Instead of simply discribing the system, this article will attempt to explore the problem of appraisal and rewarding 70,000 people (a la Civil Service) in monolithic system from the perspective of HR management and engineering(!). The question is: how does one even begin to architecture and operate such a massive system in way that makes sense and will be perceived by the people being managed as "fair and transparent"?

The KTM makes no claims to know of the exact details, but the general principles described in this article should be accurate to the best of the KTM's knowledge. While the general principles should be broadly applicable, there are likely to be some details that are specific to service. The Admin Service, the Legal Service and the Education Service supposedly have slightly different systems because ... actually, dunno because what also. :-) They are just different loh. If people find out, perhaps explain to the KTM. :-P

The Peter Principle

To begin, people must understand the Peter Principle. What the Peter Principle essentially says is that in large organizations, there is a tendency for people to be "promoted to incompetence". Interesting notion isn't it? What does it mean?

For those who are already working, hands up those who have bosses who are completely inept and incompetent (and who DO NOT own the company, i.e. are employees). Isn't it quite baffling how such people could have risen to their present positions to begin with? Alright, some are natural bootlickers. Suppose we factor them out, do we have any left over? Yes, and a significant number. :-) Why?

It turns out that many of these so-called incompetent fellows really weren't all that incompetent before they get promoted to their present jobs. Let's get it straight: who in his right mind will go and promote an incompetent chap? Makes no sense right? Of course and this is true for both the private sector and the public service.

The fact however is that not all people are suitable for all jobs and there is a limit to what people can do. Some people can do bigger jobs. Some people can't cope. That's just life. Those with humongous egos will think that they can do anything, but will find out for themselves soon enough. :-P

There is actually an interesting corollary to the Peter Principle, and that is: the fault doesn't lie with the employee. It lies with the employer who promoted that fella to incompetence (!). Shocking hor, but it's true. :-)

Suppose that we all agree that the Peter Principle is a real phenomenon, it therefore follows that what organizations should seek to do is to ensure that nobody gets promoted to incompetence and we're all set! :-P

Jobs and Job Grades

As a quick digression, the Civil Service is organized as this ginormous hierarchy with many layers and levels (people should not be surprised right?). The idea in this hierarchy is that the higher one is up in the pyramid, the more important the job and hence the more one is paid.

The levels of this pyramid gives rise to the concept of job grades and the idea is that that one's potential can be measured by how far up one can operate in this pyramid and still be competent and effective at one's job.

Principles of Reward and Promotion

There is apparently the following principle of reward and promotion in the Civil Service: the reward for good work is given in cash, i.e. more performance bonus. Promotions are only given for people who demonstrate the aptitude and potential to do higher level jobs.

Some people of course don't buy this and think they deserve to be promoted if they do a good job. The KTM however buys this because he actually feels sorry for the people who are over-promoted and thereby become incompetent at their jobs. Perhaps some people may not think so, but it's really quite sad to be incompetent at one's job. Some people have big egos and never ever realise that they are incompetent. Perhaps it's good for them. For those who are somewhat more circumspect and actually realise they are in a job they cannot handle, it's kinda rough, especially in the context of the Civil Service. The fella will be pretty powerless to do anything and yet will have everyone talking behind his back. It's quite a sad state of affairs. :-(

Avoid Promoting People to Incompetence Lah

How does one cope with the Peter Principle? Idea is very simple. Suppose we know for a fact what is the limit to an employee's potential, we can avoid over-promoting him/her and we're all set!

Suppose for a moment, we magically know the absolutely accurate potential (RP, 'Real potential') for each and every employee that steps through the door, what should an organization do? Do the logical thing loh.

Assume that the employee will reach his/her potential just before his/her retirement and work a number of years. Since retirement age is currently 62, perhaps choose 55 (coincide with CPF! :-P) and assume that the fella gets to operate his/her maximum potential for 7 years. Alright, then how? Work backwards and interpolate between 55 and the entry point when the employee joins the organization, assuming the employee joins the organization on the first day.

With this curve, one can figure out how long the employee should stay at each grade before being promoted in order to smoothen out the path of advancement. What about mid-career people who join later? Er, dunno leh. Apparently there are some rules to "fit them" into this framework in some way, but the details are not completely clear. In any case, this article is a treatise on the big principles and not on the nitty gritty details.

Ranking

Basically after the above steps, one can derive some sort of a chart that will determine one's route of advancement, i.e. how many years before each promotion. However, there is one question unanswered: where do we find this oracle to tell us an officer's real potential? Well, as it turns out, such an oracle doesn't exist.

However, we don't have to give up because what we do know is the organizational structure of the organization, or in other words, we do know the number of jobs avialable at each level of the organizational pyramid (!). Given some assumptions on the flow through, i.e. resignation, retirement, etc. it is actually possible to come up with a quota of what is called CEPs (current estimated potentials).

For example, if there are 5 Directors, then maybe the system can allow for up to 15 people with the CEPs of Directors. What if the organization is full of lousy people and no one is really capable of doing the job? Well, too bad, somebody still has to do the job!

Therefore, the key insight is the following: we don't have to know the exact potentials of the people and we have to make do with who we have, so what we can do is to rank everyone in descending order according to their potential (assumption here is that while we cannot "measure" a person's potential directly, we can compare two people and decide who is "better") and divy out the CEPs accordingly.

What if an organization is full of people with high potential and there are not enough CEPs to go around? Well, tough luck. What that really means is that there aren't enough jobs to go around, so if we promote people, may not have jobs for them to do! :-) Is the private sector any different?

Ranking in Practice

The above theory is fair and good. How does it work? How it is possible to rank 70,000 people against each other? Well, it's impossible to say the least. The only practical thing to do is to split the Civil Service into Ministries to go about doing this. Even within one Mininistry, there can be a thousand people and it's still a lot.

To the best of the KTM's understanding, the only practical way to manage this process is to divide up people into small groups. Not sure exactly how it's done, but apparently each Director will hold his/her ranking session for the 50 to 100 people under his/her charge. After that, the rankings are floated up to another meeting with all the Directors and they figure out how to merge their individual lists, and this process can be repeated multiple times at multiple levels in order to generate a masterlist. This is simply a matter of "divide and conquer".

The ranking within each Department is relatively straightforward, since the Director is supposed to know his/her people and he/she also gets inputs from the Assistant and Dy Directors. The merging across lists is the contentious part -- but in general, the disagreements will not be over the officers with low CEP, but the ones with high CEPs -- and the argument is that these "outstanding" officers will be so outstanding that lots of people should "know" them.

What has been described thus far is ranking in potential (CEP). There is also this thing called ranking in performance. While ranking in potential is done for everyone, ranking in performance is done separately for officers of each substantive grade. So the idea here is to compare apples to apples and oranges to oranges, because suppose you have two people with the same potential (CEP), but one is a new staff officer and the other is a Director (because he/she is older and has been around longer), how to compare their work performance?

So ranking in potential must be done between people who are doing jobs of approximately the same size, whatever that means. It turns out in practice that the rankings for CEP and performance will likely to be positively correlated because of the following simple logic: HOW do bosses conclude that an officer has high potential? Because at the very least the fella must be doing a very good job right (or if the boss likes you, the boss like you lah)? If you have a loser who performs very poorly, which idiot of a boss will go and rank him highly in potential??

Not withstanding the likely correlations between potential and performance, it is technically possible for an officer with low potential to have a high performance ranking, if he/she is somewhat of a Boxer (c.f. Animal Farm). While such an officer may not get promotions, he/she is technically supposed to get a bigger performance bonus at the end of the year.

The ranking process is conducted annually and is only applied to officers who have at least X months of service. The KTM is not sure exactly what X is, but it's something like 6, or perhaps 12 (not entirely sure of the exact number, but it's some number that's considered "reasonable"). People who join the Service at odd times of the year and don't clock up enough time are only ranked the year after. Claims that CEPs are assigned before or at the point when an officer joins the Service are absolutely false. Does it even appeal to common sense?

Kinks in the System

While the above principles are quite sound, there are a couple of kinks in the system. They are not real problems per se, but there are some issues that need to be handled.

Recognition for NS. The Government has to be seen to support National Service. This is not only in terms of letting the men go on reservists, but apparently the principle is that the men should not be disadvantages viz the females in terms of their career advancement in the Civil Service. What does this mean in real terms?

It means that if you have a guy and a girl of the same age with the same potential doing equally well, they should promote at the same time. This is notwithstanding the fact that the girl would have joined the Service 2 years ahead of the guy because she doesn't have to do NS. What this also means is that if the girl takes four years to get her first promotion according to time norms, the guy will take two. Structurally, what it also means is that girls can forget about getting promotions in less than three years 'cos the guys must have at least one year in Service before they can be promoted.

All in all, this attempt to take care of relativities and placate the guys so that they don't whine too much about begin disadvantaged because of NS creates somewhat of a mess for an otherwise simple system. :-)

Market Forces. That's not all. Market forces also wreck havok on the system. For example, the Admin Service is supposedly competing with the investment banks and the Legal Service is supposedly competing with the big law firms for their new recuits. This applies a lot of pressure to promote, esp. the girls and it because another mess since the private sector doesn't care about NS. So if the Civil Service doesn't manage it properly, all the AOs and LSOs will be male. :-P

There are also complications arising from Honours Degrees and Pass Degrees. Should the Civil Service prefer Honours Degree holders over Pass Degree holders? Generally, since the Honours Degree holders are supposedly the better students and therefore likely to be more competent. Some will dispute this, but there seems to be a correlation. Also, the private sector does seem to pay more for Honours grads and so the Civil Service has little choice but to sort of match. Combine this issue with recognition for NS and the situation gets even more messy.

These are some of the kinks in the system (there may be others) that prevent the vanilla idea CEP system from being implemented as is, but these kinks as supposedly transient effects that should go away after the officers are in the Service for a few years.

Shortcomings in the Present CEP System

Given the impeccable logic, one would think that the CEP system is completely brilliant (or at least the KTM used to think when he first learnt about it), so why are there so many complaints? There are actually a large number of reasons.

Sufficiency of Information. The ranking process works under the assumption that it is possible to merge two ranked lists. This process is really not straightforward. To the best of the KTM's knowledge, it seems that the most common way to resolve this is to divy up the quotas so that every Departments each get a "fair share". Is it really "fair" if one Department has significantly more "high potential" individuals than another? Of course not, but how? There are pragmatic considerations.

Biases for Rank. It is easy to say that we take a whole list of people and rank them for potential. The problem is that some people go no opportunity to show their potential. Suppose you have a recruit who is the next Tommy Franks. How is he going to be able to demonstrate his potential as a recruit even if he has it?

Structurally, it's just easier for a fella higher up in the food chain to "demonstrate" higher potential, though some will say that if people wait long enough, they will get their turn. :-) And apparently, the system does allow for "catch up" promotions if someone's hidden potential does get "discovered" at some point.

Lousy Middle Management. At the end of the day, decisions are taken by the management. If the management is lousy and biased and cannot recognize potential, then the process will clearly throw up garbage. You can also have insecure bosses who are afraid of their subordinates promoting ahead of them and thumbing them down. Sounds nasty? But is the private sector any different? :-)

What's interesting about the Civil Service however is that it does have the Admin Service which has a completely separate ranking system (the details of which are not known to the KTM). The AOs however will participate in the ranking process and to some extent they provide a certain amount of objectivity, since they move around a lot and have no real incentive to favour anyone and/or have baggage (maybe). The general ranking process also doesn't affect their own prospects and so there's theoretically no incentive for them to "thumb people down". Some people will question the judgment and quality of the AOs, but that's not a structural issue.

Scholars vs Non-Scholars. One major complaint is that scholars are automatically given higher CEPs. To be fair, it is probably true that as a group the scholars do get higher CEPs, but is that surprising? If the scholarship system churns up useless fellas that are no better than the average officer then we are WASTING our tax payers' monies. People will claim that it's a self-fulfilling prophesy.

The question is whether it is possible for a non-scholars to have a high CEP and conversely for a scholar to "fall from grace". Anecdotally, it is apparently possible, though uncommon. But then again, should it be common? Again, if on average we can easy find non-scholars who are better then the scholars, or if the scholars tend to mess up, then again, we not doing something right with the scholarship system. Note however, the fault may lie with the scholarship selection process and not necessarily with the appraisal process (which already has its own share of faults).

Assumptions. The current CEP system also has this underlying assumption that a person who has a Director's potential can do any Director's job. That's probably not entirely true since even at the Director level there are a whole bunch of different jobs. Just because one is good at Finance doesn't mean that one can do HR or policy.

Common Complaints. The lack of transparency is a common complaint, and the complaints are founded. The CEPs are not revealed to the individual officers. One possible reason may be because they learnt from Shell's experience. It's hard to keep people once you tell them that they are condemned to be janitors; and those told that they are going to be generals tend to be swell-headed and cause their own set of problems. :-P Personally, the KTM thinks it's the right policy to keep CEPs secret given the structural issues we know is possible on the ground.

The other major complaint is quotas. "Someone must have a D". :-P This complaint is especially resonant in the schools and the complaints are valid. But if we take a step back and think about our experiences in school, is it so hard to imagine that there is at least one lousy teacher in every school? Actually, it's not. Six-million dollar question is how to identify this fella and give him/her the D. :-P And the fact of the matter is: no matter who you give the D to, he/she is going to say it's unfair. Such is human nature.

There are also complaints that the process is harsh and unfair and may depend on one's relationship with the boss(es). An excellent write up on this situation can be found here. These are all very fair criticisms, but then, is it very different in the private sector? So people move up the career ladder by doing really good work and pissing off their bosses in the same breath? While many of the criticisms are thoroughly valid, how is it possible to address these issues when people are involved? Sensei Michael's suggestion for teachers to individually negotiate contracts will not help. Who is MOE going to turn to when trying to decide what new contract (a la promotion) to award? It will be the same biased fellas.

Sensei Michael has also highlighted that it helps to have a boss who is really good at "banging the table". So this means that one's CEP is dependent not only on one's performance/potential, but on the boss that one gets. Sounds unfair? Well, how is it different in the private sector? Does it help to have a wimp for a boss? The point that the KTM is trying to make here is that because of human failings, there will definitely be rough edges. The key is to ask ourselves whether it is a problem with the system or it's a structural problem arising from the fact that we're dealing with people. Some structural problems can be fixed. Some can't. A good rule of thumb is to compare with the private sector.

The Moral Hazard

At this point, it is also important to highlight a BIG moral hazard with the present appraisal promotion system (and perhaps any system that can possibly be designed). PSD apparently has these rules that determine whether officer can be promoted. One criteria for promotion is apparently a good performance grading in the latest year.

What is the moral hazard here? The problem is that on the ground, everybody wants to promote as many people as possible. After all, the extra money is going to come out of Ah Gong's pocket and not their own pocket. People get promoted, people are happy. People are not promoted, somebody must answer. Nobody wants to be the one answering (so usually tai chi to HR).

After a while, the people on the ground know the rules and they will play games in order to get people promoted. This is not exactly a bad thing, since to some extent they are "doing good", but it does occasionally lead to perversions in the rankings as people attempt to game the system. For example, when an officer is up for promotion, he/she might be given a good performance ranking just so that he/she "qualifies" for promotion. Officers recently promoted might get D's to soak up the D's for the benefit of the rest. Apparently weird things happen on the ground, but that's what you get when you have these rules.

What Next?

So the KTM has studied the Civil Service CEP system for some time and he has been thinking about whether it is possible to do better. The following is the KTM's current (incomplete) thinking.

The KTM must emphasize again that the ideas in the following sections are purely figments of the KTM's imagination and should should have no semblance to what's happening in the Civil Service today. Consider it a thought experiment.

Does the present CEP system fully address the problem of the Peter Principle?

The KTM believes that the present CEP system is not sufficient. Why? Because even though the CEP system has been in place for quite a while, we still have people being promoted to incompetence, or at least that what the KTM hears. But then again, it's not altogether surprising given the structural difficulties in the ranking system.

Furthermore, the KTM has intrinsic objections to a seniority-based system where people are paid for the number of white hairs on their heads. There's something to be said about the value of experience, but seriously, people should be paid for the work they do and not what they have in their heads (if they cannot use it in their work!).

The KTM believes that the Civil Service may wish to consider moving to a salary system that not only takes seniority into account, it pays by the job. The basis for this system is the following observation: Unless we are doing charity, the fair and sustainable wage to pay someone is the value of the work that he does.

Job-Based Salary System

Under this proposed system, there are two major wage components -- a seniority component and job component. The seniority component is equivalant to the current substantive grade for the Civil Service. What is the correct ratio between the seniority component versus the job component? The KTM doesn't really know the right answer, but he would venture to guess 30/70, in favour of the job.

The idea is very simple, we continue to have the current CEP system, but we reduce the current seniority-based pay by 70%. As an officer is promoted in grade, he/she will get a pay increase but at 30% of the current rate. In addition, we put a value on every job equivalent to 70% of the pay for the person currently holding the job. Of course bigger job means more money lah!

The point is when the system switches over to the new system. Nothing happens. Everyone is paid exactly the same. Things will start to change once people people retire or quit. What happens then is that job openings will open up and people can be "promoted" to fill those openings.

What is the beauty of this system? The fellas who take on the new (bigger) jobs, immediately(!) get the job-based pay associated with that job. Why not? If someone does a bigger job, shouldn't he/she be paid more? Why must wait for promotion? The work to be done got wait for promotion or not? :-)

Of course, a young punk doing the job may not do quite as well as a seasoned old hand. To differentiate between the two, we will adjust the quantum of the performance bonus, which is again pegged not to the person, but to the job done by the person.

While this may sound good, there is no free lunch hor. It also means if someone is "promoted" to a higher job and found to be ill-equipped, that person can be moved to a "lower" job and he/she will thereby immediately get a lower pay. What this does is to provide the Civil Service to effectively "demote" people that it "promoted" wrongly. Currently, if someone is wrongly promoted, the mistake cannot be undone!

Benefits of Job-Based Salary System

In addition to begin able to address the problem arising from the Peter Principle, this new system has other benefits. First, it allows the Civil Service to be more responsive. You have a fella who is good and can do a big job, give him the job and pay him lah. Wait for what? This also brings the Civil Service more in line with the private sector.
Even the private sector may not necessarily be able to match. :-P

This system is also more transparent. Maybe? :-) This may also result in less incentives to "game" the system since promotions in grade are less important compared to getting bigger (and better-paying) appointments. It is unlikely that this new system will necessarily make everyone happier. Some people will still be bypassed for "promotions" in favour of others. One way to" ameliorate" this problem is to allow any officer within the Ministry to vie for job openings instead of promoting from within the same Department.

Finally, as a tax payer, the KTM likes it because it puts a cap on the manpower expenditure of a Ministry. If the Ministry has x jobs, then we pretty much know exactly how much it's going to cost.

Pitfalls of Job-Based Salary System

The KTM hasn't exactly been able to consider all the problems of this new proposed system in detail. This article is somewhat of a rush job due to circumstances. :-) What's clear is that it makes the existing already complicated appraisal system EVEN MORE complicated.

This system also requires a lot of responsibility to be delegated to the middle management and may be subject to abuse. Given a vacancy, who and how to decide whether the job should be filled from within or if it should be filled by hiring from outside? This new scheme may result in undue pressure to fill from within since it is as good as immediate pay increases! Who decides is a big problem. If it's too low in the food chain, abuses are more likely. If the authority is too high in the chain of command, there is a likelihood of bureaucratic paralysis.

There are probably other pitfalls. Readers are welcome to poke holes. :-) Nevertheless, the KTM hopes that he has demonstrated that the design of a promotion, appraisal and remuneration system for 70,000 Civil Servant is quite an intriguing problem. :-P

Conclusion

The KTM's main take away from his research and thoughts on this issue is simply that no appraisal system is perfect as long as it depends on people to make the decisions. People have biases, they have baggage. Lots of problems. Question is how to run a system that mostly works and that's reasonable sane and manageable. Also, no matter what system is devised, people on the ground will try to game the system. :-P

The problem in the Civil Service is compounded by scale. 70,000 people is a lot of bodies. From the KTM's perspective, the Civil Service has done quite well despite the kinks in the system, though improvements are still possible (as always).

In any and every system, there will be "winners" and there will be "losers" (and this is not meant in a derogatory way). As they say, more often than not, winner takes all. It also turns out that people dun like to be the losers and some 90% of the people think that they are "above average". Guys typically have an extra issues of ego to grapple with. :-) Complaints of unfairness are inevitable no matter how "fair" the system really is.

The KTM has been thinking about a system that can completely replace the CEP system for a few years now, but has not been able to come up with anything. If someone has some bright ideas, the KTM would be keen to hear them.

Addendum: The KTM just received a note from a reader to say that his proposal for a job-based salary system is far from original. Apparently the DXOs (formerly NUSAF) in Mindef already have some sort of a scheme like that in place. Cool. This is the nice thing about the blogosphere. You learn new things everyday. :-)

[Disclaimer: The KTM makes no claims that the described system is exactly the one currently implemented in the Civil Service today, though he has done his due diligence in establishing the truths of the statements made. PSD is welcome to post corrections and/or clarifications.]