FAQs on Wage-Restructuring

1. What is Wage Restructuring and its objectives?
   
   Wage Restructuring is not a wage cut or a squeeze on workers wages or just having the Monthly Variable Component (MVC). It is about removing rigidities in the wage system like automatic built-in increases which are not linked to company's business objectives and long salary ranges which do not reflect the market value of the job. It is about making wages more flexible and closely linked to company targets or objectives allowing companies to respond more quickly to changes in business conditions.
   
   
2. Why is Wage Restructuring necessary?
   
   Singapore's wage system is predominately seniority based. The seniority wage system has a long salary scale which does not provide that wage increases is linked to productivity increases. It had resulted in companies having to shoulder salaries beyond the job worth, thus undermining the cost competitiveness of the companies. With business and product life cycles getting shorter, and with global competition coming from low cost countries like China and India, our margins will be squeezed. Wage Restructuring is to help companies keep their wage cost competitive and to save jobs.
   Wage Restructuring is even more critical for older workers as they are more vulnerable to retrenchment due to the seniority based wage system.
   
   
3. How do we start the process of Wage Restructuring?
   
   There are 3 important considerations in restructuring wages:
   1. Management must be clear about what they want to achieve for the company. It could be profits, market share, quality or other indicators. Management needs to be clear on why they need to restructure the wage system to achieve what they set out to do. Management and union need to know what are the components of cost in the company i.e. the cost structure of the company and the wage cost as a percentage of total cost.
      
   2. Process of implementing the changes. There must be transparency and information sharing at all times to buy in the changes. Management needs to know and be transparent on how the restructuring will enhance the overall competitiveness of the company. There must be consultation with the unions and workers to ensure that morale of workers are not affected whilst we embarked on the process. Management should explain the changes in the wage system to workers in a simple and clear manner, the indicators should be transparent and workers should know what they can expect after the changes.
      
   3. Since two thirds of the wage cost in a company is earned by one-third of the employees, the higher wage earners should lead by example in changes to the wages.
      
      
4. Which Key Performance Indicator (KPI) should be used to measure business achievement?
   
   Different companies would have different set of KPIs depending on their business objectives. Companies should choose fair and reasonable KPI that will measure whether it is achieving it's business objectives. Examples of KPIs include: Profit level, Volume of Sales, Market Share, Growth rate, Return on Equity (ROE), Return on Investment (ROI), Productivity increase and Economic Value Added (EVA). KPIs can include non monetary targets such as safety record, innovation projects or customer satisfaction etc.
   
   
5. What is the recommended minimum-maximum salary ratio?
   
   NWC recommended minimum-maximum ratio of 1:1.5 or less. However, the ratio may vary according to the different nature of the job/industry. Jobs that are knowledge-based or those with a longer learning curve may have a higher minimum-maximum ratio. The rationale for a min-max ratio is to address the morale issue of the younger workers in a seniority based wage system. It also helps to minimize the risk of older workers being less cost competitive. By scaling down the seniority based wage system, it would help the future generation of workers to be more competitive.
   
   
6. How is the value of job determined?
   
   One of the ways to determine the worth of the job is through job evaluation. Another way is through the sharing of practices within the cluster/industry. As changes in external environment could affect the value of jobs, unions should have an understanding with the management to review job worth from time to time. If the process of review is absent, it is likely to add rigidities rather than flexibility into the system.
   
   
7. Is Wage Restructuring applicable to all employees of the companies?
   
   Wage Restructuring is for all employees of the company regardless of whether they are bargainable or non-bargainable. In fact, in Singapore, two thirds of the company's payroll goes to pay the salary of one third of its employees. Hence, more should be done in the area of Wage Restructuring for the higher income earners. The ERC had recommended that the management should provide for more variable components in their wage structure.
   
   
8. According to the flexible wage principles, when companies earn more, they should share more and when they earn less, they should share less. What happens if companies are not making profits? Should workers salaries be cut? What is the trigger point for wage cuts?
   
   The indicators to measure achievement of the company's business objectives and the triggers for wage cuts and rebuilding should be transparent and made known to workers as part of the Wage Restructuring exercise. Management should share such information regularly with workers. Workers would then know when they can expect cut in wages and when their wages could be rebuilt. Workers need to know that they could expect to earn more wages when the company meets or exceeds its business objectives.
   We have to strike a delicate balance between stability of income and wage flexibility.
   
   
9. How do we convince workers to go into Wage Restructuring?
   
   The entire exercise is not to maximize shareholders' returns at the expense of the workers! The purpose is to ensure that we remain cost competitive and save jobs. Besides ensuring clarity and transparency in the Wage Restructuring exercise, the important thing to note is that workers must be able to look forward to something positive in the new system. If the system allows the workers to earn more wages either through better individual or company performance, they will support it. On the contrary, if Wage Restructuring is seen as only a wage cut, it will be difficult to gain workers' support.
   
   
10. How do we deal with companies which claim that their workers are overpaid and attempt to conduct Wage Restructuring? Are there any salary surveys to verify their claim?
    
    IROs should ask companies for data to show that their workers are over paid relative to the market rate for the job. Ministry of Manpower publishes data on occupational wage levels for major industries in Singapore.
    
    
11. What can be done to correct the perception that Wage Restructuring would have an adverse effect for employers to attract and hire good workers?
    
    It must be made known to the management that Wage Restructuring is not meant as an exercise to set wage levels for companies. The basic principles of Wage Restructuring must be sound.
    
    
12. Is it possible to carry out Wage Restructuring for only a particular department or business unit without applying across the whole company?
    
    The poorly performing Strategic Business Unit (SBU) might be targeted first but the aim should be to apply Wage Restructuring to all SBUs/departments of the company in time to come. However, in the case of a parent company with subsidiaries, Wage Restructuring involving a particular subsidiary that was not doing well should proceed. The framework for Wage Restructuring must be consistent for all.
    

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