges.


C.  Pay Adjustment System and Mechanism

2.35                   In order to enhance the principles relating to fair comparison with the private sector (see paragraphs 2.5 to 2.29 above), a Pay Investigation Unit was first set up in the then Civil Service Branch in 1968, with the task of collecting and analysing information on private sector pay and conditions of service through various surveys.


2.36                   As inflation gathered momentum, it became clear that the general level of civil service pay had to be adjusted at more frequent intervals than before.  In 1972 and 1973, adjustments were made on the basis of cost of living data.  However, it was also clear that basing overall civil service pay adjustments on movements in cost of living alone did not reflect well the principles relating to fair comparison with the private sector.


2.37                   The Government decided that the most effective way to ensure that civil service pay moved broadly in line with that of the private sector was by means of a survey of private sector pay trends.  The results of the survey would be used as the basis for determining overall pay adjustments to the civil service.  As a result, the first pay trend survey was conducted in 1974 when the decision was taken to implement the pay trend survey system.


2.38                   The development of the pay trend survey system was brought within the purview of the Standing Commission in January 1979 when the Commission was appointed.  In that year, the Pay Investigation Unit was transferred to the Standing Commission to enhance the former��s impartiality and independence.  At the same time, the Unit was re-titled as the Pay Survey and Research Unit (PSRU), answerable to a Pay Trend Survey Committee (PTSC) chaired by a member of the Standing Commission and comprised of representatives of SCDS, management and Staff Sides.  Since then, the need for regular pay trend surveys and the methodology for the survey have been continuously reviewed.


Pay Trend Survey

2.39                   Pay trend surveys are conducted by the PSRU on an annual basis.  The surveys aim to assess the average pay movements of full-time employees of private sector companies participating in the survey over a 12-month period from 2 April of the previous year to 1 April of the current year.  They do not measure the pay rates for specific occupational groups.


2.40                   The pay trend survey normally takes place between January and May.  For the purpose of the survey, the non-directorate civil service is divided into three salary bands.  Private sector companies participating in the survey are asked to provide information about changes in basic salaries on account of cost of living, general prosperity and company performance, general changes in market rates and in-scale increment as well as changes in cash payments (e.g. merit pay, bonus) other than those relating to fringe benefits for employees in those salary bands.  The information is then collated and analysed, according to the agreed methodology, to produce gross pay trend indicators (PTIs) for the three salary bands.  Each PTI is a percentage figure representing the average pay adjustment for all the surveyed employees within the same salary band.


General Pay Adjustment in the Civil Service


2.41                   In accordance with the recommendations of the C of I in 1988 (see paragraph 2.16), the terms of reference of which included reviewing the methodology employed in the 1987-88 pay trend survey, the Government deducts the value of civil service increments at their payroll cost (expressed as a percentage of the total payroll cost for each salary band) from the gross PTIs to produce the net PTIs.  In considering the civil service pay adjustment, the Government also takes into account the C of I��s recommendation that where the resulting pay trend indicator for the lower pay band is below that for the middle band, it should be brought up to the same level unless there are over-riding reasons for not doing so.


2.42                   There is consultation within the four central consultative councils, and discussion in the Executive Council and the Finance Committee of the Legislative Council, before a civil service pay adjustment, which takes effect normally from 1 April, is decided and announced.  As the survey covers the 12-month period starting from 2 April of the previous year, the adjustment follows rather than leads, the private sector.


2.43                   In determining the civil service pay adjustment, the Government takes into account the results of the pay trend survey, changes to the cost of living, the state of the economy, budgetary considerations, the Staff Sides�� pay claims and civil service morale.  Neither the PTSC nor the Standing Commission is involved in any discussions between the Government and the staff on the actual pay adjustment.


D.  Performance-based Rewards


2.44                   The Government normally rewards good performance of its staff by promotion or other means such as letters of appreciation and commendations by Heads of Department/Grade (HoDs/HoGs), the Chief Secretary for Administration or the Chief Executive, not related to pay or monetary benefits.  Upon the establishment of trading funds in selected departments (e.g. the Electrical and Mechanical Services Department) in mid-1990s, some kind of team bonus has been devised to reward staff in kind (e.g. supermarket coupons, annual dinner, etc.) on a department-wide basis.  Under these schemes, all staff in a department will receive the same amount of reward if certain targets (mostly in the form of a set of pre-determined indicators reflecting efficiency, effectiveness and standard of service) are reached during the financial year.


2.45                   In March 1999, the Government proposed, in the Civil Service Reform Consultation Document, to progressively introduce elements of a performance-based rewards system into the civil service with a view to providing additional tools to motivate and reward for excellent service.  Since then, HoDs/HoGs have been asked to improve the performance management system by introducing, inter alia, new appraisal forms emphasising core competencies, assessment panels and stricter administration of the granting of increments.


2.46                   Having set the scene, Government decided to test out team-based rewards in the civil service with a view to providing a management tool for departments to identify and reward those outstanding performing teams and, in turn, raise the departments�� overall performance standard.  Team rewards are chosen as �V


       (a) the achievements are relatively more capable of measurement;

       (b) they help to avoid the problem of subjectivity in appraisal; and

       (c) they promote the productivity of the team through peer support.


2.47                   To make a success of performance-based rewards, it is necessary to have a whole-hearted commitment at the senior management levels and a widespread acceptance of the system among staff.  There is also a need to consider how to allocate the rewards to officers fairly and equitably.  To secure buy-in among departments and staff sides and test whether team-based performance rewards can be distributed fairly and equitably, a pilot scheme on a non-consolidated approach has been implemented in six departments since October 2001 with the following key characteristics �V


       (a) rewards may be based on the performance of individual divisions/sections/offices of a department or different work teams within a section/office;


       (b) HoDs may design their own scheme and decide on the detailed assessment criteria for bonus allocation;


       (c) the reward (about half a month��s pay) is one-off in nature and will not be built into base pay; and


       (d) HoDs should involve their staff in developing and administering the pilot schemes.


2.48                   The Pilot Scheme will run for 9-10 months before the winning teams are selected.  This will be followed by evaluation of the trials and recommendations on the way forward. 



E.  Simplification and Decentralisation of Pay Administration


2.49                   For the sake of operational efficiency, system transparency and upkeeping of internal relativity, pay administration has always been centrally managed by the Civil Service Bureau, on the advice of the advisory bodies, through 13 pre-approved pay scales, e.g. the Master Pay Scale, the Police Pay Scale and the Directorate Pay Scale.  New headway in the direction of decentralisation was only made in 1999/2000 when HoDs/HoGs were authorised to recruit non-civil service contract (NCSC) staff and determine their pay to help meet the temporary shortfall in manpower.


2.50                   To further the objective of decentralisation, Government has done a lot in the context of the ��Public Sector Reform�� in recent years.  Apart from delegating more authority to HoDs/HoGs in managing human resources, the concept of ��trading funds�� was introduced in five organisations, namely, the Companies Registry, the Land Registry, the Office of the Telecommunications Authority, the Post Office and the Electrical & Mechanical Services Department to improve the efficiency in service delivery.  The Manager is authorised to manage his human and financial resources along commercial practices but Civil Service Pay Scales should continue to be adopted for remunerating staff.


2.51                   Since 1999/2000, Government has progressively introduced a one-line vote arrangement in 23 departments including the Agriculture, Fisheries and Conservation Department, the Civil Aviation Department, the Department of Health, the Hong Kong Police Force, the Printing Department and the Water Supplies Department.  The Controlling Officer is given autonomy and flexibility in deploying the funds between the various components of expenditure within a single recurrent account subhead of the respective Head of Expenditure.  However, the central pay and establishment controls continue to apply to these one-line vote departments.


2.52                   The real innovation came about in 1999/2000 when the Administration formally decentralised pay administration for the employment of NCSC staff.  Under the new arrangement, the Controlling Officer is given the authority to recruit NCSC staff to meet temporary shortfalls in manpower and determine their pay and gratuities in each case subject to compliance with some broad guidelines, e.g. such terms should not be less favourable than those provided for under the Employment Ordinance or more favourable than the mid-point salaries of the equivalent civil service ranks.  This has provided flexibility for coping with ad hoc surges in workload.  The initial feedback from departments is diverse.  One common view is that if the NCSC scheme is to be used on a larger scale as a permanent alternative to normal recruitment to the civil service, the feasibility should be further looked into.


2.53                   As can be seen, Government has been extremely cautious in venturing into the pay arena in recent efforts of decentralisation as any such initiative would impact on the established civil service pay administration policy and mechanism.  It would not be appropriate to change them without going through a major review and a consensus-building process on the best way forward.



1.  Pages 13-14, Standing Commission on Civil Service Salaries and Conditions of Service Report No. 23, 1989

2.  Page 4, Salaries Commission Report 1971

3.  Page 29, Standing Commission on Civil Service Salaries and Conditions of Service Report No. 36, 1999

4.  Page 4, Salaries Commission Report 1971