What do NWC’s latest recommendations tell us about its role and flexible wages?

The key message from the National Wage Council’s (NWC) recommendations last Friday was crystal clear.

There is no end yet to the economic fallout from the Covid-19 pandemic and employers can consider cutting basic wages in order to save jobs.

This naturally did not go down well with some employees and netizens who may not have realised that many local companies have been propped up with extensive state support and subsidies amid Singapore’s worst recession since independence.

What then can we make of NWC’s recommendations and its role in a crisis and going forward?

WHAT HAS NWC DONE?

Since its inception in 1972, NWC had played an essential role in influencing expectations with regard to annual wage increases in the 1970s and 1980s.

Its quantitative wage increase guidelines have been effective although they have not been mandatory.

Some observers felt that the NWC’s guidelines then had resembled an informal micro management tool.

Coupled with moves to change the wage system from seniority-based to a flexible wage system, NWC has changed from issuing quantitative wage guidelines to issuing qualitative wage guidelines since 1988.

Essentially this meant that instead of specifying recommended dollar sum changes at various salary levels, the NWC has issued broader guidance on how a wage can vary based on a variety of factors such as economic conditions and companies’ health.

After the 1997 Asian financial crisis, NWC has urged firms to move to the Annual Variable Component (AVC) and Monthly Variable Component (MVC) wage system which is a form of flexible wage system.

However, some observers feel that despite the tripartite nature of NWC, some firms have not taken wage reforms seriously, thinking that if the Singapore economy were to be in trouble, the Government would react by lowering employers’ Central Provident Fund contribution rate as it did in 1985, 1997 and 2009.

These firms are dead wrong and in a quandary now as the reduction of employers’ CPF rate did not materialise in 2020.

NWC explained that this is not only a “blunt move” that does not take factor in the performances of different firms and sectors, it would “disproportionately affect only local employees”.

MOVING TOWARDS FLEXIBLE WAGES

In its latest guidelines, the NWC focused extensively on both AVC and MVC.

One form of wage cut is to remove employees’ MVCs. 

As to be expected, firms - especially small and medium-sized enterprises - which do not have MVC features in their wage system will now experience difficulties in implementing a wage cut speedily while maintaining some sense of equity.

For these firms without a flexible wage system, the NWC has helpfully provided infographics on how wage cuts can now be institutionalised as a form of MVC.

However, more can still be done in existing flexible wage systems to better help employers adjust to changing market conditions.  

Currently, NWC’s recommendation is that variable wages of rank-and-file employees should not exceed 30 per cent of their annual salary, with the MVC component taking up 10 per cent and the AVC component 20 per cent.

As we have argued earlier, the portion of MVC out of total annual wage cost can be increased to 20 per cent, with the AVC cut to 10 per cent.

This will give businesses more latitude to adjust wages according to changing business environment instead of doing so only during a year-end review in assessing the AVC payout.

With regard to low-wage workers earning less than S$1,400, NWC has asked firms not to retrench them and also not to cut their wages.

We support this proposal. This is the time to help our low-wage workers in the spirit of corporate social responsibility.

We had previously suggested labour sharing as a means to control wage costs for firms.

Similar to that of loaning workers to companies that need excess manpower, how about a scheme that provides flexibility to firms to vary the employment hours of their workers but yet cover some shortfall in wages that the employees will suffer?

This can be accomplished via short-time work schemes which have been employed in Germany to great effect. 

Kurzarbeit, Germany’s short-time work programme, features employers reducing their workers’ working hours instead of laying them off.

The German government would then cover a percentage of the loss in income due to the reduced working hours. 

Affected workers in this scheme receive 60 per cent of his or her pay for the hours not worked, while receiving full pay for the hours worked.

It’s a form of unemployment benefit but yet retains a level of overall employment level.

A tripartite body, such as the NWC, would be best suited to arbitrage and suggest the mechanics within Singapore.

A FULL-TIME SECRETARIAT?

Perhaps this pandemic has made Singapore society more aware of the importance of a tripartite body such as NWC.

However, this then begs the question, how is it that the NWC has been unable to shift employers’ thinking towards a flexible wage system after many years of urging and exhortation?

According to the NWC’s latest guidelines, 0.3 per cent of employees had only the MVC in their wage structure, 60.7 per cent had only the AVC, and 9.8 per cent of employees had neither the MVC nor the AVC.

All in, only 29.3 per cent of employees are now on the flexible wage system.

Both firms and employees suffer alike without a flexible wage system as there is no acceptable and equitable methodology to wage cuts or increases.

Simply put, wages are arbitrary and do not reflect the true value of labour costs in good and bad times. 

We do note however that workers are generally more resistant to having a high variable component of their wages without realising the implications.

It does not do anyone any good if NWC guidelines are not taken seriously.

Given the Singapore National Employers Federation’s aim to raise the number of companies on flexible wage schemes to 70-90 per cent, we urge both firms as well as the workforce to come to some sort of consensus to implement NWC guidelines.

Should this fail to happen, we think employers should not rule out more assertive methods being employed, either through legislation or other means.

For instance, the labour movement might use its clout to compel companies to implement MVC, similar to how it uses withholding of business licences or contracts to enforce the Progressive Wage Model on selected industries.

We should also consider the structure and the composition of the NWC itself.

The NWC is essentially a part-time grouping which brings together representatives from the unions, Government, academia and businesses.

It is telling that on a website dedicated to NWC on Tripartite.sg, the last update was in 2018.

We would like to suggest that having a permanent secretariat to actively engage stakeholders throughout the year would be a good start.

Ultimately, dealing with the Covid-19 crisis is beyond the Government alone.

Both employers and employees would need to play their part in keeping the economy alive.

We look forward to the days where NWC can issue guidelines on wage increase again rather than the current guidelines on wage cut and minimising retrenchments.

ABOUT THE AUTHORS: 

Chew Soon Beng is a senior associate at the Centre for Liberal Arts and Social Sciences, Nanyang Technological University (NTU), where he was previously professor of Economics and Industrial Relations. Keith Wong is pursuing a Masters of Public Administration at NTU’s Nanyang Centre for Public Administration.