CONFIDENTIAL
5.
On the question of compensation, I note that the Governor seems to have moved from his previous view that it should be dealt with at the same time as sterling safeguards. If an announcement on our limited compensation incentive scheme really would buy time with HMOCS officers, it would be tempting to try it. But the intention of the incentive/compensation scheme is to persuade HMOCS officers to commit themselves to continued service up to 1997 and beyond. The impact on the potential beneficiaries of what we all recognise will be regarded as an inadequate scheme, is likely to be negative if it is not accompanied by a sterling safeguard. I fear that announcement of our limited scheme in isolation would throw into even sharper focus our failure to provide any assurance about the future value of pensions. It seems to me that anyone considering whether to commit himself or herself to another 10 years or so service in Hong Kong, is most unlikely to do so without some assurance that that service was going to result in the award of a worthwhile pension.
6. If you wish to pursue your preference for separating the two issues, it might be prudent to ask the Governor to reflect further on how it would be received by the increasingly strident HMOCS Association. I should be happy to discuss further if you wish, in the light of your recent visit to Hong Kong.
J V KERBY
Yours
ever,
du
CONFIDENTIAL
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