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FROM THE CHAIRMAN
July 2001 Issue   Wage restraint still
necessaryPublic sector rises are a cause for concern After two years of wage restraint in response to the East Asian financial crisis of 1997-98, the local business community took the view this year that there was some room for easing up a little on the wages front. Several factors were taken into account in this decision. It was clear that the economy had improved somewhat after the negative economic growth experience in 1998. Growth was only moderate in 1999, but was far stronger, although somewhat uneven, in 2000. There was no sign of inflation re-emerging, indeed, deflation was still the rule. The unemployment rate was coming down. At the same time, we recognised that while some sectors of the economy were doing reasonably well, others were still struggling. Any recommendation on wages, therefore, had to take account of this. As a result, the Chamber, together with the Employers' Federation, decided to suggest a wage rise for 2001, albeit a modest one, in the range of zero to 3 per cent. The range was provided to give firms greater flexibility in deciding any wage rise according to their own performance and profitability.In addition, both the Chamber and the Employers Federation suggested that exceptional staff performances should be rewarded by one-off payments (performance bonuses) and not be built into the permanent wage and salary structure. This strategy of offering a wage guideline, with greater flexibility, appeared to be working. Private sector salary surveys early in the year showed a weighted average increase of 2.5 per cent, well within the range of the guideline itself. Then along come the official Pay Trend Survey of the private sector conducted by the government itself and on which civil services pay rises are based. It showed private sector rises ranging from 2.95 to 6.15 per cent. After subtracting the payroll costs of civil service increments, this converted into a salary 'offer' to civil servants of 4.99 per cent for the directorate level and 2.38 per cent for middle and lower ranks. This high outcome relative to the private sector is of real concern to business. Both the Chamber and the Employers' Federation have written to the government expressing their misgivings about both the results of the Pay Trend Survey and the subsequent pay offer to civil servants.Our key concerns are, first, that the upper level pay 'offer' is excessive given private sector market conditions and, second, that there had to be something wrong with the Pay Trend Survey outcome. We thought this might perhaps be the inclusion of one-off 'performance' bonuses as 'normal' salary increases. Third, we are now concerned that that the big increase given the civil service should not flow through to the private sector starting another spiral of wage rises, that this will add to business costs and further reduce Hong Kong's competitiveness.From a broader community perspective, too, this raises the prospect that business may not be able to add to its workforce and unemployment will rise. Recent private sector studies have shown that for similar job descriptions, civil service salaries are already higher in most categories than those in the private sector. The government has moved to address this for new entrants to the civil service (with lower entry-level wages now being paid), but the discrepancy still exists elsewhere in the service and needs to be remedied. It has long been the private sector view that the civil service pay review mechanism is flawed and has led to bigger payments than are warranted by private sector increases. Together with the Employers' Federation, we will continue to press this issue with the administration. We also want to pursue the issue of payment for performance and productivity at the directorate level within in the civil service, just as it has been more widely introduced in the private sector to supplement across-the-board wage rises. We would like to see the administration moving forward more quickly with this initiative.It should not be forgotten, too, that the proposed civil service wage rises will cost the government (and therefore the taxpayer) HK$4 billion a year at a time when the government claims that it is under quite severe budget pressures and facing future deficits. We therefore urge the government to urgently reconsider the whole pay review mechanism for the civil service and the directorate-level payment for performance and productivity issue. Like the administration, we are aware of the objective of maintaining morale within the civil service, and the need to be able to attract and retain qualified staff, but we question whether ever-higher wages is the sole means of achieving this aim. On behalf of our members, and the local business sector, we will continue to urge wage restraint throughout the private and public sectors, especially given the somewhat uncertain economic times ahead.
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