Money not enough?

This year has been rather eventful for reward management practitioners. Firstly, an upward pressure on salaries, amidst a tight labour market, caused numerous companies to match counteroffers of competitor firms to retain key employees. Secondly, the Singapore government revamped the salary management system of its civil service to keep pace with benchmark salaries of the private sector. To link rewards more closely to performance, the government increased the proportion of annual salary that is variable. At the senior levels, as much as 50 per cent of the annual salary is performance-based. According to a compensation consultant, “the civil service increasingly finds itself competing for talent against the private sector and as such, needs to ensure that its pay packages are competitive and aligned with its objective of attracting top talent’

Although the justification for paying public servants top salaries is to attract and retain key civil servants, it may have created a bridge that connects the stigmatised lowly paid public servants and the highly paid private enterprise executives. The dichotomy between public and private sector salaries will be blurred, and the traditional mindset of lowly salaried public servants may over time be eradicated. With the revised salary management system for public servants, the Singapore Government is setting the salary benchmarks that private enterprises will inevitably follow to stay competitive.

In the public sector, pay is symbolic. The perception of pay equity is an emotional topic. It is more so if the rewards of the political leaders of the country are intimately pegged to market pricing, benchmarked against the most successful chief executives of global corporations, and built on the public servant salary structures. It must be the dream of public servants to be rewarded as corporate entrepreneurs without the risks, responsibilities, accountability and/or competence to manage a business. As expected, ministerial salaries and bonuses created much attention and debate these past months.

In recent years, compensation of chief executives and senior management of private enterprises have been under scrutiny by stakeholders. At shareholders meetings, stakeholders are disgusted at the manner senior managers reward themselves regardless of company performance and returns on investments. In many instances, non-performing executives are offered golden parachutes amounting to millions of dollars as they are shown the back door. One need to go no further than to examine the classic case of Enron to understand why pay for performance and incentive schemes of the Anglo-Saxons led to the collapse of the organisation.

For more than twenty years, the Anglo-Saxons embrace pay for performance system as the panacea for driving employees’ behaviours towards the goals and objectives of organizations, often ignoring “the folly of rewarding A while hoping for B”. In his research on the mythology of management compensation, Edward Lawler III argued against the effectiveness of pay for performance in “why is pay no longer an incentive to better job performance". More recently, Michael de Beer conducted a survey on a sample of global senior executives examining “if incentives work?” Their results suggested that careful efforts to design an incentive system to make pay contingent on unit performance may be misguided, and raised questions about the worldwide trend towards the use of more executive incentives. Unfortunately, many organisational practitioners are still paying extraordinary attention to pay for performance. Are practitioners familiar with the notion of pay without performance?

The Singapore government may have embedded the cultural aspects of reward management by imposing Anglo-Saxon practices on its servants in predominant Singaporean Chinese work communities. As an example, the dimension of power distance as espoused by Hofstede, within the context of reward management, refers to the degree of inequality that is tolerable between salaries. Countries with a high power distance can have extremely wide salary gaps (income disparities) that would not be tolerated in countries with a low power distance. Within countries (as well as companies) with a high power distance, it is accepted both implicitly and explicitly that people at lower levels of the organization should be paid little, and people at the top should be paid a great deal. Under these circumstances, is there a sense of guilt at the boardroom where people at the top are compensating themselves with obscene salaries and bonuses and the lower levels of an organization are drawing minimal wages barely adequate to meet hygiene levels? In the context of a high power distance work environment of "Yes Minister", the ethics of performance reward should be taken seriously. Otherwise, pay and performance may arbitrarily be determined by a "few good men", regardless of corporate governance.

Although the government has announced the revised salary management system, many questions remained unanswered:

• Is the Anglo-Saxon’s pay for performance scheme designed on the premise of private sector enterprises, relevant and aligned to the Singapore civil service in terms of its purpose, its objectives, and the culture of public servants?
• Should the rejuvenated public service rewards scheme be a pay for (past?) performance, pay for competence, pay for (future?) contributions, or simply pay for service excellence?
• Are we encouraging public servants to be mercenaries as we throw more monies at them?

Soon, public servants, accustomed to higher salaries, will seek more salaries and bonuses so that they will not be dissatisfied with work. Seriously, is there a causal link between civil servants offering public service and an economy doing exceptionally well? Perhaps, we will experience Steven Kerr’s “folly of rewarding A while hoping for B?” in due course.

It is always convenient to justify salary increases with market pricing of benchmark companies. Inevitably, adopting salary surveys for competitive benchmarking purposes will result in upward spiraling salary costs, and intense pressure on companies to pay more. In addition, salary surveys are dated, and is an indication of pay for past performance. Do we really need to look back in order to move forward?

Reward management practitioners should go beyond the cash components of compensation and examine total rewards in the context of the industry the reward plan operates. Just as it is a folly to pay public servants private sector salaries, it will be a folly to pay volunteers and full time employees of charitable and/or non profit organizations private sector salaries, as a senior public servant suggested in his keynote speech at a recent charity dinner.

Regardless, money is never enough.