Wage Restructuring in the Civil Service - Increasing Flexibility in Wages

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INTRODUCTION

1 The Civil Service today has in place a flexible wage system, comprising fixed and variable components in monthly and annual salaries. The variability in the wages allows the Civil Service to respond appropriately to economic conditions and continually adjust the pay levels to stay aligned with the market. In addition, it has moved away from a seniority-based system to one that is performance-driven through the introduction of performance bonuses and merit increments. Today, the Civil Service's wage system fully meets, and in some cases exceeds, the guidelines of the NWC, as well as the recommendations of the Economic Review Committee (ERC).

2 Significant milestone changes have been made to restructure the Civil Service wage system into a more progressive and competitive one. The main thrusts of the wage restructuring efforts are:

a   To adopt a flexible wage system to ensure a timely response to varying economic conditions;

b   To pay competitive salaries that are aligned to the market so as to attract a fair share of talent; and

c   To strengthen the link between pay and performance, where officers who perform above their job requirements are equitably rewarded.

DEVELOPING A FLEXIBLE WAGE SYSTEM

3    The Civil Service has a flexible wage system, comprising variable monthly and annual components. The current wage system exceeds the ERC's recommendation1 on the desired level of variable pay. All civil servants have at least 40% of their annual salaries variable, while senior civil servants have more than 40% of their annual salary variable. Through the variable components, the Civil Service is able to make timely wage adjustments in response to volatile economic conditions.

4    Before 1986, wage increases were paid directly to civil servants through their base salaries, without any consideration for variability. Then, civil servants also received a fixed one-month Non-Pensionable Annual Allowance (NPAA), more popularly known as the 13th month payment.

5    In 1986, in recognition of rising wage cost pressure and fluctuations in the market, the NWC appointed a Sub-Committee on Wage Reform to encourage employers to adopt a more flexible wage system. In response to the national call, Dr. Richard Hu, then Minister for Finance, appointed a Taskforce on Public Sector Wage Reform to examine the NWC recommendations and propose a suitable flexible wage system for the Civil Service. The Taskforce consisted of both senior civil servants and union representatives. This was critical in ensuring that the proposals were acceptable to key stakeholders.

6    While the taskforce was mandated to restructure wages, they were careful not to adversely impact the monthly take home pay of officers. The emphasis was futurefocused, aimed predominantly at structural change. Completing its work within a year, in December 1987, the task force made far-reaching proposals. From 1987 onwards, civil servants' monthly salaries consisted of two parts: a basic fixed salary and MVC. The MVC then comprised the wage increases implemented from 1982 to 1984. The NPAA (13th month payment) was positioned as a variable component that could be reduced under exceptional circumstances. In addition, the taskforce laid a clear direction to build up an additional variable component termed as the AVC. The intention was to grow the AVC to about two months' income which could be adjusted annually in line with national economic growth. At that time, as a result of the changes, approximately 18% of public officers' total remuneration was made variable.

7    From 1987 onwards, instead of increasing monthly salaries, all wage increases were accumulated through the AVC component. After meeting the target of two months' AVC in 1993, wage increases were no longer added to the AVC. Instead, a third variable monthly component was created, termed the Non-Pensionable Variable Payment (NPVP). Since 1993, all further salary increases have been paid into this component.

8    Today, about 40% of a civil servant's annual salaries are variable. Future wage adjustments would be first made through the variable components, i.e. NPVP and AVC, minimising the impact on the fixed components. Figure 1 shows the evolution of the Civil Service wage structure.

FIGURE 1: EVOLUTION OF CIVIL SERVICE WAGE STRUCTURE

The First Test of the Flexible Wage System: The Asian Financial Crisis
9    The 1998 Asian Financial Crisis was a key test of the soundness of the Civil Service's Flexible Wage System (FWS). The Civil Service was able to quickly react to reduce wage cost, cutting the AVC from two months to 0.75 month in response to the grim economic climate. In 1999, as the reductions to annual components were not sufficient, cuts to the gross monthly salaries of the civil servants were further implemented. Public officers in the higher divisions were given wage cuts of up to 3%, with Ministers taking the lead with a 5% cut. These wage cuts were effected using the variable NPVP component, and would not have been possible without close consultation with the unions and their support. When Singapore's economy made a quick rebound in 2000, the Civil Service was able to restore the wage cut made in 1999 quickly, and to pay a 1.75 month AVC. It was a strong endorsement of the FWS.

September -11, Iraq War and SARS
10    The FWS continues to prove an important tool that is able to weather the impact of other storms, such as the economic uncertainties arising from the September 11 attacks, war in Iraq and SARS. It allowed the Civil Service to make rapid and timely adjustments to Civil Service pay in response to crises. In November 2001, in response to the economic uncertainty, Ministers and senior civil servants again led by example, taking wage cuts of up to 10%. More recently, in July 2003, a further 10% wage cut was taken off the gross monthly wages of Ministers and senior civil servants.

11    In November 2003, in view of declining private sector salaries as shown by our benchmark analysis, the Civil Service rebased the AVC rate from 3/4 month to ½ month. Bearing in mind a monthly salary cut would more directly affect the daily livelihood of officers, it decided to implement the cuts through the AVC. As wage levels vary with the economy and labour conditions, the FWS will continue to be an important tool to be used to respond quickly to the changing conditions.

KEEPING SALARIES COMPETITIVE

12    To continue to deliver quality services to the public, the Civil Service needs talented and capable officers. In order to attract and retain able and committed officers, the pay levels are pegged at competitive market rates. As the largest employer in
Singapore, the Civil Service is also aware that it should keep pace with, but not lead, the market, even as it pays fair wages. This is to prevent unintended wage spirals. Since 1995, Civil Service salaries are benchmarked annually to market rates. Salaries are reviewed annually and adjusted, both upward and downward, to ensure that they are aligned to the market without being over-generous.

13   In line with the move to keep wages flexible and linked to performance, wage adjustments justified by salary reviews are implemented through the MVC or the performance bonus component. A recent example to stay aligned with market salaries was the downward revision of starting salary rates by up to 20%. The cuts were determined based on the extent to which each scheme exceeded its benchmark levels. 74 report of the tripartite taskforce on wage restructuring

14   Over the next year, in order to make salaries more responsive to changes in private sector conditions, the Civil Service will study how it can benchmark wages for specific jobs in the Civil Service to equivalent private sector jobs.

LINKING PAY WITH PERFORMANCE

15    Through the years, the Civil Service has moved away from a seniority-based wage system to that of a pay-for-performance model, through the application of performance bonus and merit increments. In addition, in line with the NWC and ERC guidelines to move away from seniority based pay, the Civil Service has today achieved an average salary maximum-minimum ratio of 1.5.

16    The performance bonus framework was implemented for all officers in 2000. A performance bonus is only given to officers who have exceeded expectations in their performance and are contributing at higher levels than required by their present jobs.
Officers who perform only satisfactorily or under-perform are not recommended for a bonus. This gives an incentive to officers to strive harder in their work and benefits the organisation as a whole.

17    Throughout the implementation process, union representatives were consulted before the final rollout of the scheme. The unions' endorsement helped ensure a smooth adoption of the scheme. The unions' feedback on the scheme is regularly sought to get a better understanding of performance management issues from the employee's perspective.

18    The pay-for-performance link has been further reinforced with the introduction of merit increments. This was implemented for a majority of the graduate schemes in
2002. Under the merit increment framework, annual increments are no longer guaranteed, but are varied based on the officer's performance and calibre. This ensures that officers receive salaries that are proportionate to their contributions and abilities.

LOOKING AHEAD

19 The Civil Service is committed to continually improving its wage system to make it more flexible, market and performance-driven. In line with this, it is studying ways to build up the performance bonus component, refine the performance management system and enhance its benchmarking methodology. It will continue to closely monitor the private sector and make prompt adjustments to wage levels where necessary, in the spirit of having a flexible and competitive wage system.

Last updated on 12 Feb 2007 13:34:16