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Continued from
FrontPage of
Article
NATIONAL WAGES COUNCIL (NWC) GUIDELINES FOR
2006/2007
A sustainable wage increase for competitiveness and
employability
Economic and Labour Market Performance in 2005
1. The Singapore economy continued to
grow at a healthy rate of 6.4% in 2005 after a strong 8.7% growth in
2004. All major sectors except construction registered positive
growth.
2. As a result of the healthy growth,
total employment grew by 113,300 in 2005, exceeding the previous
year¡¯s gain of 71,400. With robust job creation, unemployment fell
to its lowest level in slightly over 4 years. The seasonally
adjusted overall unemployment rate dropped from 3.1% in December
2004 to 2.6% in December 2005. The corresponding resident 1
unemployment rates were
4.1% in December 2004 and 3.4% at the end of 2005.
Wages, Productivity Gain and
Inflation
3. Overall labour productivity rose
1.9% in 2005, down from 6.9% in 2004. The moderation in productivity
growth was due to a slowdown in output growth as well as stronger
employment creation in 2005 compared to 2004. The wholesale & retail
trade, manufacturing, transport & communications and hotels &
restaurants sectors registered positive productivity growth. The
consumer price index (CPI) rose by 0.5% in 2005, down from 1.7% in
2004.
4. In 2005, NWC recommended that
companies grant built-in wage increases if such increases are
sustainable. Companies should, however, make greater use of variable
bonus payments to reward workers for their contributions. Given the
healthy economic performance and improved company profitability, the
total wages (basic wages plus bonuses but excluding employers¡¯ CPF
contributions) of private sector employees rose by 4.3% 2
in 2005, up from 3.6% in 2004. Basic wages grew by 3.1%2
in 2005 compared to 2.7% in 2004,
while bonus payouts increased from 1.87 months in 2004 to 2.062
months in 2005. After adjusting for the increase in CPI, real
total wages rose by 3.8% and real
basic wages by 2.6% in 2005.
5. Real wage increase exceeded
productivity growth in 2005 after three consecutive years
(2002-2004) of lagging behind productivity growth. However,
cumulative real wage increases still lagged behind cumulative
productivity growth since the Asian financial crisis in 1997. This
was because since then our wage structures have become more flexible
with emphasis on moderate built-in wage increases and greater use of
variable bonuses.
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1
Resident refers to Singapore citizens and permanent residents.
2 2005 Survey on Annual Wage
Changes conducted by MOM. |
6. Wage and productivity growth in
2005 varied across sectors. In the manufacturing, wholesale & retail
trade and transport & communications sectors, cumulative
productivity gains have surpassed cumulative real wage increases
since 1997, in line with the NWC¡¯s guiding principle that wage
increases should lag behind productivity gains. In contrast,
cumulative productivity gains have not kept up with real wage growth
in the construction,hotels & restaurants, financial services and
business & real estate services sectors.
Cost Competitiveness
7. Singapore maintained its wage
competitiveness in 2005. The overall unit labour cost (ULC) declined
by 1.5% in 2005 compared with a 3.9% fall in 2004. Measured against
our key competitors in the manufacturing sector, Singapore¡¯s
relative unit labour cost (RULC) remained flat after three
consecutive years of decline.
Outlook for 2006
8. The economic outlook for 2006
remains healthy. The major developed countries and the regional
economies are expected to maintain their growth momentum this year.
However, there are some downside risks, such as supply disruptions
in the oil industry, threats of terrorism and an outbreak of
pandemic flu. Domestically, the Singapore economy grew by 10.6 per
cent in the first quarter of 2006. Taking these factors into
consideration and barring unforeseen circumstances, the Ministry of
Trade and Industry¡¯s economic growth forecast for 2006 is between 5%
and 7%.
9. The Ministry of Manpower expects
employment creation to continue to be robust. Based on preliminary
estimates, employment grew by 33,400 in the first quarter of 2006,
nearly double the increase of 17,800 in the same quarter last year.
The seasonally adjusted overall unemployment rate was 2.6% in March
2006, unchanged from December 2005.
NWC Wage Guidelines For 2006/2007
A) Ensure Wage Increases Are Sustainable
10. The National Wages Council (NWC)
notes the robust economic and employment growth in 2005. Business
expectations are positive. However, Singapore needs to sustain its
cost competitiveness in an increasingly
globalised world economy. The Council notes that cumulatively since
1997, real wage increases have lagged productivity growth due to
moderate wage increases and favourable productivity performance.
However, productivity growth fell sharply in 2005 while wages have
risen. With the positive economic outlook and labour market, there
would be upward pressure on wages. To ensure that our long-term
competitiveness is not eroded and that more jobs can continue to be
created, we need to ensure that wage increases are supported by
productivity gains.
11. The NWC recommends that built-in
wage increases should continue to lag behind productivity growth in
order to be sustainable
and to maintain our cost competitiveness. Companies
should make greater use of variable bonuses to reward their workers,
taking into consideration the differing wage and productivity
performances across different industry sectors and companies.
Companies that are performing well should grant higher variable
bonuses.
B) Accelerate Wage Flexibility
especially in building up the Monthly Variable Component (MVC)
12. The NWC notes that many companies
have heeded the call by the Tripartite Taskforce on Wage
Restructuring (2004) to reform their wage systems for greater
flexibility and stronger competitiveness. As at Dec 2005, 81% of the
workforce in private sector was employed in companies that had
implemented at least one of the three key wage recommendations 3
of the Taskforce.
13. However, there is scope for
improvement. The proportion of the workforce that had two or all
three key recommendations incorporated into their wage structure is
still low, at 26% and 21% respectively.
In particular,
the Council notes with concern the slow
progress of the introduction of the Monthly Variable Component (MVC).
The unionized sector has done
well in this area with 73%
of employees in unionized companies implementing
MVC. These companies had set aside an average of 8.1%
of monthly basic wages as MVC, close to the 10% target. However,
only 17% of employees in the non-unionised sector were in companies
with MVC. The Council
would like to emphasise the importance for companies to build up the
MVC, so
that they can respond quickly to
changing economic conditions by adjusting wage costs. The current
CPF contribution rates offer little room to cut CPF rates in future
economic downturns. This makes it all the more important for
companies to introduce and build up the MVC in their wage structure.
It would also be easier for companies to introduce the MVC in an
improving labour market, than to wait till the next downturn.
14. Specifically, the NWC recommends
that:
a.
Companies should continue to implement
wage restructuring and adopt the three key recommendations,
to put in place a more
flexible and performance-based wage system.
b.
Companies which are granting built-in
wage increases should use the
increases to build up the MVC. Those which have yet to introduce the
MVC are strongly urged to do so immediately.
To accelerate the build-up of MVC,
companies could use the wage increase and/or set aside a portion of
existing basic wages as the MVC. This should be done now, to take
advantage of the favourable business climate and labour market.
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3 The Tripartite Taskforce on Wage
Restructuring made three key recommendations: (i) introduce
the Monthly Variable Component (MVC) in the wage structure and
work towards a wage structure of 70% basic wage, 10% MVC and
20% Annual Variable Component (AVC); (ii) narrow the maximum
minimum salary ratio for employees to an average of 1.5 or
less; and (iii) implement variable bonus linked to Key
Performance Indicators (KPIs). Data on wage restructuring
pertain to private sector establishments each employing at
least 25 workers. |
c.
Companies should formulate and apply
appropriate Key Performance
Indicators (KPIs) in consultation with unions/workers, to link
variable bonus payments closely to corporate performance.
There should be regular sharing of
information on corporate performance and
KPIs with unions/workers.
Companies should also develop
performance management systems to better assess and reward workers¡¯
individual performance. These
would motivate workers
towards better performance and allow companies to fairly reward
their workers for their contributions.
C) Enhance Employability of Older Workers
15. The NWC strongly supports the
recommendations released on 26 January 2006 by the Tripartite
Committee on Employability of Older Workers to enhance older
workers¡¯ employability and raise the effective retirement age.
The Council urges companies to
implement these recommendations and put in place wage systems and
employment arrangements that facilitate the employment of older
workers and re-employment of retired workers. In particular, the NWC
strongly urges companies to adopt the following measures, as
recommended by the Committee:
a)
Accelerate wage restructuring and move
away from seniority-based wages.
This is a key factor in enhancing the
cost competitiveness of
older workers, especially those with seniority-based wages.
b)
Embark on job-based, competency-based
and/or performance-based wage systems4,
as recommended by the Tripartite
Committee. Wages would then better reflect the value
of the job and the contributions of the worker to the company
throughout his tenure. Doing so will enhance the cost
competitiveness of older workers and improve their employability.
c)
Hire mature and older workers and retain
them beyond the retirement age of 62.
Companies are encouraged to make use of
WDA¡¯s ADVANTAGE! scheme5
to implement workplace and wage system changes and provide more
employment opportunities for older
workers. The Council also endorses the Tripartite
Guidelines on the Employment of Older Workers Above 62 Years Old
drawn up by the Tripartite Committee. Companies and unions/workers
are encouraged to refer to the guidelines in working out employment
arrangements as well as in negotiating remuneration packages for
re-employed workers.
In implementing the above
recommendations, companies are encouraged to work with the
Tripartite Action Group (TAG) led by SNEF to make concrete changes
in the workplace to employ more older workers.
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4
Job-based wage system focuses on responsibilities of the job
while competency-based wage system focuses on the ability of
the individual worker to do the job. A performance-based wage
system looks at how well the worker performs on the job.
5 The ADVANTAGE! scheme,
administered by WDA, offers employers financial assistance of
up to $300,000 per company to motivate and enable employers to
hire older workers and to re-employ them beyond the age of 62.
It consists of a job redesign grant, training grant, placement
services and retention incentive. |
¡¡
D) Step Up Efforts To Help Low Wage Workers
16. The NWC fully supports the
recommendations released in January 2006 by the Ministerial
Committee on Low Wage Workers to help low wage workers and their
families. The NWC is pleased to note that NTUC and WDA had jointly
re-created 7,200 jobs in 2005 for low wage workers.
It urges
companies to actively work with NTUC, SNEF and WDA to
achieve the target of re-creating and redesigning 10,000 jobs in
2006 to raise workers¡¯ productivity and earning capacity.
17. Since last year, an increasing
number of companies granting wage increases have heeded the NWC¡¯s
call to give higher wage increases to low wage workers. This is a
good start, but more needs to be done.
The NWC
therefore urges companies that are
granting wage increases to give higher increases for low wage
workers. This could be done
by specifying a higher
percentage increase and/or by including a dollar quantum for
built-in wage increases. They could also apply the same principle
for the payment of variable bonuses.
(E) Step Up Skills Training and Upgrading
18. Skills training and upgrading are
still key to helping workers raise their productivity and take on
better paying jobs. The
NWC urges companies to step
up their training and skills upgrading of workers, in particular
older workers, low wage workers and contract workers. Companies
should work closely with NTUC, SNEF and WDA to support the
participation of their low wage and older workers in training
programmes that will enhance their employability. In this regard,
WDA would continue to support NTUC¡¯s Skills Redevelopment Programme
with the Employability Skills and Workforce Skills Qualifications
systems.
Application of NWC¡¯s Recommendations
19. The NWC recommendations cover the
period from 1 July 2006 to 30 June 2007.
20. These recommendations are
applicable to all employees ¨C management, executives and
rank-and-file employees, unionized and nonunionised companies and in
both the public and private sectors.
21. To facilitate wage negotiation,
companies should share relevant information on company performance
and business prospects with employees and their representatives.
Conclusion
22. Our labour market and economic
outlook is positive. We should take this opportunity to strengthen
our economic resilience so that we can better respond to future
challenges while maintaining competitiveness.
Hence, we
need to push on with wage restructuring
and build up a more flexible wage system that links reward more
closely to performance. We also need to implement measures to
enhance the employability of the vulnerable segments of the
workforce ¨C the older workers and low wage workers.
The NWC is confident that these can be
achieved with the mutual
trust and co-operation of the tripartite partners, leading to a more
robust and competitive economy for the good of all.
23. The NWC looks forward to the
Government¡¯s acceptance of its recommendations.
National Wages Council
17 May 2006
Source:
www.mom.gov.sg Press Release 17
May 2006
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Government accepts NWC's wage
recommendations for 2006/2007
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