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Professor Anthony Cheung, Professor of Department of Public and Social Administration, City University of Hong Kong, was the Foundation’s guest speaker on 12 November 2002. Below is the text of his speech.
Fiscal deficitThe cost of the civil service is very much in the news these days and hotly debated by the community as the government's fiscal deficit crisis begins to loom large. Following the downgrading of Hong Kong's credit rating prospect by Standard & Poor's, and calls from business leaders, bankers and some economists for drastic actions to cut public expenditure, much of public discussion seems to focus on how to trim the civil service and to lower its cost, such as by salary cuts. There is a general perception in society that our civil servants, high and low, are overpaid. To many, reforming the civil service, particularly by reducing its size and its pay levels, seems to be the key to addressing Hong Kong's fiscal problems. While the strain on public finance of a bloated and expensive civil service may provide a strong impetus to the government's, and the public's, determination to reform the civil service, as indeed the 1999 Civil Service Reform document was introduced against the background of a public backlash on civil servants who were regarded as inefficient and sleazy (as revealed by critical reports of the Audit Commission) and yet incapable of dealing with the many crises encountered (such as bird flu and unemployment), such an atmosphere also creates the strongest resistance to reforms from civil servants who resent being made scapegoats of the government's financial difficulties. |
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Reforms which are otherwise entirely sound and relevant to improving civil service operations could easily be viewed with suspicion and skepticism by the staff side who accuse the government of having a hidden agenda behind all the nice rhetoric about enhancing efficiency and effectiveness and promoting a performance-based culture.
It is true that Hong Kong is right now suffering from fiscal deficit. It is also true that more than 70% of the government's operating expenditure is taken up by the staffing cost of the civil service and the subvented sectors. So any measure to contain public expenditure must rest on reining in staffing cost - and this can only refer to either of two things or both, the headcount and the pay rates.
However, if we go deeper into analyzing the deficit, it becomes clearer that the current deficit is more induced by revenue shortfall than unchecked expenditure rise. And the reason for revenue decline is simple - the economy is not performing as expected to generate the estimated income. (Since 1997-98, total government expenditure increased by 23.2% while total government revenue dropped by 38.1%.)
If we simply focus our counter-deficit strategy on curbing expenditure, this is not necessarily going to help unless we are certain that expenditure cuts lead to growth in private consumption and investment so as to enlarge the economic pie. If we are not careful, reduction in expenditure may feed into deflationary sentiments hence depressing overall consumption and investment further.
Need for review of civil service salaries
This is not to say it is not necessary to review civil service salaries. The Task Force on the Review of Civil Service Pay Policy and System, of which I am a member, reported to the government in September and recommended that a pay level survey should be conducted without delay.
We last had such a survey in 1986, conducted by Hay Consultants. The results of that survey were contested by the staff side, eventually forcing the Governor to appoint a committee of inquiry to arbitrate the dispute. One of the recommendations of this committee was that the pay level survey, which compares the pay levels of various civil service grades and ranks with corresponding job categories in the private sector, should be carried out every three years while pay trend surveys, which only look at the overall salary adjustments made by private companies to their staff over the year, should be conducted annually to provide a basis for interim broad-brush adjustments.
However, the government has refrained from conducting pay level surveys ever since, on the grounds of the technical complexities and political sensitivities of such surveys if done during the late transitional period prior to 1997. The only exceptions were the 1989/90 structural reviews and the 1999 starting salaries review. As a result, civil service base salaries have become higher than the private sector where pay cuts have taken place to cope with the economic downturn. Making the annual pay trend adjustments on top of such 'unrealistic' base salaries would only further aggravate the disparity.
Civil service unions are against conducting the pay level survey at this time, when the economy is not doing well. But unless such a survey is done and the government has a clearer picture of the pay gap between the civil service and the private sector, it is not possible for the government to make any well-informed pay decisions.
Vocal business people and some economists urge the government to simply cut civil service pay by 10-15%. But if the government is to follow such advice, it will be open to accusation by the staff side of not following the established pay review and adjustment mechanism, which unless changed with staff support, will infringe the Basic Law. Moreover, those civil servants who joined the service prior to 1 July 1997 could seek protection under Article 100 of the Basic Law from any reduction in benefits below the level at the time of reunification.
These are some of the constitutional rigidities faced by the government in dealing with civil service pay and conditions (including pensions). Because of these constraints, one should not assume that there is a large scope for very drastic changes to be made to the terms and conditions of those staff already in place before 1 July 1997, which means over 90% of the government workforce.
The government may be presented with no alternative but to implement a different set of remuneration and benefits for new civil servants, which could adhere more closely to current private sector practice and levels. In fact this is being done with the departments being allowed to appoint non-civil service contract (NCSC) staff, the number of whom now totals some 15,000, almost 10% of the civil service establishment.
The longer the government continues to shrink the civil service size, the greater the number of such NCSC staff being used by departments to bypass the restriction in the creation of civil service posts and other rigidities in the existing system.
Performance culture and performance-related pay
Cost and pay are not the only, or necessarily the most important, issue in civil service reform. Indeed, if the purpose of the reform is to promote efficiency and performance, what is more crucial is not just cutting staff numbers and salaries, but ensuring value for money. It is also imperative to provide a performance regime whereby it is possible to discriminate performers from non-performers or under-performers, and to reward them accordingly.
Despite the theoretical advantages of a performance-related pay system, what are often found are the practical difficulties in measuring civil service work, particularly in quantitative terms. A good and thorough performance evaluation job requires firstly a comprehensive and fair system of measurement, and secondly responsible and proactive supervisors and managers who are adequately prepared for such a task.
If the system is not there, or if the supervisors are ill-prepared or shun such time-consuming and sometimes unrewarding task, performance-related pay will not work. Any forced implementation will only breed discontent, bias or even favoritism. Besides, there were OECD findings that performance pay was ranked very low by senior public managers as a factor motivating performance.
The Task Force sees some merit in the performance pay principle and therefore recommends that some form of performance pay be pilot-experimented at the directorate level in a few selected departments. Such experiment can be complemented by the use of more flexible "pay range" arrangements so as to give more incentive to staff performance.
If the top civil servants are prepared to put part of their salaries at risk and to try out the new schemes and should these schemes succeed, then it would be easier to inspire confidence among middle-level staff and to persuade them to accept similarly flexible arrangements.
As for the rank-and-file, I would not advocate any drastic change to their pay structure. Their low salary levels mean that they are less susceptible to having their income at risk. Instead of any elaborate performance pay arrangements or using pay ranges, we should stick to fixed-point pay scales but have the annual increments subject to holistic performance evaluation. Doing so will go some way in promoting a more performance-oriented culture, without imposing an unduly heavy burden on lower level supervisors. I would also advise against using flexible pay structures for the Police and other disciplined services so as not to upset the team spirit crucial to law enforcement work.
Flexibility and a results-oriented culture
Until now, Hong Kong has inherited from its previous British rulers a civil service system which is highly centralized and uniform in management practices. Since the 1980s, some personnel management authorities have been devolved to the departmental level, but the culture is still very much geared towards always seeking direction from the centre. Indeed, many heads of departments would prefer taking order from the centre (Civil Service Bureau) than shouldering their own responsibility in managing and rewarding staff.
If our purpose is to make the civil service less rigid and less rules- and tradition-bound, then it is necessary to go further down the road of decentralization. Even the UK civil service, from where the Hong Kong system originated, has undergone tremendous transformation since the 1980s - Financial Management Initiative, 'Next Steps' agencies, citizen's charters, compulsory competitive tendering and internal markets, market-testing, and decentralization of HRM, with individual departments and agencies given full hire-and-fire powers and looking after their own pay system, including collective bargaining with the staff unions. Before this, all was handled at the centre by the Treasury.
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These developments in the UK are not unique. Most OECD countries have undertaken reforms in the management of their civil service one way or the other. In Singapore, Hong Kong's regional competitor, autonomous agencies were established in 1997. Flexible pay structures were introduced in the 1980s. Performance pay is now very much part of its remuneration system for middle to top level civil servants, as well as employees of statutory boards.
Is Hong Kong ready to undertake similar decentralization measures? It depends first of all on the government's overall management strategy. But more critically, it depends on whether heads of departments and managers at different levels are prepared to take on a heavier managerial responsibility. Power always comes with responsibility and that is why some managers would rather prefer not to accept the power.
There is no reason why all departments should be managed in the same way according to a uniform set of central rules. For example, RTHK as a public broadcaster finds more similarity with private broadcasting business than a typical government department.
A more devolved civil service system would mean each department operating as if a "firm" fully looking after its own HRM, subject only to some broad government-wide policy perimeters. A devolved system also means a more diversified workforce, with the co-existence of different models and practices that suit the needs of different departments. Such a scenario somewhat goes against Hong Kong's civil service tradition that treasures uniformity and is highly sensitive about service-wide implications of any initiative.
Reform must have the buying-in of major stakeholders, especially the staff side
Finally, any civil service reform must have the support of the stakeholders if it is to succeed. First and foremost, it must secure the trust and collaboration of the staff side. Hence it is important for the government not to treat the staff side as the 'opponent' that is to be out-witted or defeated in any such reform.
Instead, the staff side and the unions should be made a partner in the reform process. The staff should be impressed that the reform is not intended to end civil service integrity, stability or morale. On the contrary, civil service reform is about modernizing management practices so that individual staff can perform within a better incentive structure and get fairly remunerated.
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It is unfortunate that whether in the 1999 civil service reform consultation, or the current pay review consultation, both some political leaders (including government leaders) as well as community sentiments seem to have pitted the reforms against the staff side. For example, civil servants have been blamed squarely for Hong Kong's turmoil or the fiscal deficit. Civil servants are portrayed by some as selfish, overpaid and inefficient. They have not been given due credit for their generally high spirit of community service and the very outstanding standard of service delivery that still ranks the Hong Kong civil service as one of the finest in the world.
Civil service reform should not be just about dollars and cents. It should be about management rejuvenation and cultural transformation, so as to strengthen performance, responsiveness and accountability. It entails a process of paradigm shift and modernization, not an agenda of shattering civil service solidarity and stability.
Civil service reform is ultimately about values
A delicate balance has to be struck between change and continuity, and indeed, this is the lesson that can be drawn from most of the civil service reform experiences overseas. Time is necessary in any such reform. Any short-sighted push in the absence of strategy will only put the reform in jeopardy. But if handled properly and sensitively, civil service reform should bring about a civil service that -
- Is remunerated at a level that makes it attractive to recruit and retain people of good calibre, in fair competition with private companies;
- Is highly motivated by a performance-based management and reward system;
- Is treasured by the government and the public for its loyalty and commitment to long-term service;
- Is managed by managers and supervisors at all levels who actively take up HRM responsibilities;
- Enjoys a stable management-staff partnership, with both sides committed to continuous improvement and service to the community; and
- Enjoys high esteem among the public it serves.
At the end of the day, civil service reform is about reforming public service and reforming the government. It is about making the civil service a creative and value-adding organization that is re-connected to the community. It is about "re-inventing" the public service.
Public service is not an ugly word. It should represent "commitment", "public interest", "respect for citizens", and "close to the people", especially to those who are otherwise under-served by the market. It is therefore most important that reform does not lead to the erosion, whether intentionally or unintentionally, of the fundamental values of public service. Rather, such reform should facilitate the inculcation of those values treasured by the community, including accountability, responsiveness, equal opportunity, and green awareness.
The above does not necessarily represent the views of the Foundation.
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