Singapore pay rise highlights inequality

John Burton
Financial Times
10 May 07

Singapore’s government recently provoked a public furore in the normally placid city-state of 4.5m people when it announced it would increase the salaries of government ministers to more than $1m a year, making it probably the best-paid cabinet in the world.

The reason for the howl of protest was that the move came as Singapore confronts a growing gap between rich and poor. It ranks 105th in the world in terms of income equality, based on United Nations data. Wages for the bottom 30 per cent have fallen in the past five years as demand for unskilled labourers shrinks.

The controversy reflects a wider issue of whether government officials in Singapore and elsewhere should be paid more to attract the best and the brightest when salaries for executives in the private sector are rising sharply.

The issue also raises the question of whether work in the private and public sectors are comparable and how common performance standards can be applied to both.

Singapore’s government has often been compared with a well-run corporation, one of the few places where the phrase “bureaucratic efficiency” is not an oxymoron. Many top officials hold degrees from universities such as Harvard or Cambridge.

Since the 1990s, the salaries of cabinet ministers and senior civil servants have been linked to top wage earners in the local private sector. Under the formula, the officials receive two-thirds of the median income of the top eight earners in six professions – bankers, lawyers, accountants, executives with multinational corporations, local manufacturing executives and engineers.

Lee Hsien Loong, the prime minister who is due to receive $2m in pay this year (although some will be donated to charity), says the latest salary increase is necessary to keep up with a surge in executive pay when talent is in much demand. He cited Singapore’s strong record of clean government and good governance as justification for the high ministerial salaries.

Lee Kuan Yew, the prime minister’s father and independent Singapore’s first leader, dismissed critics as lacking perspective, saying that the $46m being paid to top officials represented only 0.022 per cent of Singapore’s gross domestic product of $140bn.

But opponents maintain that the government is comparing apples with oranges. “The CEO or manager has to think only of the bottom line. But a political leader must maintain integrity, moral authority to inspire and rally people,” says one opposition legislator, warning that ministers will be out of touch with citizens.

Others believe the pay increase could accelerate a brain drain that the government wants to prevent. “The message the government is telling us is to adopt a mercenary attitude. So a lot of people will say it’s OK to go overseas if a better-paying job is on offer,” says a young Singapore professional.

Moreover, questions have been raised about whether the current government salary formula is appropriate or too generous. A review of the 18 cabinet members reveal none has an accounting background, one worked in financial services, one for a multinational company, two for local private companies and three in law.

Most of rest had some form of engineering background, although three were in the medical profession (not included in the pay formula).

Unfortunately, engineering is the lowest paid among the six professions to which ministerial salaries are benchmarked, with the median income of the top eight earners in the sector amounting to about $400,000, a third of the salary most ministers will receive.

Another challenge is how to determine whether the job performance of ministers can be measured in the same way as executives in the private sector. Singapore’s economic growth appears to be the key performance indicator for top officials, akin to a company’s profits. On that score, the government has performed well in recent years. But critics say the measurement is too broad and does not take into account other factors, such as income equality or the standards of social services.

Take the example of another small developed country. New Zealand, with a population of 4.1m, has a much slower growth rate (1.6 per cent) than Singapore (7.4 per cent) and its $106bn economy is smaller, with a per capita income of $26,000 versus Singapore’s $30,900.

But it ranks higher on the UN Human Development Index in 20th place against 25th for Singapore and its income gap is much narrower. Does Singapore’s faster growth but less developed social structure justify its prime minister being paid more than five times the salary of the New Zealand prime minister – or the US president, for that matter – ask critics?

Yes, replies the government, because Singapore is “unique”. It is a physically small island in an unstable part of the world, with a multi-ethnic population, that pose special challenges to its rulers. As the debate continues, one thing appears certain. Ministerial salaries will rise further if the present system is maintained. Chief executives and senior managers in Singapore are still paid less than their counterparts in Hong Kong, Australia or South Korea, but their pay packets are likely to increase as global companies compete for their talents.

Moreover, given Singapore’s close-knit political world, any investment bank or private equity fund would pay top dollar to recruit a minister, which may be the best rationale for paying them so much to keep them in government service

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