Saturday, January 28, 2012

Letter to Prime Minister on Ministerial salaries

Dear PM Lee,

I thank you for having the courage to take the unpopular measure of cutting your colleagues' salaries, including your own. The parliamentary debates have focused on setting the right level of pay to attract good people. My humble opinion is that for our country, it is more important to focus on setting the right incentives than setting the right remuneration amount. It is not only wasteful but even harmful to spend lots of money to attract brilliant people and then drive them with the wrong incentives. The best example to illustrate this point is Wall Street in 2008. Wall Street, with all the money it could throw, attracted the best minds from all over the world. Yet, it failed so spectacularly in 2008. Why? Because the people working on Wall Street were driven with a set of perverse incentives that rewarded them for behaving badly. Many of them took excessive risks because when things turn out well, they scoop up the gains but when things turn out badly, other people pay for their mistakes. In such a system, good people eventually turn bad. The smarter the people, the faster the system is driven into self-destruction because smart people know how to game the system more effectively. The world would have been a safer place in 2008 if Wall Street had hired stupider people.

I had seen how bad incentives made good people turn bad when I was in secondary school. My math teacher was a dedicated teacher. She would give the weaker students remedial lessons during the holidays. I respected her until perverse incentives made her behave badly. It came after the Ministry of  Education introduced school ranking. To get her promotion, she pressured the weaker students to drop Additional Mathematics because weak students will pull down the average and affect the school ranking. Things got so bad that one of the parents went to the Math Head of Department and threatened to report this matter to MOE. The HOD relented. Luckily, he did because the son of this parent later got distinction in 'O' Level A Math to the pride of his father. It is hard to know how many children suffered from such tactics by our educators during that period. I do not blame my teacher. I blame the bad incentives that drove her to behave so badly.

In a one-man-one-vote electoral system, it is to the interest of the ruling party to peg their salaries to the masses instead of to a tiny representation of 1000 top income earners (Only 1000 votes, how to stay in power?). The right incentives should drive government servants to serve the masses and not the minority rich because that will result in the maximum number of votes won. Also, the incentives will make a big difference to the thinking and hidden agenda behind the decisions made by policy makers. If salaries are pegged to the top 1000 income earners, their internal biases will be to favor the rich. This will worsen the income-inequality problem which is already a major threat to social stability today.

I hope you would consider pegging Ministerial salaries to a high multiple of the median income of Singaporeans and bonuses pegged to the real inflation-adjusted median income growth. Real median income growth represents rising purchasing power of the people. I think many Singaporeans would not begrudge Ministers' generous bonuses if GDP growth had delivered rising purchasing power to them. Instead, Singapore's strong GDP growth benefited mainly the rich and punished the rest with rising cost of living. How could the people not be angry? There is even a perception among the people that policy makers took the easy way out to grow GDP to hit their own bonus targets by opening the floodgates to foreigners without spending the necessary infrastructural investment to accommodate the enlarged population. Whether right or wrong, perception does matter.

Rising purchasing power means cost of living got to be kept low. I hope the KPIs(Key performance indicators) of government officers would focus more on reducing cost and less on boosting profit. Profits are best left to the private sector. It is not healthy for the public sector to focus on profits because they can simply take the easy way out to raise fees and charges. Worse still, they may even transfer the cost of their mistakes to the public. Since the public services are usually monopolies, there is nothing the people can do. Let us not waste the brainpower in the government and direct them to serve the people by lowering our cost of living. I hope future KPIs will focus on how fees and charges for the people are being brought down through public-sector efficiency and not just profits which can be made from squeezing the people.

How high should the multiple of the median income be? As long as Singaporeans prosper together with Ministers, I think it is fine if Ministers get paid very well. My humble view is that Ministers should be paid as high as possible to attract able leaders but not so high until the people lose respect and trust for our leaders. I think that level has been breached and I thank you once more for taking action to restore some of the lost respect. 失民心者失天下。欲得天下,先得民心。

It is not out of jealousy (too far out of the league to be jealous) that I support cutting Ministerial salaries but out of concern as a citizen that it will harm our country's long-term future. I hope you will forgive me for being brutally honest on this issue.

As you have mentioned in Davos in Jan 2012, Singaporeans and the government have to work together. It is hard to work together if the people no longer trust and respect the government. If there is no respect, unpopular but sensible messages will be lost on the people when delivered by a messenger who is not respected. If there is no trust, new policies will always be interpreted by the people in a bad light (They are just doing this for selfish reasons. Just want to make money for themselves etc).

When salaries are too high, it actually worsens your problem of attracting the best candidates to join you. When the people start to associate politicians with greedy Wall Street bankers, potential candidates who actually want to serve the people will stay out for fear that their own image will be tarnished. This makes it very hard for our country to attract able people from the private sector to come forward. Able people from the private sector usually have to take a pay-cut when they join the government. They will probably join if they are compensated with non-monetary rewards like having a higher standing and respect in the public eye. I think one of the greatest rewards of holding a political office is when strangers thank you and you could genuinely feel the sincerity of their respect for you. It will be better for our country to use the respect commanded by the office to attract able people rather than throw money at them and risk attracting the wrong kind of people.

When salaries are set too high, it is unfair to Ministers who do not need the extra money but want more respect from the people. When annual salary has already exceeded the million dollar mark, that extra hundreds of thousands do not matter anymore. If a public servant says otherwise, then it is dangerous to have him around because he probably has a very expensive lifestyle to maintain. Such a person has a higher risk of falling victim to corruption and bribery. Singaporeans will prefer senior public servants to lead simple lifestyles because these people tend to be incorruptible (that extra money is immaterial because I already have enough). I am glad to learn from your sister's letters to the Straits Times that your family lead a simple lifestyle. Past high Ministerial salaries have unfairly tarnished the image of Ministers who lead simple lifestyles and do not need that much money. I think they would rather trade for more respect than more money. When Ministers don't feel respected, it will surely affect their job performance to a certain extent.

Lastly and ironically, when salaries are too high for senior public servants, they no longer have a stake in the long-term future of Singapore. With globalization, the rich can simply migrate to greener pastures and take their money along with them. It is middle-class people like me who have a bigger stake in the future of Singapore and this is why I am writing this long letter. When public policies take decades to realize their effect, it is important that policy-makers have a long-term stake in the country's future. Otherwise, they will game the system by taking short-term monetary gain at the expense of the long-term good. Earn as much as you can while you can, place low priority on the long-term good because if the country crumbles later, just migrate! It is very hard to set incentives to get people to focus on the long-term because they come and go. Pensions are effective in that regard. Perhaps a return to the pension system would be desirable but you may consider putting a significantly higher percentage of the remuneration into the pension.

I am not sure if you are still reading at this stage. If you are, I sincerely thank you for sacrificing time to read a letter from an insignificant but sincerely concerned citizen of Singapore.


  1. Hi hyom,
    Excellent. Very clear. You have spoken for the majority of Singaporeans, i believe. i only don't understand why there were/are 60% of Singaporeans still support PAPAYA. Don't they realise Singapore is surely becoming Sinkapore soon, if they don't know how to vote in the next election.

  2. Well-written letter. I doubt if PM Lee would actually read your letter, let alone reply you. Still, I commend you for your good effort.

  3. ur blog is really nice and interesting, You have maintain it so beautifully that I truly like & enjoy it
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  4. Hi Temperament,

    Thank you for your compliment. The least I hope for is that someone important will at least read what I wrote. Spent quite some time to think and write this post.

    1. alot of people working in SME industry agree in pegging to median of worker, but i tell you that will NEVER happen, the pay will drop by at least 50% lei

  5. Hi hyom,
    Don't you worry. Your wish is definitely 100% fulfilled. Don't you know the man who has taken over from MABOT TAN is blogging here too. The former top man from MOH. Who boasted he spent only a few $ for heart surgery. Ordinary people like us may need to sell our HDB flats or get into debts or become so much poorer.

    i also notice you try to be as fair or balance in most of your articles. In other words you try to see the other party's point of view too before you present yours.
    i think you are a very "all-round" person.
    You make a very good Negotiator or Mediator or Business-man or simply as a good friend to have.
    Ha! Ha!

  6. Hi Temperament,

    You make me very happy today:) Haha. The truth is, I am neither a negotiator nor Mediator nor Businessman. Maybe just a good friend.

  7. I think you have wasted your time. Chances are that this letter is not going to be read by the people who matter and praised by people who don't matter.

    I do have to say this is one of the most intelligently crafted letter to persuade our leaders by appealing to their self-interest. Well-reasoned, well-argued and well-written.

  8. Hi TanBT,
    {I think you have wasted your time. Chances are that this letter is not going to be read by the people who matter and praised by people who don't matter.}
    On the contrary to your opinion.
    In the first place why do you think our current top man of HDB(former top man of MOH)is blogging here too?(Maybe by proxy after all he is so "powderful").
    Do you think he is doing it here for fun, like some of us. Who have too much time to burn?
    "Everyone is entitle to his opinion, but no one should be wrong about his facts"
    But some people think even opinion is not an entitlement if it hurts someone. That's the time we have better keep our opinions to ourselves.

  9. Hi Temperament,

    Let's be realistic. When Khaw Boon Wan blogs, everyone reads because everyone wants to pick up tips on what the top man thinks about the property market. He is like Fed Chairman.

    When ordinary bloggers write, no matter how well they write, few people read. While this letter was a good one, it will probably end up in the trashbin. Hard truths for Singaporeans. You want to make a difference, go and join politics!

    Another hard truth. Xiaxue gets more traffic than serious-minded, intellectual blogs like SingaporeanMind or even this one. So, stop wasting your time. If you want more advertising revenue, write like Xiaxue.

  10. Hi TanBT,
    "He is like Fed Chairman."
    Exactly. He is very "powderful" Do you think he has to do everything, himself? So why should he blogs here? Really only for our benefits?
    Think again? Ha! Ha!

  11. An impostor posts a witty and sarcastic reply.

    We – I have consulted my fellow Ministers on this matter and speak as one voice – thank you for taking the time to write a passionate letter arguing for the right incentives rather than the right renumerations to be in placed. The Ministerial Pay Review is designed specifically for this purpose. That it turned out the right incentives also led to high renumerations is purely accidental.
    In the first place none of us wanted this review. We are quite happy to work hard and make sacrifices even if the correct incentives is not in placed. Truth be told we don’t really need the money. Most politicians are not full time and they continue to have lucrative income outside of their official status.
    You raised a good point that respect and honour is a good motivation. It is precisely for this reason that we pay Ministers higher than any other world leaders: even the President of the United States of America. At home it used to be our Ministers have no face when they speak with business leaders as the Ministers’ salary are only about $500,000 a year. Now our Ministers walk with a swagger when dealing with their counterparts anywhere in the world. They earned the respect of one and all politicians everywhere in the world. Whereas there may be some politicians who accumulated a huge amount of public money illegally we do this legally. They envied us and many consulted us on how to engineer the same in their own country. Rest assured we do not give away trade secrets easily.
    You also gave a touching example of peverse incentives affecting teachers’ duty of care towards their charge. There was a similiar story of Mrs Grady going out of her way helping a troublesome kid to love reading and ultimately do well enough to be a judge in USA. What is not told is the number of kids that she could have saved if her time is channelled more productively into helping them.
    Productivity is a very important factor in ensuring Singapore has a sustainable future. Krugman in his paper on the myth of Singapore’s success claimed that Singapore’s growth for the past few decades is really a result of high growth of capital and labour inputs rather than total factor productivity gains.
    If you are lousy at Additional Maths you shouldn’t kill youself trying to get an ‘A’ in it. You should consider the hospitality business. There is no shame in being a waiter or waitress serving food and drinks. In fact some of my best friends do this job all the time – you should see how hard my Ministers work to get in my good book even though they are hopeless at it and can never remember I take one sugar and no milk.
    In conclusion, you are a bright chap, why don’t you spend more time explaining why Opposition parties are bad for Singapore. They are wasting time moaning about pay all the time. If they work hard and stop complaining about pay maybe one day they will be as rich as us Ministers.

  12. btw your color design is straining people's eye

  13. You suggested pegging ministerial salaries to a high multiple of the median income of Singaporeans. Have you thought this through?

    The high multiple is an arbitrary figure. It can be set so high that salaries can be even higher than in the past. It is also less transparent and the people will start complaining again. So, what is the point?

    1. Hi Xav,

      Setting the right incentives is more important than setting the right pay. Pegging ministerial salaries to the median income will incentivize our Ministers to serve the Singaporean people more than pegging their salaries to GDP growth and top 1000 income-earners which benefits mainly the rich in today's highly inequitable world.

      A combination of smart people with perverse incentives leads to self-destruction. I do not mind if the price to setting the right incentives is slightly overpaying our Ministers because the cost of setting the wrong incentives is too high. Actually, if most Singaporeans had prospered together with our Ministers and the senior government officers, the results of the General Election would have been much better even if they are paid very well.

  14. Let's not kill the idea just for meeting your ideal perfection. No ideas will ever roll out. I do not expects PM to follow exact to his proposal.

    One should focus on the whole message. I think hyom caught the key essence.

    Well Done. Highly commendable.


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