In the days when the label 'Made in Hong Kong' was a catchphrase for cheap, shoddy goods, the economy was built on sweat-shop labour, an uneducated workforce glad to take whatever jobs were available. Growing prosperity brought with it the benefits of a better standard of living, the chance of a decent education and the development of a society in which a literate, hardworking and skilled labour force continues to fuel world-beating riches and affluence. Today, Hong Kong is surrounded by countries which are following the path to economic progress which it trod decades ago. The territory has evolved into a sophisticated service-based economy, with a high wage base. Salaries are at a premium for those with specialist skills that this requires. The trick in a developed economy is to maintain a balance between economic growth and rising living standards in order to keep inflation at bay. The way to do that, according to the Employers' Federation of Hong Kong, is by keeping pay rises low and relating increases to workers' productivity and performance. On the surface, this is common sense. Firms which are not doing well cannot go on increasing their wage bill while profits decline. Performance-related pay gives an incentive to workers to increase their productivity. But examined in greater detail, the facts which emerge from the federation's Pay Increases Tracking Survey show that the average increase of 6.9 per cent is not so much a pay increase as pay decrease. Admittedly, it is minimal at this juncture, but the argument which the federation advances is that costs are rising steeply in Hong Kong and unless this is carefully monitored now much harsher measures will be necessary in future. This cautionary note is aimed at the top end of the employment market with its high wages. Some Hong Kong executives are so well paid that there is no difficulty in recruiting similarly qualified personnel from other countries where salaries are half the local rate. If employers are forced to cut costs, then local workers may well find that they are priced out of the market. Even some office workers are now paid salaries which are among the top levels in the developed world, and, if the territory is to retain its competitive edge, it is not unreasonable to expect everyone to make an extra effort. That does not necessarily entail working harder - Hong Kong already works hard. But it may have to work smarter, and that can be difficult to quantify. The concept of performance-related pay is all very well on a production line, but the territory has few of those now. Evaluating the exact contribution which individual managers make to productivity is a tricky task that opens up invidious comparisons.