Ministerial Salaries Review Committee Releases Report

The Committee to Review Ministerial Salaries recommends cutting the salaries of the President, Prime Minister, Speaker of Parliament, Deputy Speaker of Parliament, and political appointment holders; as well as the allowance of Members of Parliament (MP).

The Committee also recommends removing the pension scheme.

The President’s annual salary should be cut by 51% to $1,540,000. The Prime Minister’s annual salary should be cut by 36% to $2,200,000.

This report “Salaries for A Capable and Committed Government” is the result of seven months of deliberation, after seeking feedback from Members of Parliament (MPs) and the public as well as interviews with some past and present appointment holders and MPs.

The findings and recommendations cover the salaries of the President, Prime Minister, Speaker of Parliament, Deputy Speaker of Parliament, political appointment holders, MPs, Non-Constituency MPs and Nominated MPs.

The President

President’s annual salary cut by 51% to $1.54m

The President is Head of State and has significant custodial powers. However, unlike the Prime Minister he does not set national policies and does not have direct executive responsibility for governing the country, except as it relates to his custodial role. Taking all factors into account the Committee recommends that the President be paid the same monthly salary as the Prime Minister, with 13th month bonus and AVC, but without the Performance Bonus and National Bonus. His total annual salary will be 70% that of the Prime Minister.

Members of Parliament, Non-Constituency MPs and Nominated MPs

MPs’ annual allowance cut by 3% to $192,500

NCMPs’ and NMPs’ annual allowance cut by 4% to $28,900

The Committee recommend that the annual allowance of MPs be pegged to 17.5% of the MR4 benchmark. The annual allowance of NCMPs and NMPs should continue to be pegged to 15% of a MP’s annual allowance.

For MPs, the allowances of 2 employees engaged by the MPs can be reimbursed – (a) up to $1,300 per month for a Legislative Assistant; and (b) up to $500 per month for a Secretarial Assistant. These amounts are reimbursed only if an MP hires such staff. Any sum higher than these amounts will be borne by the MPs themselves. There is no reimbursement for Legislative Assistants for the Speaker and political appointment holders (except Mayors).

A Minister at the MR4 grade (i.e. entry-level grade) should be paid an annual salary of $1,100,000, a cut of 37%. A Minister at the lower end of this grade will start at an annual salary of $935,000.

As is the current practice, the Prime Minister can also appoint a newly appointed entry level Minister to be an Acting Minister on a lower grade and thus go below the MR4 range, ie Acting Minister who is placed on a Senior Minister of State grade.

New Benchmark

The Committee chose to benchmark the entry MR4 Minister’s salary to the median income of the top 1,000 earners who are Singapore Citizens but with a 40% discount to signify the sacrifice that comes with the ethos of political service. This benchmark is based on a larger pool that does not specify occupations and covers only Singapore Citizens, the pool of talent that political leaders will be drawn from.

The revised benchmarks are based on the Total Employment and Trade income (TEI) of the top 1,000 earners from all professions, i.e. incomes from all employment and trade of the individual, and will no longer include a 50% discount on stock options. The switch is appropriate as the new benchmark no longer focuses on specific professions but on the all-round earning capability of a much larger pool of individuals. TEI also includes monthly salaries, bonuses, commissions, stock options and partnership income but excludes unearned and passive forms of income, such as dividends, rent and interest.

Salary Framework and Structure for Ministers

The Committee recommend an annual salary formula that features fixed and variable components which are linked to individual performance and national outcomes, i.e.

Annual Salary= Fixed (13 months) + Annual Variable Component (AVC) (typically 1 month) + Individual Performance Bonus (typically 3 months for good performance) + National Bonus (typically 3 months if targets are met) = 20 months in a typical year

They also recommend having four indicators for the National Bonus with equal weightage:

• Real median income growth rate of Singapore Citizens (25%);
• Real growth rate of the lowest 20th percentile income of Singapore Citizens (25%);
• Unemployment rate of Singapore Citizens (25%); and
• Real GDP growth (25%).

This means that the National Bonus is linked to the socio-economic progress of average and lower income Singapore Citizens.

The Committee recommend removing the pension scheme and adopting only the Central Provident Fund system which is the basic retirement scheme for Singaporeans. Current medical benefits which are based on the Medisave-cum-Subsidised Outpatient scheme and are the same as for civil servants are retained. This is in keeping with the principle of clean wage, where there are no hidden perks.

With this recommendation, political appointment holders appointed on and after 21 May 2011 will not receive any pension. For office holders appointed before 21 May 2011, they will have their pension frozen, i.e. they will only be eligible for pension accrued up to 20 May 2011. The frozen pension will only be paid when they step down or retire from office.

The Committee recommend retaining the current pay structure which has four grades from the entry grade of MR4 to MR1 for Ministers. This will allow the Prime Minister the flexibility to appoint or promote Ministers of sufficient seniority or outstanding performance to more senior grades. We also recommend retaining the current grade structure of political appointment holders below the MR4 grade (for example, Ministers of State and Parliamentary Secretaries).

Applying the new benchmark and pay framework, the new salary for a MR4 Minister is as follows:

Minister’s annual salary cut by 31% to $1.10m
(by 37% including the removal of pension)

As with current practice, political appointment holders receive only one pay even if they hold more than one portfolio.

National Bonus

The Committee made recommendations for a new National Bonus linked to the socio-economic progress of average and lower income Singaporeans.

National Bonus to have four indicators

After considering a wide range of indicators, the Committee recommend using these four socio-economic indicators for the National Bonus:

a) Real Median Income Growth Rate. This indicator should be included as it tracks the income of the average Singapore Citizen. The use of real growth rate, as opposed to nominal growth rate, takes into account the level of inflation.

b) Real Growth Rate of the Lowest 20th Percentile Income. This indicator should be included as it tracks the growth of income of more vulnerable Singapore Citizens. This seeks to address the various suggestions to peg salaries to lower income earners, ranging from the 10th to 30th percentile. We decided to choose the mid-point of this range i.e. 20th percentile. Again, the use of real growth rate takes into account the level of inflation.

c) Unemployment Rate. The level of employment of Singapore Citizens should also be taken into account. One of the key roles of the Government is to ensure that citizens have jobs so that they can provide for themselves and their families.

d) Real GDP Growth Rate. GDP growth is a key indicator of how well a country has performed and a fundamental focus of most Governments around the world. Overall economic growth provides the resources for achieving overall socio-economic well being of the country and citizens. As such, we recommend retaining the link between real GDP growth rate and Ministerial salaries, but at a much smaller weightage compared to the current system.

They recommend that each of these indicators account for 25% of the National Bonus.

They also recommend setting target rates for each of the four indicators. When the targets are reached, the National Bonus will be 3 months. When the targets for the indicators are far exceeded, a higher National Bonus may be paid. This will be capped at a maximum of 6 months. Over time, these targets will need to be reviewed as the environment and situation change.

In summary, the annual pay structure will comprise two fixed and three variable pay components as shown in following Tables.

The Committee have noted the feedback that Singaporeans expect their leaders to demonstrate the ethos of political service and sacrifice. Similar to the discount under the current benchmark, Ministerial salaries should not match private sector levels fully. There is no scientific method for striking a balance between paying competitive salaries and taking a discount to signify the political service ethos. It is a judgment call. On balance, we recommend applying a significant discount of 40% off the salaries of the group of people we intend to benchmark against. The formula, which will be used to determine the salary of a new Minister who enters service at the grade of MR4, is thus as follows:

60% of the median income of the top 1,000 Singapore Citizen income earners

Implementation

The government will base its new salaries on these recommendations.

Prime Minister Lee Hsien Loong has decided that the new salaries for political appointment holders will take effect from 21 May 2011, i.e. the date when the new government took office.

Although the salary for the President will in-principle commence from the new term of the President, the President has informed Prime Minister Lee that he will adopt the new salary from 21 May 2011.