Managing Healthy and Sustainable Wage Bills

The Singapore Experience

Conference on Improving Public Service Performance in the OECS

Countries in Times of Crisis 2-3 Nov 09

Wage Bill Management

• Block Budgeting concept– Ministries are given a “block budget” and have

the autonomy to allocate resources– The block budget tracks the GDP growth

• 2-pronged approach to wage bill management– Headcount management– A competitive and flexible wage system

Ensuring Sustainable Wage Bills

Sustainable Wage Bills

Flexible Wage SystemHeadcount ManagementG

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Headcount Management

• Manpower Management Framework– Allow manpower growth in line with labour force

growth– Flexibility for additional manpower requirements

• Re-prioritisation of existing functions for emergency manpower needs

• Request to MOF for additional manpower as last resort

– Manpower surcharge mechanism (Headcount Tax)• S$10,000 per excess staff

Headcount Management

• Job Evaluation & Creation of Posts – Ministries may create posts subject to budget

constraints– Job grading exercises are conducted to size jobs &

the revised staff structure is evaluated based on• Increase in posts• Affordability• Availability of talent

Flexible Wage System

• 4 key principles– To have a flexible wage system that can

respond to economic conditions– To keep pace with market rates to attract and

retain a fair share of talent– To strengthen link between pay and

performance – To pay clean wages (“pure cash”), i.e. to avoid

hidden perks

Prime Minister’s OfficePublic Service Division

Structure of Flexible Wages

Pre-1987 Today

Up to 50% of annual salaries are variable today with

stronger links to economic and individual performance

Monthly components

Annual components

Fixed components

Variable components

Growth Bonus

Annual Variable Component

Performance Bonus

Variable component (only affected in major economic downturn)

Dependent on economic performance

Dependent on individual performance

Dependent on individual and economic performance

NPAA/13th month

• Key Salary Components– Basic monthly salary: 12 mths– Non-Pensionable Annual Allowance (13th-mth): 1 mth– Annual Variable Component

• Linked to economic performance• Overall wage growth should not exceed GDP growth

– Growth Bonus• One-off payment made in times of exceptional economic

performance• Performance-based

– Performance Bonus

Structure of Flexible Wages

Flexible Wage System and Tripartism

• Tripartism– Key to success in wage restructuring efforts– Key competitive advantage for Singapore,

underpinning economic competitiveness and harmonious labour-management relations

Government

Employers

Unions

Flexible Wage System and NWC

• National Wages Council (NWC)– Tripartite committee with Government, Employer

and Union representatives– Advisory body to the Government– Reviews wage trends in relation to the economy’s

performance, and make recommendations on wage adjustments

– Government has generally aligned its wage decisions to NWC’s guidelines

Benchmarking Wages

• Competitive Salaries– Annual salary review to compare with private

sector benchmarks• Comparison based on equivalent qualifications and

job markets• Monitor state of health of each service• Annual review ≠ Annual salary revision• May result in non-monetary revisions• Consult Ministry of Finance on financial

implications

Prime Minister’s OfficePublic Service Division

Performance-Driven Pay

• Performance Bonus – Introduced to all officers in 2000– Shift from rewarding seniority to rewarding ability– Differentiate rewards between outstanding,

mediocre and under-performing staff– Success depends on rigorous appraisal system

and good performance management system– Cost neutrality maintained using concept of

Performance Bonus Dollar Pool

• Merit Increments– Available to all graduate schemes– In the past, increments were fixed and not

differentiated between good and poor performers– Currently, increments are variable, dependent on

the performance and potential of each officer as well as market movements

– Increments are reviewed annually against private sector norms

Performance-Driven Pay

Flexible Wage System in Action

• Asian Financial Crisis (1998)– Annual components cut in 1998– Monthly salaries cut in 1999– Monthly salaries restored in 2000

• September 11, the Iraq War and SARS– Wage cuts for senior civil servants in Nov 2001, and again in Jul

2003– Restored in 2004

• 2007 Civil Service Salary Revisions• 2008-2009 Economic Recession

– Annual components cut in 2008 and 2009– Merit increment reduced in 2009– Starting salaries lowered in 2009

Challenges

• Tension between salary competitiveness and maintaining a healthy wage bill

• Mindful of setting wage trend for private sector

• Need to be complemented by a robust Performance Management System

Thank you