LC: CS' speech on "Reviewing the Pay Adjustment Mechanisms of Publicly-funded bodies and Statutory Bodies"

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Following is the speech by the Chief Secretary for Administration, Mr Donald Tsang, on the motion "Reviewing the Pay Adjustment Mechanisms of Publicly-funded bodies and Statutory Bodies" in the Legislative Council today (December 12):

Madam President,

1. I am most grateful for Members' views and comments on today's motion. I have sensed the strength of Members feelings.

2. There are over 200 statutory bodies in Hong Kong. Each of these bodies is set up with its own unique purpose. Most operate with some form of government funding. Some of them are required to work on prudent commercial principles. Others are run as Government subvented bodies. Yet others are incorporated by statute to provide charitable services. There are also a large number of statutory boards that deal with appeals under different Ordinances.

3. Indeed, it is a distinctive feature of the Hong Kong system of governance that we encompass such a vast number and wide range of statutory bodies. They are detached from the government structure and machinery, and are given the autonomy they need to operate, many of them in a business environment. In the light of their very different functions, nature of work, and funding arrangements, each statutory body has its own governing board, terms of reference and modus operandi, as defined under its governing statute. The system of governance of each statutory body had been carefully scrutinized by this Council before its governing statute was enacted by this Council.

4. The Honourable Albert Ho named six organizations in his motion. These six alone suffice to demonstrate the very diverse nature of the roles and functions of our statutory bodies. The Kowloon-Canton Railway Corporation (KCRC) is a publicly owned corporation. Like the Airport Authority (AA), the KCRC is required by law to operate on prudent commercial principles. Similarly, the Urban Renewal Authority (URA) is to operate along commercial lines. The Housing Society (HS) however is entirely different. It was founded as an unincorporated charity. Although it is now incorporated, it is a non-profit making private organization with a social mission and still enjoys charitable status. The Mandatory Provident Fund Schemes Authority (MPFSA) and the Hong Kong Monetary Authority (HKMA) are also different. While both are regulators, the former has an independent corporate status, and the latter is a legal person appointed by the Financial Secretary and works as an agency of the Government.

5. The amendment moved by the Honourable CHEUNG Man-kwong covers a much wider field. For the reasons I have just stated, it will be very difficult, if not impossible, to deal with all 200 odd statutory bodies coherently in one open debate. I shall therefore use the six singled out in the original motion to illustrate how statutory bodies are made accountable for their operations.

6. There are, of course, standard procedures in place to hold these statutory bodies accountable. They include -

(a) specific legal provisions governing their operations and ensuring their compliance;

(b) Government representatives sitting on their management boards;

(d) the requirement to submit audited annual accounts to the Government and to have them tabled in the Legislative Council or make them available for public inspection.

7. Let me now turn to the subject of this debate, that is the pay adjustment mechanisms of these bodies, and the measures proposed by the Honourable Albert Ho and other Members, to improve the ways these bodies use public funds and to enhance their accountability.

Effectiveness of the Government's monitoring role

8. All the six statutory bodies mentioned in the original motion have either an ex-officio chairman or senior officials sitting on their management boards. These Government representatives are not confined to Bureau Secretaries. Public officers sitting on the management boards work with their non-government counterparts to closely monitor the operation and the decision-making process of these bodies. Official board members offer advice from the Government's policy perspectives as well as on public aspirations. Their input enables the statutory bodies to give due regard to the wide public interests in the pursuit of their organizational goals.

9. The appointment of public officers to the management boards aside, the Government also appoints the head of the executive team of most of these bodies. For example, the Managing Directors of the Mandatory Provident Fund Schemes Authority and the URA, and the Chairman cum Chief Executive of the KCRC are appointed by the Chief Executive of the SAR; the Chief Executive of HKMA is appointed by the Financial Secretary; the Chief Executive Officer of the AA is also appointed with the approval of the Chief Executive. As regards the Housing Society, which is a private charity as distinctly different from the other five public bodies, the Executive Director is appointed by the Executive Committee of Housing Society of which the Secretary for Housing is a member. We are generally content with the existing arrangements, which strike to exercise a level of monitoring commensurate with the high degree of autonomy conferred in statute upon these bodies, for the discharge of the executive functions vested in them. What is perhaps more important is that the total packages of remuneration of the Managing Directors of the MPFSA and the URA, the Chief Executive Officer of the AA and the Chief Executives of the KCRC and HKMA are broadly consistent with the prevailing market rates for their counterparts in the private sector. More specifically, for example, we should ask ourselves whether the Chief Executive of the KCRC is being paid more than the Chief Executive of a large commercial public transport operator in Hong Kong, or whether the Chief Executive of the HKMA is being paid more than the Chief Executive of a reasonably-sized bank in Hong Kong. The answer is that they are not.

Pay adjustment mechanism

10. The Honourable Albert Ho suggests that the Government should consider drawing reference from the pay adjustment mechanism of the Civil Service and devise for these bodies a system which is clear, transparent and acceptable to the public. For organizations which receive recurrent subvention from public funds, the Government's policy is that, as a general rule, the terms and conditions of service of the staff concerned should not be better than those provided by the Government to comparable grades in the Civil Service. Pay adjustments of these subvented bodies follow primarily those of the Civil Service.

11. As to the statutory bodies, as I have stated in my reply to the Honourable Lau Chin-shek's question last week, the remunerations for staff in these organizations are set to reflect the different management structures in these organizations, the level of responsibilities, and the respective areas of expertise and experience required. In overall terms, the remunerations and their adjustments should be in line with the respective markets in which these organizations compete for human resources. The remuneration should be able to attract and retain staff with the appropriate calibre, experience and expertise. Just as the remuneration policy of these bodies cannot be compared with that of the Civil Service, neither is the pay adjustment mechanism of the Civil Service an appropriate reference point for them to draw on.

12. Nevertheless, these organizations do conduct regular remuneration surveys of their respective markets in which they compete for human resources. The remuneration packages for senior management staff are determined having regard to the prevailing market trends. The underlying philosophy is that they must be able to attract and retain staff with the appropriate experience and expertise to operate in their respective markets. In addition, general information on the remuneration of senior management staff will continue to be disclosed in the respective annual reports of these organizations.

Measures and mechanism to ensure the effective use of resources

13. Regarding the proposal to subject these bodies to the scrutiny of the Director of Audit, let me first recapitulate for Members the guidelines on the scope of the Director of Audit's value-for-money studies, as agreed among the Public Accounts Committee, the Audit Commission and the Administration. According to the guidelines, organizations subject to such studies should include -

(a) any person, body corporate or other body whose accounts the Director of Audit is empowered under any Ordinance to audit;

(b) any organization which receives more than half its income from public moneys; and

(c) any organization the accounts and records of which the Director is authorised in writing by the Chief Executive to audit in the public interest under Section 15 of the Audit Ordinance.

14. In accordance with these guidelines, many of the statutory bodies are already subject to the Director of Audit's scrutiny. HKMA is an example. The Chief Executive has also appointed the Director of Audit as the external auditor of HKMA to scrutinize the accounts of all transactions of the Exchange Fund.

15. For KCRC and AA, the Government does not fund their operations and they are required by law to operate according to prudent commercial principles. Generally speaking, their recurrent revenues come from the charges and fares paid by their customers and not from the public purse. Like the commercial entities, they are required to generate sufficient income to meet their operating expenses. They are required to repay debts and to provide reasonable returns. Although they received capital injections from the Government when they were set up to cover part of the non-recurrent expenses, they also have to raise considerable amounts of funds from local and international capital markets to pay for their major expenditures in this regard. Therefore, these bodies need to establish a good reputation amongst the financial community and international credit rating organizations. They need to operate with a high degree of financial autonomy and commercial sensitivity in order to achieve this objective. If we stipulate that the general management of these organizations should be monitored by the Director of Audit through value-for-money studies which will be eventually open to the public and subject to political debate, that will be a departure from that objective. Some Members might not agree to this argument, but we know that prudent bankers and financial syndicates hold the same view.

16. The URA is required to operate along commercial lines and is expected to be self-financing in the long run. Similarly, the MPFSA which, apart from a capital injection from the Government upon its establishment, does not receive any recurrent funding from the public purse. As for the HS, the Government would grant land at concessionary premium or low interest loans only for certain subsidized specific housing projects. It does not receive recurrent subsidy from the Government. These organizations are therefore not subject to the scrutiny of the Director of Audit.

17. Notwithstanding the above, they have all set up their own internal audit mechanisms to ensure the proper use of resources. They are also required to appoint independent external auditors. The audited financial statements, together with the auditors' reports are either tabled in this Council or published and made available to the public. Through these measures, we believe that these safeguards are comparable to any prudently managed, publicly listed commercial entities. They should ensure that the bodies concerned utilize their resources properly.

Accountability and transparency

18. Although statutory bodies are entrusted with certain executive powers, policy responsibility remains firmly with the relevant Policy Bureaux. Statutory bodies performing public functions are held accountable, through the Bureau Secretaries, to the Legislative Council in respect of their operations, services and efficiency. Policy Secretaries report to this Council regularly on the affairs of these bodies, and answer questions raised by Members. My attendance this evening in response to the Honourable Albert Ho's motion and other Members' views is testimony to this system of accountability.

19. That aside, senior management staff of these bodies often attend meetings of Panels of this Council on request to brief Members on subjects of interest or public concern. A number of them submit their audited reports to this Council through the Administration. This interface with the Legislative Council has worked well and will continue. In addition, these bodies have also taken steps to enhance the transparency of their operations. They include publishing annual reports, setting performance pledges and targets, issuing press releases on their major decisions, maintaining updated websites and publishing information on their activities on a regular basis.

Conclusion

20. Madam President, the some 200 statutory bodies we now have were established at different points in time under different sets of circumstances. The governance of these bodies, the functions and responsibilities of their senior management and their overall systems of accountability are set out in the relevant Ordinances to reflect their unique circumstances. Given the diverse nature of their functions, it would be neither practicable nor desirable to attempt to mandate one size fits all, Government salaries for all or one framework for all the different practices and arrangements as regards pay adjustment mechanisms and system of accountability. The current checks and balances built into the system have, on the whole, worked well. But no system is perfect, and we must also move with times. My colleagues and I have listened very carefully to Members' views. We will mull over them, and we will search for sensible improvements. Meanwhile, the Administration's representatives sitting on the statutory bodies, particularly those operating on prudent commercial principles will exercise their highest vigilance over any decision relating to the remuneration of these bodies' senior executives. Thank you.

End/Wednesday, December 12, 2001

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