Recently, the Malaysian Civil Service announced its intention to review the public sector remuneration system, which has allegedly not undergone any significant changes in the last 20 years. There has been a strong call for the government to review the remuneration system. This is significant for a country like Malaysia, where the public sector employs about 1.6 million civil servants governed by different schemes of service and remuneration systems.
This article explores the Malaysian government’s effort to review the current remuneration system for the public sector in Malaysia as part of the Malaysia Madani reform initiative. This comes at timely manner as the remuneration system for the public sector has to adapt to a challenging economic landscape, volatile political conditions, and rapid technological advancement to ensure an effective and sustainable remuneration system for the public sector.
Reviewing the Remuneration System
The remuneration system in Malaysia has a long history that dates to the colonial era. It has undergone significant changes over the years driven mainly by three factors: administrative reforms, socio-economic and political.
During the pre-independence period, the remuneration system was relatively simple and was shaped based on the British administrative system and colonial norms and values. The British administration adopted a salary system that was based on the rank, seniority and qualifications of civil servants. However, the salary system was rigid and hierarchical—it did not reflect the local needs and conditions at that time.
After independence, the Malaysian government inherited the system and made some adjustments to suit national development as well as aspirations. This effort was manifested in the government setting up various commissions to review and reform the remuneration system from time to time.
Some of the major reports that have had a major influence on the history of the remuneration system include: 1) the Bucknil Salary Commission (1919), which was the first commission to study the salary system for the public sector in Malaya; 2) the Subordinates Services Committee (1920), which focused on the salary system for the lower grades of civil servants in Malaya; 3) the Trusted Salary Commission (1947), which looked at the salary system for the public sector in post-war Malaya; 4) the Bain Salary Commission (1956), which constituted the first commission to study the salary system for the public sector in Sabah, Sarawak and Brunei; 5) the Watson Salary Commission (1962), which studied the salary system for the public sector in Sabah and Sarawak, and 6); the Suffian Salary Commission (1967), which studied the salary system for the public sector in Malaysia after independence.
These commissions aimed at providing adequate salaries with job security and some modest benefits. This is understandable as the government’s efforts were directed at nation-building and the development of strong institutions, which compelled the government to attract qualified personnel to serve in the public sector.
The subsequent period is known as the New Economic Policy (NEP) era. In this era, the Malaysian government introduced the NEP as a response to the 13 May 1969 racial riot. The main objective of this policy was to correct the economic imbalance and to promote affirmative action for Bumiputera. As a result, this orientation affected remuneration structures significantly, as there was preferential treatment in recruitment, promotion and salary increment within the public sector.
This was reflected in subsequent commissions that were established after the tragedy, such as: 1) the Aziz Royal Salary Commission (1971) which studied the salary system for the education service in Malaysia; 2) the Azmi Royal Salary Commission (1972), which looked into the salary system for the legal and judicial service in Malaysia; 3) the Sheikh Abdullah Royal Salary Commission (1972), which focused on the salary system for the armed forces in Malaysia, and; 4) the Harun Salary Commission (1973), which studied the salary system for statutory bodies and local authorities in Malaysia.
Nevertheless, significant effort was manifested in the establishment of the Ibrahim Ali Royal Salary Commission (1975), which was a comprehensive commission that studied and reformed the salary system for all public sector employees in Malaysia. It was unfortunate because its report was not implemented due to the economic recession at the time. In 1976, the Cabinet Committee (JKK 1976) decided to implement some of the recommendations of the Ibrahim Ali Royal Salary Commission with some adjustments.
In the next development, the government shifted its focus from ethnic-based policy to a more market-driven and merit-based policy. The government introduced the National Development Policy (NDP) in 1991. The policy sought to achieve balanced development, competitiveness, and quality of life. The NDP also emphasized the need to review and reform the public sector remuneration system to increase efficiency, productivity, and performance.
Furthermore, for the public sector to attract and retain talent, the remuneration system needed to have major changes, especially in terms of allowances and benefits to enhance overall compensation packages. The Report of the Special Cabinet Committee of Salaries for Public Sector 1991 introduced the New Remuneration System (NRS) which revised job evaluation, market comparison, performance appraisal, and career development of the Malaysian public service.
The NRS technically replaced the previous salary system that was based on the British colonial model. Its defining features include the salary structure that was divided into three service groups: top management group, management and professional group, and support group. It also has a new salary scale based on evaluation and market comparison, embodying a new salary and administration system based on performance appraisal and career development.
In addition to this, a new allowance system – which is based on non-universal, non-regular, and equality principles – that includes a new perquisite system was introduced. The NRS introduced a completely new salary structure in the form of a Matrix Salary Schedule (MSS) in 1992. The MMS designs four movements of salary progression namely static, horizontal, vertical and diagonal. This merit-based system of salary payment is aimed to motivate employee performance. However, the system aroused discontent and dissatisfaction among employees due to unfair and imbalanced practices.
After 10 years of implementation, the government introduced the Malaysia Remuneration System (MRS) in 2002 to replace the NRS system. The objective of the MRS was to create a more dynamic, transparent and accountable remuneration system that could foster a culture of excellence in the public sector. The MRS modified a few elements of NRS, for instance, the introduction of the salary structure based on four service groups namely: 1) premier service, 2) top management, 3) management and professional, and 4) support group.
Unlike the NRS, the salary scale under the MRS took into consideration market comparison with adjustments for cost of living and inflation. It also acknowledged salary administration based on incentives for innovation and creativity. The allowance system added equity principles that allow adjustments for hardship and risk factors.
Another report and policy that has shaped the current Malaysian remuneration system in the public sector was introduced in 2009 as the Malaysian government launched the Government Transformation Program (GTP). For this initiative, performance-based pay (PBP) was introduced in certain public sector agencies to reward civil servants based on their individual performance and to incentivize productivity.
This time, the changes in the remuneration system involved the rationalization of allowances and benefits to improve financial sustainability and equitable treatment of employees. These changes were reflected in the report of the Special Task Force to Facilitate Business (PEMANDU) which was released in 2015. In the report, PEMANDU aims to further streamline and simplify the remuneration system for the public sector to support the economic transformation of Malaysia.
The MRS has been in place for almost 20 years and there have been calls for further review and reform of the public sector remuneration system. Many pertinent issues have been raised by concerned groups and associations. Among the most pressing issues are the low salaries and purchasing power for many civil servants, especially those who belong to the lower grades. The remuneration system no longer reflects the current market conditions and cost of living as the annual increment (around 2-3%) does not reflect the rapidly increasing cost of living.
In addition, the remuneration system at present does not adequately reward performance, innovation, and creativity, resulting in a lack of motivation and productivity among civil servants.
To make matters worse, the incentives and opportunities for career development and progression are also insufficient, causing much frustration and dissatisfaction. Despite various attempts by the government to address these issues, the efforts ran into stumbling blocks due to the vast size and complexity of the government service in Malaysia.
This situation is further compounded by fiscal restraints which force the government to prioritize other matters to be given due attention. Therefore, matters related to remuneration have been left unattended for almost two decades. Similarly, scholars have pointed out the relevance of the current remuneration system with the impact of digitalization, the emergence of new work arrangements during the COVID-19 pandemic, and its alignment with Malaysia Madani goals.
It becomes clear that the current remuneration system for civil servants can no longer support its own objectives to foster a culture of excellence, integrity and accountability as well as to produce quality and efficient public service delivery.
Currently, the government is undergoing a transformation that includes reviewing the remuneration system for civil servants. The current remuneration system is inadequate to compensate civil servants effectively, especially in times of challenging and volatile economic conditions.
Malaysia’s civil service currently houses 600,000 government employees and makes up 10% of the total Malaysia’s workforce. This group receives a lower annual average salary (US$ 12,092) in comparison to South Africa (US$ 25,413) and South Korea (US$48,429).
The large but underpaid Malaysian civil servants result in high operational expenditure that is no longer sustainable for the future. The recent call by the government to conduct a comprehensive review of the remuneration system and introduce a new system that meets the immediate and future needs of the public sector is indeed timely. Addressing the needs of civil servants through remuneration reforms is an inevitable move in support of a wide range of wage re-structuring initiatives, aiming to desist an economy that has been largely built on cheap labor. The Public Service Department recently launched a survey among civil servants aimed at improving the efficiency of government agencies and civil servants to optimize management costs, boost productivity, and enhance the well-being of civil servants.
The revised remuneration policy is expected to address several key components of MRS. These include the development of key competencies and the assessment of job performance through the implementation of a Performance Appraisal system (PAS), career development, salary increments and disciplinary actions.
Among the recommendations that the government can consider is to enhance performance-based pay (PBP) schemes to reward civil servants based on their individual and team performance. The government could also consider introducing individualized skill-based pay or competency-based pay to reward employees with specialized skills such as third language skills, digital communication and data engineering which are crucial to attract highly skilled professionals in key areas.
In terms of promotion and salary increments, the government needs to ensure the decision is based on objective criteria such as performance evaluation, qualification to inculcate trust and a sense of fairness or it could be based on the system of differentiated compensation system.
It is also important for the government to do market-based salary surveys to benchmark private sector salaries against similar roles and revise the Cost-of-Living Adjustment (COLA). This will ensure that the remuneration system remains competitive and able to attract the best talents in the job market.
Another initiative that the government could introduce is to start introducing flexible benefit packages that have been practiced by the private sector. This flexible benefit could cater to different needs of employees that may include a range of benefits such as health care options, childcare support and retirement plans based on individual preferences.
The public employee remuneration system in Malaysia faces various challenges and opportunities that require a comprehensive approach from the government. While a recent trend witnessed the emergence of flexible public organizational design and compensation structures which ultimately lead to the downsizing of civil servants, it would not be the best option for the Malaysian government.
Having said that, the government should continuously engage with civil servants and relevant stakeholders to understand their concerns regarding the remuneration system and communicate any changes affecting them in a transparent way.
The government also needs to invest in comprehensive performance, development programs and training for civil servants to improve their productivity, career advancement, and growth. These could serve as non-monetary rewards that motivate and retain talent in the public sector especially considering the attrition rate in public sector is decreasing.
Moreover, the government should focus on the overall efficiency and effectiveness of the public sector by integrating innovation and technology to optimize the allocation of resources, including sufficient funds for remuneration.
Finally, it is critical for the government to strike a balance between attracting and retaining talent in the public sector while taking into account the country’s fiscal constraints. By considering these recommendations, the government can create a compensation system that rewards productivity, incentivizes high performance, and contributes to the overall development and efficiency of the public sector in Malaysia Madani.