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.

Are we motivating public servants to behave like mercenaries by throwing more money at them?

TodayOnline, 14 December 2007, Singapore

Will bonuses be pegged to (sub-prime) performance?

Singapore bankers upbeat about fatter bonuses
Business Times Singapore, 8 December 2007
By Chow Penn Nee
(c) 2007 Singapore Press Holdings Limited

(SINGAPORE) Despite market volatility stemming from the sub-prime crisis in the United States, Singapore-based bankers are counting on higher bonuses this year, and are optimistic about next year as well.

So says a worldwide survey of 20,270 employees working in financial services, conducted by eFinancialCareers.com, a global financial careers website.

The study found that slightly over half of Singapore bankers expect to receive higher bonuses than last year, and only about 17 per cent expect their bonuses to be lower than the bumper payouts of 2006.

Sarah Butcher, editor of eFinancialCareers.com, said: 'The expectation of swelling bonuses may be linked to the fact that Singapore-based bankers are paid less than their global counterparts. She added that the survey revealed that the average Singapore banker received a bonus equivalent to 44 per cent of salary last year, compared with 76 per cent in Hong Kong and 58 per cent in the US.

Hong Kong bankers share similar optimism about bonuses, with also slightly more than half of them expecting to receive higher bonuses than last year, and only 14 per cent anticipating lower bonuses.

In contrast, 60 per cent of UK bankers believe bonus levels will be down next year.

Globally, the survey showed that equity capital markets and M&A bankers are the most optimistic when it comes to predicting this year's bonuses. A BT report said investment banks in Singapore earned over 45 per cent more in the year to date than in the corresponding period last year, driven by growth in fees in mergers and acquisitions, equity capital markets and debt capital markets. Due to sub-prime woes, debt capital markets and credit-focused bankers are the most pessimistic, said the survey.

Bonuses are not the only thing Singapore bankers are upbeat about, as 42 per cent expect business to improve in the coming year. Bankers from China and Hong Kong are similarly upbeat, with 56 per cent and 41 per cent respectively, forecasting a better 2008.

By comparison, about 40 per cent of UK bankers expect business to worsen next year, while about one-third of US, French and German bankers also predict that conditions will deteriorate.

Ms Butcher explained: 'The notable optimism of finance employees in Asia is no surprise as the growth of industries amid China's economic boom has led to increased business activity and a climate of promise throughout the entire region.'

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Asia Big Bonus Swindle

eFinancialCareer.hk, 3 December 2007

Asian bankers account for a growing proportion of bank's profit. But they are still short-changed at bonus time.

This year, the situation looks set to be worse than ever. Most US banks have lost packets through the US sub-prime crisis, meaning profitable local bankers are in danger of subsidising their struggling American colleagues.

Gary Lai, manager of front-office banking at recruiter Robert Walters Singapore, says Hong Kong and Singapore bankers employed at US and European houses are already prepared for the fact that their bonuses will be negatively affected as a result of the sub-prime fallout.

But is the situation really this dire? A recent study by international search firm Options Group found Asian bonuses are likely to rise by up to 5% this year. By comparison, payouts in the US and Europe are predicted to fall 10-15% and 5-10% respectively.

There are rumours that Asian bonus pools have been ring-fenced and won’t be reallocated to subsidise struggling divisions elsewhere. Nader Farahati, director at consultancy Oliver Wyman, told Financial News recently that Asian bonuses will not be reallocated.

John Jessen, the Singapore-based group CEO of headhunter Smith & Jessen, also doubts that Asian bankers will have to subsidise colleagues in the US and Europe.

Jessen says banks want to protect assets where they make the most money: “Asia is in such a build-out mode that no one wants to let their competition leave them behind.” He expects most hiring investments to flow eastwards in 2008, with trading floors in India set to double or even quadruple in size over the next two to three years.

The sentiments of bankers in other emerging Asian economies such as Indonesia, Thailand and Malaysia also remain positive, says Lai: “The general consensus seems to suggest that their bonuses will be healthier than previous years, as many of these economies started off from a low base and are experiencing strong domestic growth.”

The Growth Bonus: Is there a causal link between a civil servant offering public service and an economy doing exceptionally well?

In the design of a successful incentive plan, an obvious starting point is "what do we hope to achieve ?". In other words, "What is the objective of the proposed incentive scheme?"

As organisational practitioners, it is always challenging to frame the main purpose of an incentive plan and its competing agendas. Organisations may adopt SMART ideas in determining the goals and objectives of the plans. Performance standards and measures may be formulated using economic value added models or balanced (HR) scorecard templates. With performance measures aligned to the strategic intent of incentive plans and the goals and objectives of the organisation, the causal link between pay and performance may perhaps be forged in theory, and may not necessarily be forged in practice.

As its name implies, the primary purpose of incentives is to incentivise and reward behavioural change towards performance targets. A significant challenge in the design and implementation of successful incentive schemes (both long and short term plans) is the notion of line of sight. If we are unable to "set our sights and sight our targets", it will be problematic for us to achieve our goals regardless of our competencies and motivation. If the line of sight is remote or obscure, organisations would simply be offering us more money for nothing.

In an attempt to make the civil service careers more attractive, the public service division of Singapore announced it would provide extensive career development opportunities and performance based pay for its public servants. An aspect of the performance based pay is the concept of a "Growth Bonus".

According to its press release of 25 October 2007:
"A new Growth Bonus, to be paid in times of exceptional economic performance, will also be introduced. In line with the philosophy to link rewards to performance, this bonus will be tied closely to individual performance, with the better performers receiving more ... The Growth Bonus will only be paid when the Singapore economy has done exceptionally well, and is a reflection of the Civil Service’s contribution to the economic performance as well as the contribution of the individual officer"

With an expectation of a "Growth Bonus" for a stellar economic performance to be payable in March 2008, the public service division under the Singapore Prime Minister Office may be setting another quantitative benchmark on short term incentives for the private sector to follow.

As a tiny red dot, the economic performance of Singapore may be driven mostly by external factors, such as the growth economies of China and India, and may be beyond the grasp of our public servants. No matter how hard we may try, we are still a sampan in an ocean. Do we reward ourselves while we sail in calm waters, and blame the tankers for creating waves when they are in close proximity? What happens when the sea level raises?

As a servant of the public, performance standards and measures may be difficult to articulate. In addition, the line of sight between the performance and contributions of civil servants and the exceptional (?) economic performance of Singapore may be obscure, or even remote. Seriously, is there a line of sight between a high performing civil servant offering public service and the Singapore economy doing exceptionally well?

What about incorporating measures that go beyond economic performance to focus on the well-being of its residents such as income disparity and work-life expectancy in a knowledge-based Singapore. Should we include the Human Development Index (HDI) and its composite people dimensions of longevity, knowledge, and purchasing power parity, as well the Gini coefficient as key performance indicators for public servants. Surely, we should align the well-being of its residents to the economic growth of the economy, or shouldn't we?

While the public service division attempts to incentivise its civil servants through "a sharper link between pay and performance to recognise staff according to contribution", will the servants of the public run into "the folly of rewarding A while hoping for B?"

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TodayOnline, 11 April 2007, Singapore

Why the GDP link? Bonus peg a good indicator of how ministers, top civil servants have created wealth for all of Singapore, says Teo

Derrick A Pauloderrick@mediacorp.com.sg

FEW would probably take issue with the fact that a minister's pay - in fact anybody's pay - should be linked to his performance. But when his pay packet is also tied to Singapore's economic performance - the higher the gross domestic product (GDP), the bigger the bonus - even some ruling party MPs question the wisdom of such a link.

If Monday's parliamentary debate on pay revisions for ministers and civil servants focused mainly on that "benchmark thing", yesterday's session saw the spotlight being trained on the "GDP bonus".

This bonus is a component which ministers, parliamentary secretaries, top civil servants and MPs are eligible for.

Several of the 13 backbenchers who spoke yesterday had reservations about the GDP bonus, even as they expressed support for the tighter link between pay and performance in the public sector, a distinctive feature of the revisions compared to past exercises.

One common refrain heard in the House was whether it is a fair performance peg to use.

"We all know that a rise in GDP may not benefit all sectors of society equally. Some may even lag behind. I would suggest that the Government consider using indicators that directly impact the livelihood of all Singaporeans," said Dr Lim Wee Kiak (Sembawang GRC).

Nominated MP Loo Choon Yong, while "relieved" that a large part of the salary increases are not in the fixed salary component, said that relying on the GDP alone is "simple, convenient but inadequate".

He proposed one other indicator to be considered: That of the total cost of running the Government as a percentage of total revenue.

After all, CEOs in the private sector have to ensure profits are not eroded by increasing costs and expenses, Mr Loo said.

Other suggestions of alternative benchmarks included: The consumer price index and the inflation rate, as a way to keep cost of living affordable and protect savings; citizens' feedback to major public services; the number of jobs created for Singaporeans; and even the number of Singaporeans who migrate.

Based on the latest revisions, ministers will enjoy a GDP bonus of between three and eight months if the economy grows between 5 and 10 per cent or more. But they will not get any bonus if the economy grows by 2 per cent or less.

For example, the entry-level annual salary of a minister this year is expected to include a 5.9-month bonus based on Singapore's estimated GDP growth of between 4.5 and 6.5 per cent.

Mr Teo Chee Hean, Defence Minister and Minister-in-Charge of the Civil Service, heard them all. In his response midway through the debate, Mr Teo pointed out that the Government has to cater to all Singaporeans, not just individual groups.

"Therefore, the GDP is a good indicator of being able to create wealth for all of Singapore, and with that wealth, to make even those Singaporeans who may not benefit directly from the GDP growth better off as well ... through asset enhancement and wealth transfers."

In his hour-long speech, Mr Teo delved into each of the major talking points, raised by both MPs and the public, on ministerial and civil service salaries.

One of these is the question of comparing salaries to the private sector instead of a comparison with what politicians earn in other countries.

The latter would not be comparing apples with apples, said Mr Teo. "Our salaries are clean. Everything is there. You look at the salary of the Prime Minister of Britain or Australia or almost any other country in the world, you don't know what his total compensation package is."

More importantly, though, as civil servants or office-holders in Singapore cannot become office-holders abroad, there is no point in cross-country comparisons, he argued.

"You have to look at what a young man in his 30s or 40s is comparing himself to when he's deciding what he's going to do with his life. These are the relevant market comparisons - not what politicians in France, Finland or Denmark are being paid," said Mr Teo in response to points made by Opposition MPs on Monday.

Another comparison, between the civil service pay increases and the $30 monthly increase for those on Public Assistance, was raised in the House by both a backbencher and Mr Teo.

Said NMP Kalyani Mehta: "If we are going to be generous to civil servants, then let's be generous to the very poor." In response, Mr Teo said: "The needs of these individuals are quite different and we need to find more holistic and flexible ways of looking after their needs."

Commenting on salary revisions in the context of a widening income gap, he added: "Capping the salaries of ministers and top civil servants will not solve this problem. The problem can be best addressed by à sound policies and programmes, like those introduced in the Budget recently à but most importantly by creating jobs and the resources so we can help everyone in Singapore to lift themselves up."

One new issue that cropped up yesterday was the danger of concentrating too much power and money in the hands of top public officers.

MP Denise Phua (Jalan Besar GRC) said: "As responsible leaders, we must be careful not to leave behind a system or structure that combines power and monetary rewards to such high levels that incumbents are so handcuffed by this lethal combination that they find it hard to let go."

NMP Eunice Olsen argued that the coupling of political and financial power is more likely to lead to the creation of a rogue government.

On this issue, Mr Teo said that the checks are elections and the ruling party's selection process. "If (a person's) motivations are self-serving or to make money, we do not select him. And if we discover that's what he's about after he has come in, we drop him," he said.

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The Straits Times, Nov 27, 2007, Singapore
Two month year-end bonus for civil servants
Better performers' can also expect growth bonus of up to 0.8 months
By Li Xueying

SINGAPORE'S largest employer - the Government - will give its 60,000 civil servants a year-end bonus of two months.

Add on the half-month bonus they received in July and the total bonus civil servants will get this year amounts to 2.5 months.

Tuesday's bonus announcement is likely to be a guide for the private sector, as was typically the case in the past.

Although the payout is a dip from the 2.7 per cent given last year, most civil servants will still go home with more - thanks to the new 'growth bonus'. Introduced this year, it will be given in times of exceptional economic performance.

This year, the Government is forecasting the economy to grow by 7.5 to 8 per cent. For 'good performers', this new payout will bring another 0.5 month's bonus, and for 'better performers', up to 0.8 months, said the Public Service Division in a statement on Tuesday.

The payout comes in a year when the economy has 'performed better than expected', it added. Mr Teo Yock Ngee, general secretary of the Amalgamated Union of Public Employees, said he expects most civil servants - those banded in the top three of the four tiers - to receive the growth bonus. It is to be paid out in March.

This new bonus is in line with the Government’s policy to strengthen further the link between performance and pay.

And what's given this year is consistent with what the private sector companies are planning to hand out, the executive director of the Singapore National Employers Federation, Mr Koh Juan Kiat, told The Straits Times.

A survey it conducted among 276 companies in September shows that this year's bonus will range from two to 3.5 months. The median is 2.8 months.

This annual announcement of the bonus for civil servants is closely watched by the private sector, which often uses it as a guide for how much bonus to give out.