Higher salary floor for foreign hires may put financial hub aspirations at risk

Singapore

RAISING the salary threshold for Employment Passes (EPs) amid recessionary pressures can encourage financial institutions to hire locals, but some economists think such a "protectionist response" can crimp Singapore's financial hub aspirations in the long run.

The Ministry of Manpower (MOM) on Thursday announced that the salary floor for EP holders in finance will be raised to S$5,000 from December, setting the bar S$500 higher than the tightened criteria for other sectors in the economy.

This is the first time that the Singapore authorities have set higher qualifying salaries for a specific sector to hire foreign professionals.

The move comes in the wake of concerns around discriminatory hiring practices, especially in the financial and professional services sectors.

"In the short term, the higher salary floor will encourage growing firms to hire local workers. But in the longer term, the higher wage costs and smaller pool of available talent might discourage financial institutions from investing and expanding in Singapore," said Chua Hak Bin, a senior economist with Maybank Kim Eng.

Dr Chua urged companies to see foreign and local workers as "complements rather than substitutes".

"The current protectionist reaction may diminish Singapore's status as a financial centre, which can also affect job opportunities for locals," he told The Business Times.

Walter Theseira, an economics professor at the Singapore University of Social Sciences, said the biggest concern would be firms choosing to "simply outsource operations to third countries, or packing up and leaving" instead of hiring Singaporeans.

"That would be a net bad for Singapore, as we won't gain any Singaporean staff and our economy will suffer. As time goes on, we will have to evaluate whether the policy is able to achieve the objective of improving Singaporean opportunities, and whether it results in any unintended consequences," he added.

CIMB Private Banking economist Song Seng Wun, on the other hand, said Singapore continues to be an attractive financial centre, given geopolitical tensions elsewhere in the world.

"Singapore's status as a neutral safe haven financial centre with strong rule of law is our strongest attribute. With the relentless drive towards fintech (and) digitisation, businesses may find that there is less need for 'cheaper' foreign workers," he said.

Noting that the tightened salary criteria is the latest in a series of tightening measures, OCBC economist Selena Ling said the sector on the whole should be able to adapt.

However, she pointed out that it may be "difficult to plug the gap immediately" in specific fields that have experienced manpower shortages, such as cybersecurity.

Dr Theseira said that neither a quota nor a price-based policy would guarantee skills transfers, if there are no robust policies in place to equip Singaporeans with opportunities to take on bigger roles.

"I think the notion of skills transfer is not the simple one of foreigners having rare skills that few Singaporeans have. Rather, it's about ensuring that qualified Singaporeans get the opportunities to lead, grow, and manage, that qualify them for more senior appointments in time," he said.

Like other sectors, the monthly salary requirement for entry-level EP holders in financial services will be raised first to S$4,500 from September. The benchmark specific to the finance services sector will then go up to S$5,000 from December - the third time the threshold would be raised for the sector this year.

The qualifying salaries for older and more experienced EP candidates in their 40s - across all sectors - will be at around double the minimum salaries required for the youngest applicants.

It is worth noting that those working in Singapore's financial services are generally paid above MOM's revised threshold.

A 2020 survey by recruitment firm Robert Walters found that the annual salary for business analysts and developers in permanent roles ranges from S$70,000 to S$150,000 in 2020, for example. Software architects, development managers and senior cyber security specialists are expected to take home about S$100,000 to S$240,000 yearly.

That said, some industry observers flagged that such surveys may not accurately reflect Singapore's financial services ecosystem on the whole.

"People assume that those in financial services are paid above MOM's baseline salary. But they often only look at those who work in (the central business district), not at Changi Business Park or Tampines," a consultant from a major firm told BT.

He noted that many tech firms - that banks here locally outsource some of their tech operations to - generally hire "low cost" workers from India, who draw monthly salaries well below S$5,000.

These firms, which include the likes of Infosys, Cognizant and Tata Consultancy Services, will bear the direct brunt of MOM's new minimum salary requirements, he added.

Banks, on the other hand, will have to strike a new balance between hiring more locals and absorbing the higher costs of outsourcing their operations within Singapore.

"The intent behind the government's changes is to let the market work towards improving Singaporean representation by eliminating lower-qualified or skilled foreigners and replacing them with Singaporeans," said Dr Theseira.

A Maybank Singapore spokesperson told BT only a "small proportion" of the bank's tech support is outsourced to third parties, which includes a "small number" of EP holders. "The raising of the salary ceiling has minimal impact on us."

Singapore's largest bank DBS is also expecting the tighter requirements to have "minimal" impact on its overall operations, as over 90 per cent of the bank's 12,000 employees here are locals.

"DBS is supportive of MOM's efforts to develop a strong pipeline of local talent in the finance sector, and we remain committed to hiring and developing a Singaporean core in our workforce," a spokesperson told BT.

The Monetary Authority of Singapore (MAS) said it has worked closely with the MOM in determining the new minimum qualifying salary for the financial services sector, which "takes into account the higher local salary levels in the (sector)".

MAS deputy managing director for markets and development Jacqueline Loh said the move to tighten salary criteria for EP candidates complements the authority's manpower-development programmes to expand job opportunities and deepen local capabilities.

The MAS has in recent weeks reiterated calls for financial institutions to continue identifying Singaporeans with potential for leadership roles. This comes after the MOM put 47 employers - of whom almost two out of three are in the financial services and professional services sectors - on a watch list for potentially discriminatory hiring practices.

READ MORE: Employment Pass minimum pay rises to enable business growth and openings for locals