FLEXIBLE WAGE SYSTEM (Implementation by the private sector)

Dr Amy Khor Lean Suan asked the Acting Minister for Manpower (a) what are the main reasons cited by the private sector for not implementing the flexible wage system; and (b) what steps have the Ministry taken or will be taking to encourage more companies to adopt the flexible wage system.

The Parliamentary Secretary to the Acting Minister for Manpower (Mr Hawazi Daipi) (for the Acting Minister for Manpower): Mr Speaker, Sir, wage reform has been carried out since 1986 when the then Wage Reform Committee recommended that our wage system should be made more responsive to changing business conditions and hence, a flexible wage system should be implemented. The flexible wage system should include an Annual Variable Component (AVC) constituting 20% of total wages linked to company performance. Since then, more than 85% of companies have implemented some form of flexible wage system. The average AVC varied from year to year, ranging from 13% to 16% of total wages, depending on economic conditions and profitability of firms.

To further enhance the flexibility of our wage system, the NWC in 1999 recommended the implementation of the Monthly Variable Component (MVC) to form 10% of total wages. The recommended flexible wage system thus comprises 70% fixed basic wages, 20% AVC and 10% MVC. On the implementation of MVC, progress has been made in the unionised sector. As at December 2002, 39% of unionised companies have implemented the MVC. This compares favourably with 11% in 1999, 29% in 2000 and 34% in 2001. In the non-unionised sector, however, the implementation rate of MVC is significantly lower, registering only 3.9% of non-unionised companies surveyed, a marginal improvement from 3.4% in 2001.

Based on feedback from employers, one of the reasons for the slow implemen- tation of MVC was the economic downturn in recent years, which saw many companies granting little or no wage increases. As MVC was originally recommended to be built up from future wage increases, many companies which did not pay wage increases were not able to implement the component. The concern that MVC could only be cut in a business loss situation also discouraged companies from implementing it. Other reasons inhibiting companies from implementing MVC include the concern that the introduction of MVC would make wage administration too complex.

Due to our seniority-based wage system, individual performance and contribution are also not adequately recognised and rewarded. Changes should be made to replace the seniority-based wage system with a performance-based wage system.

To help expedite the implementation of a wage system which could link rewards closely to company and individual performance, the Ministry has set up a Tripartite Taskforce to study the issues and make recommendations. It is headed by the Permanent Secretary, Ministry of Manpower, with representatives from employers and trade unions and its studies are expected to be completed by the end of the year.

Dr Amy Khor Lean Suan: Sir, I would like to ask the Parliamentary Secretary on whether the civil service is already fully on a flexible wage system. Assuming that it is, considering that the civil service is largely used as a barometer of our wage levels, because GLCs and statutory boards largely follow them, how is it, for instance, from the PERC's survey, we are perceived to have very high wage levels in comparison to other countries?

Mr Hawazi Daipi: Sir, the civil service is already implementing the flexible wage system. If you study it carefully, the civil service gives the variable component either at the end of the year or in the middle of the year.

The total wage comprises many forms. It can be the basic wage, the variable component, overtime pay, and so on. The Member is talking about our wage level which may be higher compared to other countries, and that is what we are concerned with and we are looking into it.

Dr Amy Khor Lean Suan: Sir, implementing the flexible wage system is supposed to help us adjust to the economic situation. So if we are on the flexible wage system and 85% of the companies are on the flexible wage system, how is it that our wage levels are still considered high?

Mr Hawazi Daipi: Sir, it is because we are not fully flexible yet. Yes, we have practised some form of flexible wage system based on the 1986 recommendations. However, we find that we are still not fully flexible yet. That is why we have formed a special Tripartite Taskforce to study how we can propose to companies to implement a flexible wage system so that companies can adjust their costs of operation according to economic conditions.