Press Release
LCQ20: Remuneration of MPFA staff
Wednesday, November 14, 2001
Following is a question by the Hon Kenneth Ting and a written reply by the Secretary for Financial Services, Mr Stephen Ip, in the Legislative Council today (November 14):
Question :
In spite of the losses amounting to $78 million incurred in investments last year, the Mandatory Provident Fund Schemes Authority ("MPFA") still paid bonuses to its staff at the end of September. In this connection, will the Government inform this Council:
(a) whether it knows the justifications for MPFA's decision to pay bonuses in the face of heavy losses incurred in its investments, and the criteria adopted for determining the amount of bonuses payable to its managing director and executive directors; and
(b) whether, before paying bonuses to its staff, MPFA is required to obtain approval from the authorities concerned or inform them of such a decision?
Reply :
Madam President,
(a) In 1999, the Mandatory Provident Fund Schemes Authority (MPFA) received a capital grant of $5 billion from the Government as initial funding to cover its establishment and operating costs. Apart from meeting the expenses of the MPFA, the sum has been placed in bank deposits, and invested in bonds and the Tracker Fund. In accordance with current accounting standards and practices, the investment was recorded at fair value in the financial statements of MPFA's annual reports. The loss on investment of $78 million as published in MPFA's 2000-2001 Annual Report was the unrealized loss due mainly to the year to year change in the market value of the investment in the Tracker Fund. This unrealized loss had reversed the unrealized gain of $75 million in the previous year. To put matters in perspective, since this is a long term investment, any unrealized gains or losses in the short term should not be regarded as reflection of the long term performance of the investment.
The remuneration package for all MPFA staff (including its Managing Director and Executive Directors) is set out under their terms and conditions of employment. It consists of two elements: (i) a fixed basic salary; and (ii) a variable pay which is a discretionary performance-based award or 'bonus'.
The Management Board of the MPFA, which has a broad based membership including Non-Executive Directors, oversees the MPFA's operation. It decides on the variable pay to be granted to MPFA staff for each year. When making a decision, the Management Board would consider the following factors-
(i) the overall performance of the MPFA;
(ii) the performance and achievements of each individual staff;
(iii) the amount of funds available for granting the variable pay; and
(iv) the market trend and the practices of other financial services regulators in that year.
For the financial year 2000-2001, the decision to grant the performance-based variable pay was made in June 2001. The overall performance of the MPFA was assessed by how well it had achieved the objectives set out in the annual Corporate Plan for the year prepared in accordance with section 6J of the Mandatory Provident Fund Schemes Ordinance (the Ordinance). The key objective in the Corporate Plan for 2000-2001 was the completion of all the necessary preparatory work for the launch of the MPF system in December 2000, such as the timely vetting and registration of service providers.
The performance and achievements of all MPFA staff are assessed using a seven point rating scale under the Staff Appraisal System. For the Executive Directors, their performance is assessed by an Executive Appraisal Panel, which comprises the Chairman, other Non-Executive Directors and the Managing Director of the MPFA. The performance of the Managing Director is assessed by a similar panel without the Managing Director's participation. The amount of variable award (expressed as a percentage of the staff's basic salary), if any, for the different performance ratings for the year is determined by the Management Board.
(b) Section 6G(2) of the Ordinance stipulates that the MPFA may, after consultation with the Financial Secretary, fix the salaries and other conditions of employment of its staff. Section 3 of Schedule 1A of the Ordinance further provides that MPFA's directors are entitled to such terms and conditions of office as the Chief Executive may, from time to time, determine. MPFA's current staff remuneration package, which includes the fixed and variable pay elements, was approved in 1999 in accordance with the foregoing provisions.
As indicated above, the variable pay to be granted to MPFA staff for each year is approved by the MPFA Management Board. The budget for the variable pay for all MPFA staff in total for a particular year is approved by the Financial Secretary in the context of the overall budget for that year.