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Chapter 3


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(This chapter sets out, in point form for easy reading, the Task Force��s views on the consultant��s five-country study and highlights relevant points that might merit further consideration)


I.       Introduction

3.1      -     The five-country study by the consultant has provided us with knowledge regarding the five specific areas which the Task Force has been asked to focus on.

3.2      -     Inevitably, differences and variations exist to cater for the needs of individual countries.  Even the definition of ��civil service�� varies from one country to another.  But the consultant has also identified some common themes and lessons.

3.3      -   We noted the consultant��s principal observations that �V


(a)        pay and grading reform cannot and should not be implemented in isolation from the broader civil service reform agenda;

(b)       a long term view needs to be taken;

(c)        gaining buy-in and commitment to change from key stakeholders is critical;

(d)       a major investment of resources is necessary to build the capacity and commitment required to implement major pay reforms; and

(e)        making significant changes to pay and grading arrangements, within the context of wider reform, inevitably involves pain as well as gain.

3.4      -   We do not intend to repeat the consultant��s findings in this report but would like to urge readers to read them in their original form.  (The consultant��s report is attached to this report.)

3.5      -   Up to this point in time, we maintain an open mind on the consultant��s findings and recommendations.

3.6      -     Nonetheless, it is worth noting that the great majority of those countries studied have introduced extensive reforms over a long period (some 10 to 15 years) to keep up with the changing socio-economic circumstances and what their citizens expected of their civil servants.

3.7      -   We are well aware that the consultant��s study could only provide reference points and that Hong Kong has to operate under a civil service pay system best suited to its own needs.

3.8      -   In the light of the present system in Hong Kong (bearing in mind the development as recorded in Chapter 2), we would like to raise the following for discussion, before formulating our own views and recommendations.


II.   A Need to Change?


3.9      -     Prior to discussing the pay system as defined under the five areas, our over-riding consideration is: do we need to change the existing pay system which is a product of evolution and which, among other things, has provided Hong Kong with a stable, clean and efficient civil service?

3.10    -   We are mindful that for this review to be fair and comprehensive, we need to maintain an open mind.  However, having seen the development in the five countries studied, there seems to be a case that while the present pay system has served us well, some serious thinking is needed to ensure that the pay system is appropriate under the current socio-economic circumstances in Hong Kong and can meet changing expectations from all quarters as well as challenges in the future.

3.11    -     This need for change is borne out by recent public discussions over the cost of the civil service.  It is obvious that the community would like to see a thorough re-thinking of the basic principles of the existing pay system.  Whilst regular pay-level, salary structure and other reviews conducted in the past had made some improvement to the system, piecemeal review on specific areas in the system may no longer suffice.

III.  Task Force��s Views on the Five Areas of Study


A.    Pay Policies, Pay System and Pay Structure


3.12    -   As mentioned in Chapter 2, the objective of Hong Kong��s present 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��.

3.13    -   By nature, government service cannot be driven by exactly the same work objectives as the private sector where, in many cases, profit-making or growth of business are the major considerations.

3.14    -     Apart from expertise, factors such as loyalty, experience, service ethos,  social responsibility, unity and continuity of service are rated higher in government service and, as pointed out in Chapter 2, these are not necessarily the most prominent factors in the mind of private employers.

3.15    -   To attract, retain and motivate staff, the method presently used by the Hong Kong Government is by, among other things, the provision of competitive pay (set with regard to general comparability with the private sector), reasonable security of tenure, relatively good prospects of promotion and pensions or mandatory provident fund (MPF) benefits.

3.16    -     Lessons learned from the consultant��s five-country study suggest that while the belief is still there that the civil service has a leadership role to play as a ��good�� employer and that to ��recruit, retain and motivate�� is a common enough objective for their pay policy, incremental scales, security of tenure, prospects of promotion and pension may no longer be major considerations.

3.17    -     Affordability has become a more prominent factor in the countries studied.  Less importance is also being given to formal pay comparability with the private sector.

3.18    -     The principle of treating everybody more or less alike under predictable incremental scales, security of tenure and pension etc. may no longer apply, these are gradually being replaced by performance-based rewards, variable pay components (especially for the senior members of the civil service), contract arrangements or provident fund in lieu of pension.

3.19    -     Other changes have led to a ��clean wage policy�� with job-related allowances consolidated.

3.20    -   In this respect, the civil service pay systems in the countries studied may share increasing commonality with pay systems in the private sector, though profit-making and expansion of business cannot be civil servants�� major considerations.

3.21    -     The consultant seems to suggest that such shifts in emphasis have served the countries which introduced them quite well.  At least, they have been seen as addressing the debate on whether the civil service is over-paid, under-paid or whether civil service pay is moving with changing economic circumstances.

3.22    -   We are not suggesting at this stage that the Hong Kong civil service should follow suit, as we need our own system which will continue to promote public service ethos and unity.  Any change which might result in a high turnover of staff in the civil service will not be beneficial to Hong Kong.

3.23    -     Instead, we would like to ask the following questions �V

(a)              Should there be a major overhaul of the civil service pay policy and system, putting more emphasis on performance-pay, clean wage policy (i.e. paying ��all cash�� wages in lieu of allowances, housing and medical benefits, etc)?

(b)             Should senior civil servants be subject to a pay policy which is different from that of the middle-ranking and junior ranks, placing more risk/award factors on the former?

(c)              Should the disciplined services�� pay be treated differently from the rest of the civil service?

(d)             Should we continue to conduct regular pay level, pay structure and pay trend surveys to ensure that civil service pay remains comparable with that of the private sector?

(e)              Or should Government��s affordability to pay be an over-riding consideration in pay adjustments?

(f)               What features of the existing pay policy and system should be retained to ensure stability and morale of the civil service?

(How changes are to be implemented and how long that should take will not be considered at this stage.)


B.       Replacing Fixed Pay Scales with Pay Ranges


3.24    -     For many years, Hong Kong has adopted a system of civil service pay scales with fixed annual increments.  An officer is granted an increment annually until he reaches the maximum point applicable to his grade and rank.  An increment may be withheld on account of unsatisfactory performance, but such cases are rare.

3.25    -     The Hong Kong Government does not have experience in replacing pay scales with pay ranges.

3.26    -   All of the five countries studied have incorporated flexible pay ranges, but to different extents.  Some have flexible pay ranges for most civil servants.  Others have introduced flexible pay ranges only for senior civil servants, retaining fixed pay scales for other civil servants.

3.27    -     Typically, a minimum and maximum salary are specified for officers in a particular rank or band.  Considerable flexibility is allowed for officers to move within that range, and for performance to be taken into account in determining such movements.

3.28    -     The experience of the five countries shows that the introduction of pay ranges may provide a fairer system of reward based on merit (and not just time served) and encourage a performance culture.

3.29    -     Their experience also shows that the use of flexible pay ranges must be accompanied by a vigorous approach to performance measurement and management.

3.30    -   In considering whether flexible pay ranges should be introduced to replace fixed pay scales in the Hong Kong civil service, some questions have to be addressed �V

(a)        Would the introduction of flexible pay ranges bring benefits in terms of better rewarding performance and enhancing a performance-oriented culture in the Hong Kong context?

(b)       Would flexibility in pay progression lead to potential divisiveness among civil servants? 

(c)        Should flexible pay ranges be applied to the entire civil service, or only to senior civil servants, who typically have heavier management responsibilities?

(d)       Should flexible pay ranges apply both to civilian grades and the disciplined services?

(e)        Would changes be required to the existing performance measurement and appraisal systems to support the introduction of flexible pay ranges?

(f)         Would a performance management system directly linked to pay be the most effective way of nurturing a performance culture?

C.    The Pay Adjustment System and Mechanism


3.31    -   In Hong Kong, civil service pay adjustments are determined with reference to an annual pay trend survey aimed at assessing the average pay movements of employees of private sector companies over the preceding 12 months.

3.32    -   In determining the civil service pay adjustment, the Government also takes into account other factors, such as changes to the cost of living, the state of the economy, budgetary considerations, the staff sides�� pay claims and civil service morale.

3.33    -     The consultant has observed that, with the trend of decentralisation of pay administration to individual departments and agencies, there is a move away from a formula-based approach to pay determination in the countries studied.

3.34    -     The consultant has also observed that as a consequence, the role of the central agencies has changed with more emphasis on setting the overall policy framework and providing advice, rather than directly controlling detailed pay negotiations.

3.35    -   A closer look at the summaries of the five countries shows that in two of the five countries, it appears that the central governments still exercise strong control over the determination of pay levels and adjustments, with a rather mechanistic approach to determination.  In the remaining three countries, it appears that fiscal constraints and pay negotiation are the key determinants in setting levels and adjustments.

3.36    -   In considering whether the experience in the five countries studied provides useful guidance relevant to the Hong Kong context, some questions have to be addressed �V

(a)        Should the principle of broad comparability with the private sector continue to be adhered to?

(b)       Is the existing pay adjustment system still regarded as fair by both civil servants and the public which they serve?  Would another mechanism serve this purpose just as well, or better?

(c)       Is there a need for changing or introducing more flexibility in the existing adjustment mechanism?

(d)       Should fiscal constraints be an over-riding factor in determining pay adjustments?

(e)        Depending on whether, and to what extent, pay administration should be decentralised to departments (see section E), what would be the right balance for Hong Kong in terms of central control/guidance versus autonomy/ flexibility for individual departments?

D.       Introducing Performance-based Rewards


3.37    -   As outlined in Chapter 2, the Hong Kong Government��s experience in introducing performance-based pay is very limited.  The proposal to progressively introduce elements of a performance-based reward system into the civil service first appeared in the Civil Service Reform Consultation Document published in March 1999.

3.38    -     Having improved the performance management system through the introduction of competency-based appraisal forms and assessment panels, and stricter administration of the granting of increments, Government implemented a pilot scheme in six departments in October 2001 to test whether team-based performance rewards can be distributed fairly and equitably and to secure buy-in among departments and staff sides.  The results to be available in late 2002 will shape further development on this initiative.

3.39    -     Lessons learned from the five-country study indicate that a common thrust in all the countries surveyed is to link pay more closely to performance.  Replacement of automatic annual increments on fixed pay scales by more flexible pay ranges (which enable different pay and increases to be meted out on the basis of performance) has been a significant step towards implementing performance-related pay.

3.40    -   In varying degrees, some countries have consolidated the individual performance bonuses into the base pay.  Others prefer to administer them in the form of one-off payments either as a token for a good year��s work or a reward for contribution to a project.

3.41    -     Team-based performance pay is less common and is normally associated with completing a particular task/project or achieving a prescribed performance target.

3.42    -     Performance-based rewards in other countries have so far focused on senior civil servants.  This part of their remuneration ranges from 5% in one country to some 40% in another.  As regards more junior staff, many are not eligible for performance-based rewards.  Where they are, the amount is usually less than 10% of salary.

3.43    -     Experience in other countries suggests that success of any performance-based reward scheme depends very much on a credible supporting performance management framework and adequate funding to enable the granting of meaningful rewards.  Where the framework is fair and applied consistently, performance-based rewards appear more capable of bringing tangible benefits to the management and the staff concerned.

3.44    -   In the light of the above, some questions have to be addressed �V

(a)              Do we see the merit for Hong Kong to incorporate elements of performance pay in civil service salaries?

(b)             Apart from pay ranges which already have performance-related elements, do we need to consider other forms of performance-based rewards?

(c)              Should team-based performance rewards be used and, if so, to which group (senior, middle, lower or all levels) should they apply and on what basis?

(d)             Should individual performance rewards be introduced and, if so, to which group (senior, middle, lower or all levels) should they apply and on what basis?

(e)              Some improvements to the staff appraisal system have been introduced in recent years.  What further changes are needed to support the introduction of performance-related pay?

E.       Simplification and Decentralisation of Pay Administration


3.45    -   On decentralisation, the Hong Kong Government has delegated more authority to departments in managing human resources, introduced ��trading funds�� in five organisations and a ��one-line vote�� arrangement in 23 departments in recent years.  However, there is no decentralisation of pay administration, which is centrally managed by the Civil Service Bureau.

3.46    -     Building on the experience of employing temporary workers, the Hong Kong Government has authorised the departments to separately recruit non-civil service contract staff to meet temporary shortfalls in manpower and determine their pay and gratuities in each case since 1999/2000, subject to compliance with some broad guidelines.

3.47    -     The country studies by the consultant reveal that all the countries covered have, to varying degrees, devolved their pay arrangements to individual departments and agencies, operating within a centrally determined policy framework and subject to strict affordability and budgetary constraints.  Key features include �V

(a)  giving considerable freedom to departments/agencies;

(b) continuing to manage senior civil servants centrally; and

(c) reducing the use of allowances.


3.48    -     According to the consultant, these efforts appear to have contributed to real improvements in both individual performance and overall civil service productivity, mainly by providing a fairer way of rewarding people, gearing pay systems to the particular circumstances of individual departments/agencies, simplifying arrangements and providing more flexibility to meet resource and staff needs.

3.49    -     However, pay decentralisation has also created problems of internal relativity and threats to the overall coherence of the civil service in terms of common purpose and values.

3.50    -     Most countries surveyed have also implemented major changes to their grading arrangements, common features include �V

(a)              departmentalising general grades personnel (with the exception of the Administrative Service or its broad equivalent);

(b)             creation of flatter, less hierarchical management structures, through rationalisation of the number of ranks and pay ranges;

(c)              combining occupations into broad staff groupings for better human resource management;

(d)             establishing formal job evaluation systems/procedures for assessing job weighting; and

(e)              reducing the weighting attached to educational qualifications as the primary determinant of rank or grade in favour of a broader assessment of job demands.


3.51    -     Some questions have to be addressed �V

(a)        Should consideration be given to introducing decentralisation of civil service pay administration for a city like Hong Kong?

(b)       If decentralisation of civil service pay administration is to be introduced, how much pay and grading responsibility should be devolved to departments?

(c)        Should some or all of the current general/common grades staff be departmentalised to facilitate department-based management?

(d)       If civil service pay administration is to be decentralised, there may be a rather long transition period.  How can the standard of service and staff morale be maintained during that period?

(e)        In terms of simplification, is there scope to amalgamate existing grades within broader occupational categories?  Is there scope for having flatter organisations with wider span of management control and fewer rank layers?

(f)         Should a formal job evaluation system be introduced and, if so, should this be operated centrally or at department level?