Friday, January 20, 2012

Ministerial Pay : Why the man on the street is right and PM Lee is wrong...Part 2

While members of parliament debated the issue of ministerial pay, a group of 6 economists published a paper, "Inequality and the Need for a New Social Compact"[Link]. The paper discusses the causes of rising inequality and the need for govt to counter the effects of rising inequality in our society. It is a good summary of many issues discussed in this blog. Those who think about  miniterial pay and income inequality more deeply will know that both issues are linked.

"You have to pay the market rate or the man will up stakes and join Morgan Stanley, Lehman Brothers or Goldman Sachs and you would have an incompetent man and you would have lost money by the billions" - Lee Kuan Yew, 2007

Here is a video of Warren Buffett explaining how CEOs and top executives have become over-compensated in the past 2 decades:


Instead of fixing the underlying problems in our society caused by income inequality which has resulted in a 3rd world wage structure, the PAP has been using the salaries of over-compensated executives to set their own pay. This wages of this segment of high income earners much faster than the rest of workforce. most of the time, for "wrong" reasons given by Warren Buffett in the above video. Singapore adopted American style executive compensation without the corresponding disclosure practices.

"And Singapore is just such an example, according to the CFA Institute. It says that prior to Singapore adopting the Code of Corporate Governance, the Singapore Exchange (SGX) acknowledged that disclosure on an individual basis should be in line with global best practice and that share owners should have the right to know how directors are compensated.

'This awareness, however, failed to translate into policy because of considerations for directors' personal privacy ....... " - [Link]

Singaporeans have generally been very patient with the PAP. In any other country, the leaders would have been voted out if they demand the same compensation as our leaders. However as the income of ordinary Singaporeans stagnate, this patience is running out. The new pay structure is not going to bring our leaders closer to ordinary folks. You peg it to the top 1000 earniers whose income in rising the fastest relative to everyone else/ PAP ministers' high compensation will rise much faster than the wages of ordinary folks.

Over time the PAP govt eliminated the benefits of rank and file civil servants while expanding pay packages of the people on top. The ordinary Singaporean is made to shoulder heavier burdens for healthcare, housing and transport and faced increasingly uncertain and unstable employment at a the same time the PAP implemented parachute systems for its elites dropping them from, say, high positions in the SAF to top positions in the GLCs & govt. If you listened to PM Lee's speech on the ministerial salary he said that the high salaries are necessary to "sustain the system".  This system in which elitism is entrenched in not one that can take us forward to a good future for ordinary Singaporeans. Extreme distorted policies like having a foreign worker influx that is among the highest if not the highest per capita to maintain the already high profitability of govt linked companies with cheap labor and expanded demand for their services has hurt Singaporeans in particular those earning lower wages. Corporate profits which are now at a high as a % of GDP are attained by exploiting policies that keep wages down by importing foreign labor. These high profits are then used to justify high executive compensation along with factors mentioned by Warren Buffett.

Chen Show Mao said in his parliament speech that public service is a privilege. Every where else in the developed world good capable people would step forward to contribute regardless of pay and serve the people with passion. The PAP claims it is harder now to find good people - fewer and fewer people are willing to step forward to join the PAP. But that is not true if you look at the opposition, they now have more people joining them and quality has also improved.....why the sudden motivation for these people to join the opposition in recent years?

The PAP says it is being pragmatic and the Workers Party is too idealistic in its approach. But this is not true. It is not pragmatic to expect ordinary citizens to accept its extraordinary "highest in the world" compensation when the quality of life for many Singaporeans has fallen in many respects. The PAP govt says this pay structure is necessary to help it continue to recruit capable people into govt but the truth is they need to do this to sustain their system of govt - a system that has become disconnected with ordinary citizens and incapable of putting their interests ahead of those of the power elite. This system has concentrated the wealth generated by our society narrowly in a small segment of the populace and the new pay structure aligns leadership with this small segment. The PAP govt has had these high salaries for more than 2 decades...has this extremely high salaries resulted in a high quality of life for the ordinary citizens.? ....The man on the street is able to see it does not correlate and will not correlate.

45 comments:

Anonymous said...

CEO in other countries are paid in ten and hundred of millions. Warren Buffett is referring to those with that amount of pay and with stock options.

PM salary of 2 million is cheap.

Anonymous said...

"PM salary of 2 million is cheap."

Are you brainless ? Are you sure he get 2 millions ?

What happen to those unaccountable billions loss from his wife and papa lee ? When does all those money comes from, and go into ?

Anonymous said...

Unrelated to the article, but still on ministerial salaries:

I have a question: After Chan Chun Sing said that he is in a team where no one is in it for the money, why has no one focused on the withdrawn bankruptcy order of Foo Mee Har's husband?

Anonymous said...

Frankly speaking, for such huge responsibilities and such public scrutiny, SGD 2 million is not that unreasonable.

Fred

Anonymous said...

Pls discuss at face value for the ministerial pay. Future performance counts but surely the investment performance of gic and temesak is not up to warren Buffett's standard.
LoL

Anonymous said...

Dear mr lucky, thanks for this article, which put yur finger clearly at what is wrong with the system. It makes me feel better, that we are not that daft after all. Everyday our minister are spewing, flooding us with so much ilogical nonsensical statements, I almost think that I am an idiot as I can not comprehend nor concede with their points or argument. That makes me fearful. I Begin to question my own ability to discern between the right and wrong, black and white.

Often, I only manage be reassure of myself only after reading your blog and some other well analyse blogs.

Many thanks for sharing with us your thoughts. Would appreciate you would continue to do so.

Lastly, may I wish you a blessed cny !

Anonymous said...

They have gotten used to living as a millionaire; to be able to get and do whatever their whim and fancy dictates them.

Even during recessions, they would venture to France for a cooking class over the weekend.

They have properties overseas. They have accumulated masses of wealth to last them for 2 generations.
And they want more. They deem others' view as idealistic but theirs as realistic. To them, Singaporeans getting unsubsidised healthcare, let alone universal healthcare is about being realistic.

We are doing worse, much much worse than Malaysians in almost all aspects of quality life. And they are still kind to sell us water at dirt cheap prices. We are lucky we have Malaysia as a neighbour. If we had China or South Korea as neighbours, it will be a completely different story.

We have ministers who are greedy and are arguing for higher salaries for their own pockets which they take from our own pockets 'cos we pay taxes. In short, we pay them their salaries and pensions.

Our government is addicted to power. And they can't let go. It's power addiction.

They live and are fed on the diet or greed and envy. They saw that the bankers during the sub-prime crisis in the States got bailed off by Obama administration after ripping the americans off in billions of home mortages by issuing bad loans. They are also mimicking this. Temasek Holding lost hundreds of billions. And we, the Singaporean CPF owners and taxpayers are bailing the PAP administration out.

Singapore is falling. THe engine has stopped running. GDP growths are now coming from non-productive means: taxing casinos companies and Singaporeans.

It is now surviving on great hype and marketing. This illusion will be broken.

The reason is because LKY didn't imagine the arrival of the internet. This was another of his error besides the 2-child policy.

Anonymous said...

The trouble is that they have taken a truth 'Leaders must not be underpaid' and taken it to the extreme 'Leaders must be paid as high as the top 0.05%' and taken it further to 'Leaders must be paid as high as the top 0.05% regardless of policies that are detrimental to the man in the street'.

When articles on Ministerial salaries start appearing on international newswires such as Bloomberg, it's a sign that something unique is happening here.

Still, you may vent and rant and rave, but they have 90+% control of parliament and can legally sign their own paycheck. All that ministerial salary hoopla in the last few days is just an FYI, a polite note.

2016 is coming. Are you ready?

Anonymous said...

"Frankly speaking, for such huge responsibilities and such public scrutiny, SGD 2 million is not that unreasonable.

Fred "

It is not unreasonable provided they are performing. Are there?

Singapore NS-serving males are poor soldiers. They don't get universal healthcare during peacetime. What makes you think they will get it during war time?

The laws have been used to curtail the people to such an extent that Singaporeans are an unhappy lot.

It is no longer cool to tell other Asians that you're a Singaporean. They'll ask you why you can't sell chewing gum in your country and why you can't carry a bag of durians in the trains.

My German friend who did business here for 15 years told me the radical changes has been dramatic. He couldn't read a book in the MRT like he used to as it's overcrowded. He could find green spaces in Singapore like he used to as they are building HDB flats. There is hardly peaceful walking spaces and greenery like it used to.

His verdict was: Return to Germany.

Anonymous said...

Folks, the truth is: Singaporeans don't know.

Decide now.... said...

The effect of blogging and the responses it gathers only serves the Government's arguements.

It allows them to take the temperature of the people.
Although not entirely representative,
it does give them an insight and the confidence ( false?) to carry on.

I believe that silence is far better.

For the next 4 years... silence from the people.

Till election time.

It will then be the scariest moment of their lives.. not knowing how the people will behave.

I have already concluded how I will vote.. and am not likley to change my decision.

There is no need to contribute negative remarks & comments.. it serves no purpose at all.

Decide now
Remain silent
Vote with confidence

It will be the best gift you could ever deliver to your future

Ng Eng Hou said...

The reality of the situation is for the past 10 over years, they had been highly over-paid, but they don't deliver good results for the country.

Pay is important. But when you look at PAP, they're not able to get people. Actually, there are lots of smart educated people outside there. But what they only want are their own 'trusted insiders' and this pool of people is of course very very small. For this reason, PAP has to pay sky high salaries to entice these cronies to get in.

If they're so keen to follow the private sector, don't they know there is a Say On Pay movement in the private sector and is happening in many countries, where shareholders vote on their companies' CEOs pay. Well,if PAP dares, let the people vote on their pay in every General Election. Of course PAP will tell you, Singapore is very 'special', we can't follow others.

The Only Thing Special About Singapore Is The World Highest Pay For Politicians! That's It. Nothing So Special!

Anonymous said...

They argued so passionately over their pay citing our limited supply of "talent". On the other hand, they tell us, the masses, to face competition from foreigners for jobs, education and unfair NS obligations. Perhaps they might want to sit down and think that we are the ones will cast the vote, for them to enrich themselves while we are still stuck in 3rd world pay. Selective arguments to their benefits. Wait till 2016.

Anonymous said...

They are paid peanuts and so long they are paid peanuts, they will monkey around. Singaporeans failed to understand logic and are therefore flawed in claiming their rulers are overpaid.
Logically, if they are paid handsomely, they WILL BE more dedicated to their duties and the people. Thus the state and the people WILL BE better taken care of.

Right?

Anonymous said...

Quote: "One way to change something big is to get people really riled up about how you’ve changed something small. Repaint the boat, and let them to argue about that. By the time they’ve realized that green is no worse than blue, they won’t have the energy to wonder whether it was a smart idea for you to set sail for Australia."

In analogy, this is what is happening with the ministerial pay cut. We will all get used to it again.

Anonymous said...

Aljunied never regrets. Let's do it for the rest 2016. Lee Hsien Loong has to be removed from his PM position. Ang Mo Kio, are you ready?

Anonymous said...

Elites trying to make as much money as possible before the sun sets on the old man?

Anonymous said...

Why not sack the entire Temasek management team?

And invest all the money in Berkshire Hathaway shares.

As a shareholder, we get Warren Buffet as our fund manager for free.

Anonymous said...

"The PAP govt has had these high salaries for more than 2 decades...has this extremely high salaries resulted in a high quality of life for the ordinary citizens.? ....The man on the street is able to see it does not correlate and will not correlate."
Lucky Tan

Does it matter when despite these high salaries for more than 2 decades, at least 60% still voted for PAP?

And Tan Jee Say wanted to be only $500K per year President and yet majority (75%) do not want him.

Anonymous said...

Poor Lucky Tan, 60% do not see eye to eye with him.

If I were PAP, I will be laughing at Lucky Tan and most of those posters in his blog.

Amused said...

Are we hiring Ministers to run the country so we have to pay "market" rate for their service? Seriously, this is a country, not a corporation!

A government should pay its civil servants well to compete for talents. But politicians are not CEOs, neither are CEOs (good) politicians. There is simply no justification linking politician pay to those of a successful CEO.

All democratic countries survive political leadership changes because the civil service is always there to keep the country functioning. Greece, Spain, Italy (and soon France and Germany) changed governments without resulting in chaos. None of their politicians are paid anywhere near their Singapore counterpart. Is PAP claiming that its ministers are indispensable and therefore it justifies their high pay?

Anonymous said...

Good morning Lucky!

Wish you a happy year!

The PAP workers is working very hard and early, last time they said are you a citizen and now they say S$2mil is cheap. Your supporters is very early also.

Anon 20/1/12 06:03 and Fred and other PAP workers, S$2mil is nothing if the results is good. But......

Let me talk to you in Billion.

From Micropolis, Air New Zealand, to Dao Heng Bank to Chartered semiconductor to Barclay Bank, Merrill Lynch to Thai and Indonesia investment(+fine) to latest Pakistan bank.
We lost billion of dollars in investment. Dividend did not come in as expected. Our national saving was gone.

Singapore Government rely on CPF funds heavily that is why the Government debt ratio is high among the world top 5.

Railway land issue has been solved. But they did not tell you the CPF funds have to be returned to Malaysian. It is a balance sheet cash flow movement and not an income and expenses items. It involved billion.

They sell 40 storey-high flat at 600K at zero $ cost land or $1/sqf(ivy Singh Lim). They are earning billion every year.

They defer CPF withdrawal, but it only delay and cannot get it. So they have pension scheme. 1/3 CPF for retired purposes go to pension funds and you only start withdrawal at 80(1 of the 4 options, which among the 4 is the best one) Take in the cost (the 1/3) you will only gain when you live beyond, say 82. But average Singaporean live span is about 81 at the moment. Look at the whole world any modern country has average life span of more than 80 years old? So in the beginning they earn more than S$20b/S$50b…. after that every year will be earning billion. It even makes us poorer as a result because 1/3 has been robbed. And it does not have a formula to tell you how much you will get. If only 1 out of 10 live beyond 80, you think you can get $5k a month? Long time ago when I listen to LKY National day speech, he said then pension is no good because you spend someone money and hence we change from pension to CPF system, but now……The CPF interest rate is low. So Government is robbing again and people are suffering because of inflation and the min sum keeps going up!

For national security, our government bought overseas food activities-related companies but why they sold away our power station and earn billion dollars. why?? It is a sure will-not-loss money business unless we do not need oil to generate electricity 10 years later. It is because our saving has disappeared.
To cut cost Government reduce spending on medical care.
Raffles Hotel is our icon and is making profit but why the Government had to sell it away? (it did not involved $b). This is because they need money badly.
We have overspent by billion in defence. We should not/cannot afford to. (Weapon are very expensive and salary is high, even party animal can get scholarship), Our Government concept is wrong although they believe they are the most clever people in Singapore. We should ally with a super power. The effective way to attack Singapore is cut off the water and food supply and not attack directly.

Anonymous said...

To 20/1/12 10:24,

Hey, your big boss ask you to engage. He will be very disappointed to see you write like that.

To 20/1/12 10:24's supervisor,
Did you train him? cut his performance bonus!

Anonymous said...

"Is PAP claiming that its ministers are indispensable and therefore it justifies their high pay?"
Amused 20/1/12 10:41

Don't you realise PAP could not even make such claims in the first place had 60% not given PAP support for such claims?

You want to make your own claims and prevail? Go get the 60% support!

Anonymous said...

Anyone can do better than them(PAP Talents)?
Please stand out and be counted or at least be identified.

ser guan said...

If the top 1000 earners of singapore are already over compensated, then in the next 5 years, how likely is it that their income will rise faster relative to everyone else?

It is not logical. Reversion to the mean will happen.

Anonymous said...

Spoilt votes could have won the elections for Tan Cheng Bock.

Tan Cheng Bock = 34.85%
Tan Jee Say = 25.04%
Tony Tan Keng Yam = 35.20%
Tan Kin Lian = 4.91%

Tony Tan wins by 7,269 votes
Spoilt votes = 37,826 votes.

Vote wisely.
Don't spoil your votes.
Every vote counts.

Once every 5 years, you and your vote is just as important as that of any elite.
Make it count.
If you are angry, make it hurt.

Anonymous said...

"And Tan Jee Say wanted to be only $500K per year President and yet majority (75%) do not want him."
Anon 20/1/12 10:24

Now I understand why most people will prefer $10 chai tow kuay at 5 star restaurant than $1.50 one at hawker centre.

Anonymous said...

Shhhhh!

Keep quiet!.. talk in soft tones..
be patient.

Its alright.. they have 4 years..
only 4 more years!

meanwhile.. just shhhhhh!

If you keep talking, they will know.. steal your ideas.. rehash them and launch it as theirs.

only 4 years.

Anonymous said...

They wanted an elected president to prevent future rogue govts from raiding the reserves.They are alreadily happily raiding the reserves.There will be nothing left for future 'rogue' govts to raid!

Anonymous said...

All I can say for nnow is the stupidity of the 60% Singaporeans for voting in the highest-paid highly-incompetent government.

YOG.MRT.HDB

Anonymous said...

many times i feel the ST and Zaobao
did us singaporeans a huge wrong by
covering up for the MIW party.

most do not read online sites and are fed the usual propaganda and continue to be hindered from knowing

Anonymous said...

Not an objective piece. You should have slammed WP too for supporting similarly high pay for politicians.

Lucky Tan said...

ser guan,

There has been no reversion to the mean for executive compensation for the past 3 decades - more or less it has gone straight up. There is nothing to break this spiral up...recently there has been some outrage by shareholders and stakeholders surrounding these high salaries but they have not come down. Take ex-CEO Saw Piak Hwa as an example, there has been plenty of anger mounting since 5 years ago about her rising salary and falling standards but it kept going up until the day she resigned her last drawn pay was the highest pay any SMRT CEO has earned.

Anonymous said...

What the hell we send WP MP to parliament for? To cast opposing vote for anything PAP done to injure Singapore.

WP has definitely dissapoint us this time voting along PAP's line.

We need to vote in Chee Soon Juan. He is the man who has gone inside the PAP's cage. He will know what to do.

Lucky Tan said...

Fred,

I think Obama has huger responsibles 100 times larger yet his pay check is smaller.

Aside from the high level ..who they chose to peg to says a lot about the principles.

But for most Singaporeans the unhappiness is mostly generated by the lack of improvement in their own quality of life.

The said...

China's GDP growth has averaged 10% a year for the past 30 years, without ever going into a recession once. If they want to link their pay to GDP, then China's President Hu Jintao should be getting billions of dollars.

charity for PAP said...

lets all donate our CPF to them..
and bid them goodbye..they can have it all..

Clear eyed said...

Lucky Tan: "Singaporeans have generally been very patient with the PAP. In any other country, the leaders would have been voted out if they demand the same compensation as our leaders."

Yes, we have been too patient and accommodating to the point where PAP takes us for fools. The Old Man describes us as daft to the international media and says we need spurs to be stuck to our hides. We have missed our chance to prove them wrong in 2011. Let's not waste our opportunity again in 2016. If we do we will indeed be fools.

Anonymous said...

"But for most Singaporeans the unhappiness is mostly generated by the lack of improvement in their own quality of life."


I think that is the important point. The pay issue got mixed up with the frustrations when they are actually separate issues. The question is, what is frustrating the masses?

Anonymous said...

Yes, Lucky, I totally agree to your comment "But for most Singaporeans the unhappiness is mostly generated by the lack of improvement in their own quality of life."

If 80% of Singaporeans have got their lives REALLY improve eversince the ministers galaxied high their salary, I bet there won't be such strong sentiments now regarding their remuneration. In fact, I bet we will even support them if they want a salary increase. The thing is, 80% Singaporeans lives are much worst off now and things are really starting to become much worst. The "water" is coming to a boiling point realy soon.

Anonymous said...

He argued in a 1984 essay that CEO compensation should be no more than 20 times what the rank and file make — especially at companies where thousands of employees are being laid off. “This is morally and socially unforgivable,” Drucker wrote, “and we will pay a heavy price for it.”

From Wikipedia spoken by Drucker Father of Management.

Anonymous said...

SIN have too many overpaid MPs which resulted in overcrowding transport system, over expensive housing and over occurence of floods.

Anonymous said...

Frankly we don't care how much the ministers are paid as long as the common people lives are getting better and not worst.

Gan said...

Hear the wisdom of the people posted.

http://www.tremeritus.com/2012/01/08/my-thoughts-on-the-ministerial-salary-review/

http://www.tremeritus.com/2012/02/01/letter-to-prime-minister-on-ministerial-salaries/