CODE 18-77
ра Iriors policy.
CONFIDENTIAL
Mr M Stone
Hong Kong Dept/FCO
Reference..
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10 APR 1990
FICEL
FROM: D S FISH
(GTN 7 7243 3444)
DATE: 6 April 1990
cc Mr Kerby
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COMPENSATION/INCENTIVE SCHEME
Further to my minute of 30 March I thought I should make one further point on costs. It is a rather obvious point which we have discussed on several occasions, but Ministers (certainly Treasury Ministers) are sure to ask about it.
2.
The introduction of a scheme based on percentage additions to salaries over which we have no control carries with it potentially sinister contingent liabilities. As you know I have been concerned that, in the run-up to 1997, the Hong Kong Government may increase salaries in a dramatic fashion. This could be because inflation takes off, but it could also be a market forces response to a continuing exodus of qualified staff, and the need for Government to compete with the private sector in the labour market. Large pay rises might be necessary in the Hong Kong context, but when it comes to inducements the Treasury are going to take some convincing about the need for a significant financial input from HMG. They may well require that our proposal should contain a clause allowing for a review of the level of inducement in the light of salary levels at the time.
3.
to
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If the value of the Hong Kong dollar falls against sterling this would have the effect of reducing the size of our contribution compensation/incentive scheme. And if we are forced into offering a sterling safeguard, we would be able to set a safeguard at an exchange rate which underwrote pensions at a sterling level bearing some relationship to the benefits which equivalent staff would enjoy in the UK.
4. It seems to me that we should be in a position to contain the risk but it would make sense to let Ministers know about it.
борис qui
D S FISH
Overseas Pensions Department
6 April 1990
CONFIDENTIAL
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