Executive Summary

Introduction

1. PwC Consulting were appointed by the Task Force on the Review of Civil Service Pay Policy and System to conduct research into the latest developments in Civil Service pay administration in selected Governments, and to identify practices that might be of relevance to Hong Kong, having regard to the history and development of the Civil Service pay system here. In particular, the research focused on five key areas of interest, as set out in our terms of reference from the Task Force:

· Commonly adopted pay policies, pay systems and pay structure

· Experience of replacing fixed pay scales with pay ranges, or other pay systems

· Systems and mechanisms for determining pay levels and pay adjustments

· Experience of introducing performance-based rewards (or other means to better motivate staff)

· Experience on simplification and decentralisation of pay administration.

2. This report sets out the interim findings from the research and focuses on the key principles and broad arrangements adopted in Australia, Canada, New Zealand, Singapore and the United Kingdom. For convenience, a high level overview of the Civil Service pay arrangements for each country is summarised in the table at the end of this Executive Summary, while further details for each country can be found in the country summary appendices at the end of the main report.

　

3. Our approach to the research was designed to ensure that we collected our data in a consistent fashion and that the emerging results are robust and relevant to the Hong Kong context. To ensure these criteria were met we focused our research efforts in each country through a very senior, highly experienced country adviser. Most of our advisers are former top Government officials and all have deep knowledge of Civil Service pay developments in their individual countries.

Summary of General Lessons and Good Practice from the Research

4. While each country has evolved very different approaches to Civil Service pay to meet their specific needs, we have, nevertheless, identified some common themes and lessons from our research. Specifically:

· Pay and grading reform cannot and should not be implemented in isolation from the broader Civil Service reform agenda. For pay and grading reforms to be successful, complementary reforms are needed in a number of other areas, such as the broader delegation of human resource and financial management responsibilities. Development of supporting performance measurement and management frameworks is vital to ensure that pay and grading reforms can be applied fairly and consistently

A long term view needs to be taken. Implementing pay and grading arrangements typically requires a number of years, using a phased approach to reduce risk and to help build capacity within the Civil Service. Sustained top level commitment and support is crucial both at the political level and from the highest echelons of the Civil Service in order to maintain momentum

· Gaining buy-in and commitment to change from key stakeholders is critical. Early consultation with Civil Service managers and staff is an important means of raising awareness about the need and options for change, overcoming concerns and anxieties and benefiting from their thinking in shaping proposed reforms

　

· A major investment of resources is necessary to build the capacity and commitment required to implement major pay reforms. Typical areas for investment include relevant training and skills development, communications, specific initiatives to shift mindsets and promote a performance culture, and the development of the supporting infrastructure necessary to ensure efficient pay administration, eg technology based systems

　

· Making significant changes to pay and grading arrangements, within the context of wider reforms, inevitably involves pain as well as gain. The path to achieving the benefits from new pay or grading arrangements is rarely smooth. Challenges and setbacks must be expected and allowed for. Staff resistance to any change from the status quo, a potential drop in morale and motivation among those staff who feel they have lost out under new arrangements, and securing the funding needed to implement proposed reforms, are some of the typical issues which may need to be addressed.

5. Having described these general lessons, we have grouped our more detailed findings on good practice under each of the five designated areas of interest.

Commonly adopted pay policies, structures and systems

6. The common trends in pay policy in our five survey countries include:

· Devolution of more responsibility for pay policy and administration to individual Departments and Agencies

· A belief that in certain areas (eg equal opportunities) the Civil Service has a leadership role to play as a ‘good’ employer, with associated implications for pay policy, for example equity in pay arrangements from an equal opportunities perspective

· An emphasis on affordability (ie living within budgetary constraints) and paying appropriately to recruit, retain and motivate staff, with correspondingly less importance given to formal pay comparability with the private sector

· Ongoing efforts to link pay more closely to performance, through various forms of performance-based rewards

· A drive to replace rigid central systems with more flexible approaches including, for example, the consolidation of allowances and their absorption into base pay

　

· Providing separate pay arrangements only for those groups broadly equivalent to the Hong Kong Disciplined Services where special provisions apply (eg where the right to take industrial action has been removed). As a consequence, many of these equivalent groups in the selected countries are in practice treated in the same way as any other Department or occupation within the Civil Service or broader public sector.

Experience of replacing fixed pay scales with pay ranges

7. All five of the countries we surveyed have replaced fixed pay scales (with automatic time-based increments) for their senior civil servants with more flexible pay ranges. Some countries have gone further and extended the use of flexible pay ranges to most or all of their Civil Service. Typically a minimum and maximum salary is specified for each pay range, but then considerable flexibility is allowed for individuals to move through the pay range based on performance.

Systems and mechanisms for determining pay levels and adjustments

8. Each of the five countries, to varying degrees, has taken steps to decentralise the determination of pay levels and adjustments to individual departments and agencies. This has resulted in a general move away from a central, formula-based approach to pay determination for most countries. Affordability within budget constraints, achievement of performance goals, and recruitment, retention and motivation of staff are now the primary consideration, rather than formal comparability with the private sector. Pay trend and level surveys are more typically used to inform collective and individual agreements within set negotiating parameters, rather than to dictate pay adjustments.

9. As a consequence the role of the central agencies has changed with more emphasis on setting the overall policy framework and providing advice, rather than having a direct involvement in setting pay levels.

Experience of introducing performance-based rewards

10. A common thrust in all the countries surveyed has been efforts to link pay more closely to performance, especially for senior civil servants. In addition to the flexible pay ranges already described, other performance related reward arrangements that have been implemented elsewhere include:

　

· Individual performance bonuses – both “one off” and incorporated into basic pay

· Team based performance pay, which is less common and typically associated with achieving set performance targets, or completing a particular task or project.

11. Much of the emphasis to date on performance-based rewards has been focused on senior civil servants partly because of the importance of motivating and rewarding this group, and partly because they generally have more discretion and control over their work. The proportion of senior civil servant remuneration that is now performance based and ‘at risk’ varies considerably between countries. The Singapore Government has gone furthest with an average of some 40% of senior officer remuneration now paid on the basis of individual performance and overall economic performance.

　

12. Two critical success factors in introducing performance-based reward schemes appear to be the development of a credible and robust performance management framework, and the provision of adequate funding to support effective differentiation between average and outstanding performance.

Experience of simplifying and decentralising pay and grading administration

13. As described above, all of our survey countries have, to varying degrees, devolved their pay arrangements to individual Departments and Agencies, operating within a centrally determined policy framework. However, whilst certainly contributing to some significant improvements, devolution has also created some important challenges that need to be recognised and managed, particularly against the backcloth of a perceived fragmentation of the Civil Service.

14. Most of the countries we surveyed have also implemented major changes to their grading arrangements. Common features include the following:

　

· Departmentalising general grades personnel

　

· Creation of flatter, less hierarchical management structures, through rationalisation of the number of ranks and the number of pay ranges

　

· Combining occupations into broad staff groupings for the purposes of grading and human resources management

　

· Establishing formal job evaluation systems and procedures for assessing relative job weight and ranking

　

· Growing away from educational qualifications as the primary determinant of rank or grade.

Implications for Hong Kong

15. It is not the remit of this report to put forward specific recommendations. However, we believe that based on the experience of our five survey countries and taking account of the current issues and challenges facing the Hong Kong Civil Service, all five key pay and grading areas of interest, as highlighted in our brief, are worthy of further, more detailed consideration. Specifically there would be value in the Hong Kong Civil Service:

· Undertaking a more far reaching review of their pay policies and the fundamental principles underlying them

· Examining further whether flexible pay ranges should be introduced

　

· Reviewing the current mechanisms for determining pay levels and adjustments

· Exploring the scope for a more performance based approach to pay and rewards

· Examining the scope for further delegation of responsibility for pay and human resources management to individual Departments.

High Level Overview of Civil Service Pay Arrangements in the Selected Countries

16. In order to provide a quick appreciation of the Civil Service pay arrangements that have developed in each of the survey countries, we have prepared a very brief, tabular guide. The guide is organised around the five key areas of interest specified by the Task Force. We hope it paints a useful picture against which the main findings of the research can be considered.

17. Inevitably in producing such a short summary we have had to make some very broad generalisations and simplifications of the detailed arrangements in each country. As such it should be read with some caution. To avoid possible misunderstanding or misinterpretation we suggest that readers should also look at the fuller details on each country, as set out in Appendices A-E.