LC Paper No. CB(2) 1694/98-99
(These minutes have been seen by the Administration)

Ref : CB2/PL/PS

Legislative Council

Panel on Public Service

Minutes of meeting held on Monday, 15 March 1999 at 10:45 am in Conference Room B of the Legislative Council Building Members Present:

Hon TAM Yiu-chung, JP (Chairman)
Hon Mrs Sophie LEUNG LAU Yau-fun, JP (Deputy Chairman)
Hon LEE Cheuk-yan
Hon LEE Kai-ming, JP
Hon CHEUNG Man-kwong
Hon CHAN Kwok-keung
Hon CHAN Wing-chan
Hon Andrew WONG Wang-fat, JP
Hon Howard YOUNG, JP
Hon Ambrose LAU Hon-chuen, JP

Non-Panel Member Present:

Hon Emily LAU Wai-hing, JP

Public Officers :

Mr LAM Woon-kwong, JP
Secretary for the Civil Service

Ms Anissa WONG
Deputy Secretary for the Civil Service (1)

Deputy Secretary for the Civil Service (2)

Mrs Susan MAK
Deputy Secretary for the Civil Service(3)

For Item IV

Mr LUK Ping-chuen, JP
Acting Postmaster General

Mr CHIANG Yam-wang, Allan
Acting Deputy Postmaster General

Mr TSANG Kwok-lam
Assistant Postmaster General

For Item V

Mr LEUNG Cham-tim, JP
Acting Director of Electrical and Mechanical Services

Mr HO Kwong-wai
Acting Trading Services Manager
Clerk in Attendance:
Mr LAW Wing-lok
Chief Assistant Secretary (2)5
Staff in Attendance:
Miss Mary SO
Senior Assistant Secretary (2)8
I. Confirmation of minutes of meeting on 18 January 1999
(LC Paper No. CB(2) 1466/98-99)

1. The minutes were confirmed.

II. Date of next meeting and items for discussion
(LC Paper No. CB(2) 1467/98-99)(01))

2. Members agreed to discuss the following two items at the next meeting to be held on 19 April 1999:

  1. Briefing by the Housing Bureau and the Housing Department on the consultancy report on privatization of services provided by the Housing Department; and

  2. Provision of various job-related and non job-related allowances in the Civil Service.
3. Members further agreed to discuss the following two items proposed by Mr LEE Cheuk-yan at a later meeting:
  1. Review of starting salaries in the Civil Service; and

  2. Consultative machinery in the Civil Service.
III. Consultative Document on Civil Service Reform
(LC Paper No. CB(2)1436/98-99)

4. At the invitation of the Chairman, Secretary for the Civil Service (SCS) outlined the objectives of the Civil Service reform. He said that the Civil Service reform sought to create an open, flexible, equitable and structured civil service framework, an enabling and motivating environment for civil servants, and a proactive, accountable and responsible culture. To better meet the challenges of the 21st century and a rapidly changing external environment, it was essential that the Civil Service kept pace with the community it served, improved itself and enhanced its efficiency. SCS stressed that in implementing the Civil Service reform, there was no intention on the part of the Government to undermine staff morale. On the contrary, he believed that the majority of civil servants were supportive of the overall framework for the reform. He further said that the Civil Service Bureau (CSB) would consult staff and departmental management on the proposals set out in the Consultation Document with a view to working out detailed packages of proposals for gradual implementation over the next 18 months.

5. Mr CHEUNG Man-kwong expressed concern that the proposal to replace two-thirds of the Civil Service establishment (i.e. about 120,000 staff) on permanent and pensionable terms with staff on agreement terms in the next 10 to 20 years would create instability in the Civil Service. He pointed out that this problem would become more pronounced when the economy was buoyant, as civil servants on agreement terms were more likely to take up more lucrative jobs in the private sector. He questioned whether the pace of the reform was too fast.

6. SCS responded that the proposed timeframe for replacing 120,000 pensionable staff with staff on agreement terms was not an unreasonable target, given that the wastage of the Civil Service for the past 10 years was of an average figure of 8,000 to 9,000 per year, with the exception of 1998 where the wastage stood at 3,870 which was below the average figure. Depending on the age distribution of staff in each department, the pace of change from pensionable terms to agreement terms would vary from department to department. He further said that such a change would not lead to instability in the Civil Service. Although two-thirds of the Civil Service would ultimately be employed on agreement terms, the remaining one-third who would be occupying supervisory posts would still be on permanent terms. He pointed out that employing staff at basic ranks on agreement terms would not necessarily be applied across the board. The Government had announced publicly that it would take into account any views or suggestions expressed by departmental management and staff before the proposed change was implemented.

7. SCS further explained that one of the reasons for employing basic rank staff on agreement terms was to ensure better quality control. Under the existing management culture, Heads of Departments (HoDs) often bore a psychological burden to retain a new appointee, upon the expiry of his probation period, even though his performance did not fully meet the required standard. However, it would be much easier for HoDs to terminate the service of such a staff by not offering him a further agreement under the proposed entry system on agreement terms. Another reason for adopting the new entry system was that it would provide greater flexibility in controlling the size of the Civil Service. At present, it was very difficult to remove civil servants on permanent terms on account of redundancy. This would not be the case if civil servants were employed on agreement terms. SCS also said that he was not overly concerned that there would be an exodus of civil servants going into the private sector when the economy was buoyant. In his view, the mind set of people who had opted a career in the public service was different from that of those pursuing a career in the commercial field.

8. Referring to the proposals in paragraphs 2.12 and 2.13 of the Consultation Document on management-initiated retirement in the public interest, Mr CHEUNG questioned whether there was a need for adopting the new entry system on agreement terms. In his view, the adoption of such a system was a heartless move as it would mean that staff who had not committed any misconduct would be removed on grounds of mediocrity. This could lead to an imbalance in the present system.

9. In reply, SCS said that the adoption of the new entry system on agreement terms was to bring the pay and conditions of service of civil servants in line with those in the private sector. According to a recent press report, the starting salaries of entry works in the Civil Service exceeded those in the private sector by 20% to 60%. This was because, given the huge size and numerous grades in the Civil Service, the review of starting salaries in the Civil Service would normally be conducted every ten years. There would be greater flexibility under the new entry system to conduct such review to ensure that the starting salaries in the Civil Service were in step with those in the private sector.

10. As regards the issue concerning directing a staff to retire early so as to make way for high flying staff, SCS stressed that this would be used only as a last resort for staff succession planning purposes. He pointed out that such a move would most likely occur in a small department with a small number of directorate staff.

11. In response to Mr CHAN Wing-chan's enquiry about the impact of the reform on existing staff, SCS said that civil servants on permanent terms would not be forced to change to agreement terms. Nevertheless, existing staff would be subject to more simplified disciplinary procedures and they would have to compete with outside candidates for vacancies in supervisory ranks, where necessary.

12. Miss Emily LAU expressed support for the overall framework for the reform of the Civil Service. She said that although maintaining stability in the Civil Service was important, ensuring competitive pay and conditions of service with the private sector was equally important. Miss LAU enquired how much saving could be achieved by introducing the reform proposals. She also enquired whether the proportion of total staff cost in the Civil Service and in Government-funded agencies to the total Government recurrent expenditure was as high as some 80% as told by the Finance Bureau and how this percentage compared with that of the private sector.

13. In reply, SCS said that it was difficult to say at the present stage how much saving the reform proposals could achieve, given that the exercise would take a long time to complete. He also said that the total staff cost in the Civil Service and in Government-funded agencies was about 66% of the total Government recurrent expenditure. He pointed out that it was difficult to compare the staff cost between the public and private sectors, having regard to their varied mode of operation. For example, public service was generally very labour intensive, which was not the case in the private sector. In order to cut back on staff cost, the Government had recently announced its decision to freeze civil service pay for the 1999-2000 financial year. Also beginning from 1 April 1999, hiring staff on permanent terms would be suspended. Consideration was also being given to the cessation of the payment of overtime and acting allowances.

14. Miss LAU requested the Administration to provide a written reply on the proportion of staff cost in the Civil Service and in Government-funded agencies to the total Government recurrent expenditure. Mrs Sophie LEUNG said that studies had been conducted in the US and in Europe during the 1980s concerning staff expenditure in the public and private sectors. She hoped that the Administration could also provide information in this regard. SCS undertook to provide such information.Admin

15. Mr Andrew WONG was of the view that the Civil Service reform was a complete overhaul of the current Civil Service system, as it attempted to abolish the long-established pension system and the sizable replacement of civil servants with agreement terms. He further pointed out that overseas experience had demonstrated that pegging pay to performance in the civil service was impractical. In view of the far-reaching changes proposed, he urged the Government to give further thoughts to the reform proposals before implementation.

16. SCS responded that it was imperative to reform the current system in order to instill a new management culture in the civil service to meet the rapidly changing external environment. He pointed out that the abolition of the pension system was not a new thing. Singapore had done it long time ago and now Taiwan was considering it. He further said that the concern expressed by some people that corruption would worsen if the pension system was abolished was unfounded. This was evidenced by the fact that in the 1960s and 1970s corruption was quite rampant although civil servants at the time were employed on pensionable and permanent terms.

17. Mr Howard YOUNG expressed support for the abolition of the pension system and said that the pay and conditions of service of the Civil Service should be in line with that in the private sector. He was of the view that the pace of the reform could be expedited. He enquired whether the proposed agreement terms would be applied to the disciplined services, given the special roles which they played. In reply, SCS reiterated that the implementation of the new entry system would not be applied across the board. Depending on the special needs and circumstances of the departments concerned, recruitment of staff on permanent terms for essential services would be allowed on an unexceptional basis.

18. In response to Mr YOUNG's further enquiry about whether the reform proposals would be in breach of the Basic Law, SCS said that the Basic Law did not preclude the introduction of measures to improve the existing Civil Service system. If a civil servant felt aggrieved by the reform proposals, the civil servant concerned had the right to take the matter to court. He hoped that this would not happen and CSB would consult staff and departmental management with a view to obtaining their support of the reform proposals.

19. Mr LEE Cheuk-yan said that the Government aimed to suppress civil service pay levels through the introduction of reform proposals. In his view, the reform would undermine the job security of civil servants. Mr LEE Kai-ming shared Mr LEE's views.

20. In reply to Mr LEE Cheuk-yan's enquiry as to why the new entry system would only be applied to basic ranks, SCS said that the reason for adopting the new entry system was to ensure that only good caliber candidates were retained in the Civil Service and would allow for regular injection of new blood. Basic rank civil servants, who had demonstrated ability and potential, would be offered permanent terms when appointed into supervisory ranks. Although staff in supervisory ranks would be offered permanent terms, this did not mean that they could be complacent in their jobs. There would be provisions to require them to retire early if their performance was not up to the required standard. SCS emphasized that there was no motive on the part of the Government to use the new entry system to exploit front-line basic rank staff.

21. Mr LEE Kai-ming expressed concern that linking pay with performance would promote cronyism in the Civil Service and asked what steps would be taken by the Government to address such concern. SCS replied that over the next three months representatives of CSB would visit each department to explain the reform proposals, including the performance-based pay system concept, to the management and the staff concerned. They would also seize every opportunity to explain the reform proposals to the public. SCS assured members that before launching any new measures, every effort would be made to ensure that they were practicable.

22. Miss Emily LAU said that given the wide public interest on the Civil Service reform, public views on the matter should be sought. The Chairman suggested that a meeting be arranged during the last week of April 1999 to hear views from the public on the Consultation Document. Members expressed support. The Chairman asked the clerk to fix a date for the public hearing.

23. In reply to Mr CHEUNG Man-kwong's enquiry as to whether the reform would involve changes to the existing legislation, SCS said that the existing Pension Ordinance and Pension Regulations would need to be amended in due course.

24. In reply to the Chairman's enquiry, SCS said that the Administration would brief this Panel on the outcome of the consultation exercise in June 1999.

IV. Briefing by the Post Office on its staff situation since its establishment as a trading fund department
(LC Paper No. CB(2) 1467/98-99)(02))

25. Referring to the paper, the Acting Postmaster General (Ag PMG) said that since its operation as a trading fund department on 1 August 1995, the Post Office had become more business and service oriented. Feedback from customers and staff had been very positive and encouraging and income generated by the services provided by the Post Office had been able to meet the financial targets set by the Government. All in all, he believed that the transformation of the Post Office from a traditional government department into a trading fund department had achieved a win-win-win situation for customers, staff and the department.

26. Mr CHAN Wing-chan enquired whether there was any plan to increase the postage rates and to privatize the Post Office in the long term. He also enquired about the frequency of collection of the posting boxes in MTR stations.

27. In reply, Ag PMG said that the Post Office was currently reviewing the postage rates with the Administration. He envisaged that the decision as to whether the postage fees would be increased would be made sometime in May or June 1999. Although a deficit was recorded at the end of January 1999, he hoped that the financial situation of the Post Office would improve by end of March 1999. He added that the Post Office had not increased its postage rates since September 1996 and had in fact adjusted some of its rates downward in 1997. This had resulted in a drop in its overall revenue by 4%. The reduction in bulk airmail postage in 1998 had dropped by 17% in revenue from that service. As regards the frequency of collection of posting boxes in MTR stations, Ag PMG said that posting boxes were generally collected twice a day regardless of whether they were located in the urban area or in the New Territories. If a posting box was habitually full, say those located in the Central District, it was not uncommon to increase the collection frequency to six or seven times a day. On the question of privatization, Ag PMG said that such plan had not been contemplated at the present stage.

28. Mr CHEUNG Man-kwong commended the efforts expended by the Post Office in improving its service and in helping its staff to cope with the new demand arising from the trading fund operation. Referring to paragraph 15 of the paper, Mr CHEUNG enquired about the justification for the Post Office to request that it be given more flexibility in handling financial, staff management and procurement matters.

29. In reply, Ag PMG said that it was necessary for the Post Office to be given greater flexibility in handling such matters in order to compete successfully in the long term. He added that the Post Office had been given some form of flexibility already and without these financial flexibilities the setting up of the public Certification Authority for Hong Kong by the end of 1999 to facilitate electronic commerce activities for instance, could not be realized within a short time period. He further said that the Post Office had always regarded its staff as its most important asset and had devoted a lot of time and efforts in motivating them to strive for continuous improvement in their work. The setting up of the Staff Recognition Fund in 1998 was a case in point. It would be useful if the Post Office could be given greater flexibility in organizing more staff incentive schemes to motivate staff. He also pointed out that for matters on procurement for instance, if the Post Office could be given more flexibility in the procurement of postal souvenirs intended to be sold for profit, it could select the bidder which offered the best product rather than opting for the lowest bidder as stipulated by the Government procurement policy.

30. Deputy Secretary for the Civil Service (2) (Dep SCS(2)) said that although the Post Office was a trading fund department, it was still an integral part of the Government. There was therefore a limitation in terms of how far it could deviate from the established working pattern in the Civil Service. He further said that the Administration was always prepared to work with trading fund departments and to respond to their needs on matters such as staff motivation and welfare. Special regular meetings had been set up between the CSB, the Finance Bureau and the trading fund departments to examine whether more flexibility should be given to these departments in managing their own affairs. The proposals contained in the Consultation Document on Civil Service Reform would be of enormous benefits to trading fund departments, particularly in respect of employing staff on agreement terms. Recent developments such as the introduction of non-civil service contract terms would also provide trading fund departments with greater flexibility in employing and deploying staff so that these departments could more efficiently use their resources.

31. In reply to Mr Howard YOUNG's enquiry on the "Care from the Heart" training programme launched in 1998 to help induce a customer service culture in staff, Ag PMG said that over 3,500 front-line staff had attended the programme which included workshops, classroom training and field coaching. In respect of field coaching, outside consultants were hired to provide on site coaching to front-line staff on how to handle customers. A week-long programme "Care from the Heart Week" was also held in November 1998 to publicize the Post Office's commitment to pursuing service excellence. Given the success of the programme, similar training would be provided to other staff later this year.

32. In reply to Mr YOUNG's further enquiry as to whether consideration would be given to utilizing the post offices to sell sundry items such as stationery or to collect rates and other fees on behalf of other Government departments, Ag PMG said that the Postshop was launched on a pilot basis to see if there was a market for postal souvenirs in Hong Kong. Experience gained from the pilot scheme would be useful to the Post Office in considering whether the scope of the pilot scheme could be extended to provide peripheral services such as those suggested by Mr YOUNG.

33. In reply to Mr LEE Cheuk-yan's enquiry as to why there was a need for employing such a sizable number of temporary staff ( i.e. 776 or 11.55% of the total workforce of the Post Office), Ag PMG said that in order to enable the Post Office to cope with the increased workload without increasing its establishment, the usual methods adopted in the Government were to hire temporary staff and to require staff to work overtime. Ag PMG pointed out that the Post Office had flexibly employed temporary staff to cope with the workload. Due to the recent economic downturn and drop in mail traffic, about 100 temporary staff had been laid off in January 1999 and the amount of overtime allowance paid had also dropped by 14%.

34. Mr LEE enquired why temporary staff were not remunerated on permanent terms of service given that there was a long-standing need for temporary staff in the Post Office. Ag PMG replied that many of the temporary staff were housewives who preferred to work part-time (about four hours per day) in the sorting offices located in the New Territories. Nevertheless, with the recent introduction of the non-civil service contract terms, the Post Office would in future employ more temporary staff on such terms where appropriate. Dep SCS(2) added that the agreement terms proposed in the Civil Service reform would further enhance the department's flexibility to hire temporary staff.

35. In reply to LEE's further enquiry as to the reason for the significant increase in the number of Controller of Post posts from 66 in 1995 to 113 in 1998, Ag PMG said that the increase was due to the establishment of a new Branch and four Divisions including the Business Development Branch, Customer Management Division, Information System Services Division, Information System Planning Division and Electronic Services Division. He pointed out that the establishment of the Post Office had now stabilized and a freeze on the hiring of staff had been imposed since August last year.

V. Briefing by the Electrical and Mechanical Services Department on its staff situation since its establishment as a trading fund department
(LC Paper No. CB(2) 1467/98-99)(03))

36. Due to time constraint, the Chairman suggested that members should ask their questions first and then the Administration should reply on the questions raised. The representatives of the Administration and members agreed to the Chairman's suggestion.

37. Mr CHAN Wing-chan enquired about the actions taken or to be taken by EMSD in addressing the staff concern that they would lose their jobs when E&M services were to be opened up for competition from 1 August 1999 and in complying with the Enhanced Productivity Programme.

38. Mr LEE Kai-ming enquired whether the operation of EMSD would continue to be commercially viable as a result of the forthcoming untying exercise.

39. Mr CHEUNG Man-kwong enquired whether EMSD had come up with any new services to compensate for the possible loss of revenue arising from the untying exercise. Although the results of the 1998 Customer Satisfaction Survey showed a customer satisfaction index of 5.24 on a scale of 8, Mr CHEUNG expressed concern that such index would be adjusted downward after the untying exercise. He enquired what measures would be taken by EMSD to ensure that the level of customer satisfaction would not deteriorate.

40. Mr Howard YOUNG said that when EMSD was established as a trading fund department, the Secretary for Works gave assurance that staff who were in post before 1 August 1996 would not be made redundant at a later date. He asked whether the Secretary for Work's assurance would hinder the implementation of the Civil Service reform, and what was the proportion of staff appointed after 1 August 1996 to the current workforce of EMSD.

41. Mr LEE Cheuk-yan opined that the overall staff satisfaction index at 36.46 on a scale of 100 was on the low side. He enquired what steps had been taken by EMSD to address their staff concern.

42. In reply, the Acting Director of Electrical and Mechanical Services (Ag D of EMS) said that the overall staff satisfaction index of 36.46 was the result of a Staff Opinion Survey conducted in 1997. As the Survey was conducted soon after the department was established on a trading fund basis, it was understandable that staff satisfaction was not high as they had not fully adapted to the trading fund mode of operation at the time. A new Staff Opinion Survey would be conducted later in the year. It was envisaged that the overall staff satisfaction index should be higher this time.

43. Ag D of EMS further said that there should not be the need for EMSD to terminate the service of its staff in the event of a reduction in revenue arising from the untying exercise. Assuming the worst case scenario that 20% of its business would be lost to open competition in the next two years, no staff would be made redundant due to the fact that natural wastage averaged about 3% to 4% per year and the gradual phasing out of contracting out job which currently accounted for 17% of the overall output of EMSD.

44. On the question of enhancing the competitiveness of EMSD, Ag D of EMS explained that since its establishment as a trading fund department, EMSD had strengthened its staff training to better equip its staff for the new challenges ahead. At present, each staff on average received 2.8 days of training per year, as opposed to only one day of training prior to becoming a trading fund department. Plans had also been made to further increase the number of training days to three per year in the near future. Apart from this, EMSD had adopted various measures to improve its productivity and cost-effectiveness. The implementation of a series of staff redeployment exercise was a case in point. Ag D of EMS pointed out that EMSD was on target to achieve the 15% productivity improvement without any staff being made redundant within the first three years of trading fund operation. In some areas, a productivity rate of over 15% could also be achieved. Ag D of EMS further said that EMSD had the capability to compete with its counterparts in the private sector, as evidenced by the fact that it had recently secured three major airport maintenance contracts.

45. In response to Mr Howard YOUNG's enquiry, Ag D of EMS said that the three major airport maintenance contracts and the undertakings by in-house staff of jobs previously done by outside contractors would generate profits for EMSD.

46. Mr CHEUNG Man-kwong was of the view that EMSD should take a more proactive approach in running its operation, and suggested that EMSD should learn from the Post Office's experience in developing business initiatives to generate more revenue. Mr LEE Kai-ming shared Mr CHEUNG's views.

47. In response, Ag D of EMS said that EMSD had always explored for new business opportunities. He cited the examples of launching the energy saving scheme and providing consultancy service to subvented hospitals.

48. The meeting ended at 1:16 pm.

Legislative Council Secretariat
16 April 1999