1. By : Mr. Mah Cheong Fatt Executive Secretary Shipbuilding and Marine Engineering Employees’ Union (SMEEU) Flexi-Wages : Facing the Challenges of Globalisation

2. Before 1986 Seniority-Based Rigid –wage increases were paid on account of seniority in service –high pre-determined annual increments –Annual Wage Supplement (AWS) was fixed by legislation (1 to 3 months’ basic salary) –NWC guidelines were implemented with insufficient regard to company and individual performance all the above were permanently built into the basic wage and salary structure

3. Effects of Rigidity Loss of International Competitiveness –competitiveness eroded as real wages outstripped productivity gains Widening of the Salary Ratio and Loss of Wage- cost Competitiveness –the wages of longer service workers exceeding the economic value of their jobs Loss of Jobs and Structural Unemployment of Older Workers –led to the recession in the mid-80s

4. INTRODUCTION OF THE FLEXIBLE WAGE SYSTEM

5. 1986 NWC's Subcommittee on Wage Reform Objectives –identify the rigidities in the existing wage system –look into how the wage system could be reformed –how wage system could be made more responsive to economic and company performance

6. 1986 Recommendations Introduce a more flexible wage system –reflect the value of the job; –wage increase should lag behind productivity growth and take into account company profitability and individual performance; –that such wage increases should not always be granted on a permanent basis; and –a measure of stability in workers’ income should still be maintained.

7. Features of a Flexible Wage System A small service increment in recognition of workers’ length of service, loyalty and experience A salary range that reflected the value of the job Max / min ratio of each salary range be about 1.5

8. Implementing a new approach to wage policy is a true test of tripartite relations in Singapore Numerous issues that needed to be addressed include the following : Implementation Issues  Gaining common understanding and acceptance by employers and unions  High-level management buy-in  Leadership by example  Overhauling present HR management systems.

9. Progress By 1992, some 85% of unionized companies and an overall of 71% companies in Singapore had adopted the Flexible Wage System Between 1987 to 1992, built-in annual wage increases had moderated to 4%-5% (from 8%) in the unionized sector Salary range ratios had also decreased to an average of 1.9 compared to 2-3 previously

10. 1993 Flexible Wage System Review Committee Review progress made in the implementation of the Flexible Wage System

11. In 1993, the NWC appointed a Tripartite Review Committee set up to study FWS implementation identified the following as some of the problems: Teething Problems  The absence of proper performance appraisal system  The AWS amounting to more than one month into the basic wage  Difficulties in interpreting and measuring profit and productivity  Capping of bonus at 2 months’ wages  The reluctance of employers to share information with employees and unions

12. 1993 Recommendations Variable component need not be capped at 2 months’ wages but should be left to companies and unions to decide –made at more frequent intervals during the year depending on operational needs

13. Introduction of the Monthly Variable Component (MVC) National Wages Council Guidelines 1999

14. Deficiency of 1986 Wage Model The variable component comprised of year-end or half-yearly bonuses. Companies had to wait till the end of the year to cut bonus payment in order to reduce wage costs This was too late in enabling them to regain competitiveness and remain viable. Companies still had to resort to retrenching workers in order to lower wage costs

15. Why MVC? Enhance the flexibility of the Flexible Wage System Enable companies to make quick, timely and responsive downward adjustments in wage costs in the event of a sudden and sharp business downturn Preserve employment

16. Features of MVC Progressively built up from future wage increases to form about 10% of total wages Evolve the existing 80:20 flexible wage structure to one of 70:20:10

17. Further Recommendations Economic Review Committee's Work Group (Wages) Recommendation –Companies to top up their MVC to 2% immediately out of their basic wages NWC 2003 Recommendation –To expedite the process by setting aside a higher percentage of basic wages to achieve a higher MVC

18. The Fist Test of FWS: The 1998 Asian Financial Crisis  Key Test of the Civil Service FWS.  Was able to quickly react to reduce wage cost.  In 1999, further cuts to gross monthly salaries -Public officers in higher division – cuts of up to 3% -Ministers took the lead with 5% cut  The cuts were effected using the variable component. When the Singapore economy made a rebound in 2000, wage cuts were restored and a 1.75 months AVC was paid as a strong endorsement of the FWS

19. Further Test of FWS The FWS continued to be an important tool that enabled the country to weather the impact of other storms such as:  Economic uncertainties arising from September 11  War in Iraq  SARS

20. 2003

21. WAGE PRINCIPLES - 2003 OBJECTIVES IN THE SETTING OF WAGE PRINCIPLES –Employee –Employer –Economy

22. WAGE PRINCIPLES - 2003 Employee –Receive the best possible compensation and recognition for value-added contributions –Enhanced income and employability over his career

23. WAGE PRINCIPLES - 2003 Employer –Have a flexible and responsive wage system –Sustainable competitive return on capital –Supporting growth and motivating employees to raise productivity

24. WAGE PRINCIPLES - 2003 Economy –To enhance standard of living through a virtuous cycle of investment, job creation and enhanced skills

25. WAGE PRINCIPLES 2003 PRINCIPLES: –Sustainable Growth –Competitiveness –Flexibility –Motivation –Stability

26. Principle 1 Sustainable growth –The wage system should achieve the best possible compensation and rewards for employees, linked to the performance of the company. –In turn, the wage system should enable employers to earn a competitive return on their capital, so as to support business sustainability, investment, job creation and better opportunities for all.

27. Principle 2 Competitiveness –Employees’ remuneration must reflect the value of the job, their skills and performance, such that the wage structure enables the employer to be competitive in the global marketplace. –Employees and employers should come together to constantly upgrade and enhance the skills, capabilities and employability of the workforce

28. Principle 3 Flexibility –In order to allow employers to respond quickly to volatile business conditions, employees should allow for a greater portion of their wages to be variable in line with the profitability of the company. –Employers in turn should consider wage flexibility as an additional tool, and balance it with employees’ need for income stability, when managing wage costs.

29. Principle 4 Motivation –Employers should incentivise employees to give their best, with rewards for good company and individual performance, opportunities to enhance employees’ skills. –As leadership behaviour impacts motivation and morale of employees, management should take the lead in bad times, in bearing the sacrifices that need to be made. –Employers should have in place good HR systems to appraise performance and enhance employee skills.

30. Principle 5 Stability –Employers should structure the compensation system so that employees can enjoy a basic regular income. –This level of this fixed portion of the employees’ income should be set within a structure that enables the employer to be globally competitive.

31. Pre-Requisites To Implement FWS Employers and Unions Need To:  Agree on wage changes  Have good information on economic, labour market, and wage-related indices  Measure company’s performance  Have clear links between wage and productivity In essence, must agree on a mutually- acceptable variable component.

32. Union Leadership  Union leaders have to be as knowledgeable as their management counterparts.  They need to be aware of the factors influencing employees’ productivity such as:  Skills  Technology  Training Needs  Membership Profile

33. Role of Social Partners To enhance information sharing, the agencies who played an important role were:  SNTUC  Singapore National Employers’ Federation (SNEF)  Ministry of Manpower (MOM)  Spring Singapore [formerly known as National Productivity Board (NPB)]

34. Conclusion  Continuous wage restructuring is one of the key strategy to meet the challenges faced by Singapore  Foundation of trust is vital  Unions have a critical role to play in enabling the continuation by open and constructive dialogue between the management and workers