CODE 18-77
Pa
SECRET
HMOCS
Mr Stone
Hong Kong Department/FCO
!
Reference...
431/4
HKB 431! 6.
FROM: D S FISH
(GTN 7 7243 3444)
DATE 27 April 1990
STRY
RECEIVED IN
9 MAY 1990
CO
Mr Kerby
Mr Paul
DEEK O
You asked for thoughts on your draft submission to the Secretary of State about the compensation/incentive scheme, prior to your seeking comments from Hong Kong.
2. I think we must give Ministers a greater feel for the situation which confronts us and make it clear that, in the special circumstances of Hong Kong, we are doing our best for HMOCS staff. Overall the current drafts fail to bring out that HMOCS staff are doing, and will continue to do, very well in financial terms.
3. There are one or two important points which must be included. The first of these, in paragraph 3, relates to "loss of career", a factor not currently mentioned. This was the major raison d'être for compensation schemes and, of course, was the element susceptible to actuarial analysis. The "Secretary of State's protection", as we have discovered, is not easily valued in financial terms. We need to make the point that "loss of career" is not a factor in Hong Kong, and that the uniqueness of the future employment provision in the Joint Declaration is an important reason for not proceeding along traditional lines.
4. On the question of sterling safeguards, the fixing of a rate would not protect HMG against spiralling costs. Rather the opposite if Hong Kong continues to award high pay increases. In due course I believe that a sterling safeguard will have to have some regard to UK pension levels, and that the end result might be a formula which would provide for adjustment to cater for "excessive" local pay rises.
15. Consultation with the staff will be a difficult process. I am happy to go along with the proposal for a visit to "explain" our scheme and answer questions. But I see no scope for any negotiation over an incentive scheme. An actuarially based scheme can be subject to sensible negotiation but an incentive scheme does not lend itself to meaningful debate. It is our (and the Governor's) assessment of what is likely to succeed in retaining significant numbers of HMOCS staff over the critical period. Only time will tell whether our collective judgement is correct. An ODA/FCO visit, which was not necessarily past practice, will need very careful presentation to ensure that we do not arouse expectations which cannot be fulfilled.
16. I am not sure where you obtained your information on costs but our calculations show that a traditional compensation scheme would cost HMG over £150 million, on the assumption that it would prove impossible to persuade the Chinese that they should offer HMOCS immediate payment of pension and enhanced
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