Employment (Recommendations for Annual Wage Adjustment) Notification 2006

Source: Singapore Statutes Online | Archived by Legal Wires

No. S 327
Employment Act
(Chapter 91)
Employment (Recommendations for Annual Wage Adjustment) Notification 2006
Whereas the National Wages Council (hereinafter referred to as NWC) has made recommendations to the Government for wage adjustments for the period commencing on 1st July 2006 and ending on 30th June 2007 (both dates inclusive) the text of which is set out in the Schedule:
And Whereas the Government has accepted those recommendations:
Now, therefore, in exercise of the powers conferred by section 49 of the Employment Act, the Minister for Manpower hereby makes the following Notification:
Citation
1.  This Notification may be cited as the Employment (Recommendations for Annual Wage Adjustment) Notification 2006.
NWC Wage Guidelines
2.  The NWC Wage Guidelines 2006 which may be adopted by an employer to adjust the wage of an employee for the period commencing on 1st July 2006 and ending on 30th June 2007 (both dates inclusive) shall be in accordance with the recommendations of the NWC as set out in the Schedule.
THE SCHEDULE
National Wages Council’s (NWC) Guidelines for July 2006 to June 2007
1.  The National Wages Council (NWC) has completed its deliberations on wage and wage-related guidelines for 2006/2007.
Economic and Labour Market Performance in 2005
2.  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.
3.  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 resident1 unemployment rates were 4.1% in December 2004 and 3.4% at the end of 2005.
1  Resident refers to Singapore citizens and permanent residents.
Wages, Productivity Gain and Inflation
4.  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 and retail trade, manufacturing, transport and communications and hotels and restaurants sectors registered positive productivity growth. The consumer price index (CPI) rose by 0.5% in 2005, down from 1.7% in 2004.
5.  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%* in 2005, up from 3.6% in 2004. Basic wages grew by 3.1%* in 2005 compared to 2.7% in 2004, while bonus payouts increased from 1.87 months in 2004 to 2.06* 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.
* 2005 Survey on Annual Wage Changes conducted by the Ministry of Manpower.
6.  Real wage increase exceeded productivity growth in 2005 after 3 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.
7.  Wage and productivity growth in 2005 varied across sectors. In the manufacturing, wholesale and retail trade and transport and 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 and restaurants, financial services and business and real estate services sectors.
Cost Competitiveness
8.  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 3 consecutive years of decline.
Outlook for 2006
9.  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%.
10.  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
Ensure Wage Increases Are Sustainable
11.  The 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 NWC 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.
12.  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.
Accelerate Wage Flexibility especially in building up the Monthly Variable Component
13.  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 December 2005, 81% of the workforce in private sector was employed in companies that had implemented at least one of the 3 key wage recommendations2 of the Taskforce.
2  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.
14.  However, there is scope for improvement. The proportion of the workforce that had 2 or all 3 key recommendations incorporated into their wage structure is still low, at 26% and 21%, respectively. In particular, the NWC notes with concern the slow progress of the introduction of the Monthly Variable Component (MVC). The unionised sector has done well in this area with 73% of employees in unionised 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 NWC 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.
15.  Specifically, the NWC recommends the following:
(a)Companies should continue to implement wage restructuring and adopt the 3 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.
(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.
Enhance Employability of Older Workers
16.  The NWC strongly supports the recommendations released on 26th January 2006 by the Tripartite Committee on Employability of Older Workers to enhance older workers’ employability and raise the effective retirement age. The NWC 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 systems3, 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.
3  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.
(c)Hire mature and older workers and retain them beyond the retirement age of 62. Companies are encouraged to make use of the ADVANTAGE! Scheme4 administered by the Singapore Workforce Development Agency (WDA) to implement workplace and wage system changes and provide more employment opportunities for older workers. The NWC 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.
4  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.
In implementing the above recommendations, companies are encouraged to work with the Tripartite Action Group (TAG) led by the Singapore National Employers Federation (SNEF) to make concrete changes in the workplace to employ more older workers.
Step Up Efforts to Help Low Wage Workers
17.  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 the National Trades Union Congress (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.
18.  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.
Step Up Skills Training and Upgrading
19.  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
20.  The NWC recommendations cover the period from 1st July 2006 to 30th June 2007 (both dates inclusive).
21.  These recommendations are applicable to all employees — management, executives and rank-and-file employees, unionised and non-unionised companies and in both the public and private sectors.
22.  To facilitate wage negotiation, companies should share relevant information on company performance and business prospects with employees and their representatives.
Conclusion
23.  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 — 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.
Made this 7th day of June 2006.
LEO YIP
Permanent Secretary,
Ministry of Manpower,
Singapore.
[AG/LEG/SL/91/2002/1 Vol. 1]

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