(This essay was published in South China Morning Post on 26 April 2017.)
Since the introduction of the system of public accountability for principal officials, a majority of appointed policy secretaries have been recruited from the civil service. Tsang Yum-Kuen drew many of his policy secretaries from the civil service, and some expect that our next Chief Executive Lam Cheng Yuet-Ngor will do the same.
But the kitchen has become too hot for many prospective policy secretaries, especially those who are not civil servants. Policy secretaries in Hong Kong do not have the support of political parties that are common in more mature political systems. They can become totally exposed and often have to fend for themselves.
The genuine difficulty that the government faces in attracting quality leaders to political posts has led it to fall back on civil servants, who have administrative training in balancing partisan interests.
This is a second-best solution because many civil servants are not trained to perform the work of politicians. But even here, the rancorous reality of today’s politics means better incentives are needed to entice capable senior civil servants to serve as policy secretaries and deputy secretaries.
One such obvious incentive would be to reintroduce pensions for civil servants (say, all administrative officers). Pensions are a form of deferred compensation and have the additional benefit of deterring corruption by reducing the temptation to engage in such behavior.
In a deferred compensation scheme, an employee’s compensation is not received immediately but delivered at a later date. If an employee is found to have behaved improperly while in service, say by engaging in corrupt activities, then he could be disciplined or discharged and, as a consequence, may lose either part or all of the deferred compensation. Many governments employ such a tool.
A deferred compensation scheme sets the salary level at below the employee’s productivity when he is young, but above his productivity when he is old. The employee will only be able to get the full lifetime value of his work at his retirement date. Gratuity paid at the end of a fixed term contract also serves the purpose of encouraging contract completion.
The significance of deliberately underpaying a government employee when he is young and overpaying him when he is old means that the employee will have to face the threat of a penalty throughout his working life in government should he or she engage in improper behavior.
Employees obviously will take pains to avoid being caught in such activities as corruption. Uncovering such behavior is often difficult because of their clandestine nature. But when such exposure means not only possible criminal charges and loss of reputation, but also loss of deferred compensation, then there is a strong deterrent against engaging in improper behavior.
The deterrent effect becomes weaker as the employee gets closer to retirement age. But as pensions are paid throughout the retirement years, the deterrent effect does not end on retirement. The employee would still be under the threat of losing his pension if he was found to have behaved improperly during his working years.
The mandatory retirement element is also an important feature of deferred compensation schemes. If an employee does not have to retire, then the deterrent disappears. For this reason, retirement has to be made mandatory.
However, even with all these pieces in place, it is also critical that the employer be willing to withhold deferred compensation when the circumstances call for it, and make the compensation contingent upon proper behavior.
Before June 2000, the Hong Kong civil service had a pension scheme that contained such a disciplinary element. The scheme was abandoned in 2000 in favor of the Civil Service Provident Scheme (CSPS), probably as a cost-saving measure in the wake of the Asian financial crisis and also in the misguided belief that pensions were an inefficient scheme.
I have always believed this to be a mistake stemming from the failure to recognize the role that deferred compensation played in disciplining public officers against corruption and misbehavior.
Unlike the pension scheme, the CSPS does not contain an implicit penalty to deter improper behavior.
Retirement benefits that are vested with the employee, such as staff provident funds, are not contingent on the employee’s performance. Such benefits can usually be collected in full upon retirement.
Reintroducing a pension system would significantly increase the commitment and performance of senior civil servants. It would serve as a deterrent against improper behavior. Equally important, it could enhance the incentive of civil servants to take up political posts if their pensions could also be appropriately augmented.
Will populists in the legislature and a disgruntled public oppose this idea? Probably yes. But I believe it will be better value for money.