NTUC encourages more companies to speed up wage restructuring efforts

1 Singapore’s economy grew strongly last year and wages rose by nearly 5%, the fastest in six years.  The global economic outlook for 2007, as well as the outlook for Singapore looks positive.  Hence, the National Wages Council  (NWC) has recommended that companies should grant wage increase to workers for their good performance.  The NWC further reiterated that wage increase and bonus payment should be more closely linked to company and individual performance.  The NWC also urged companies to step up implementation of flexible wage systems to ensure sustained competitiveness.

Moving Towards Job, Competency and Performance-based Wage Systems

2 The National Trades Union Congress (NTUC) is glad that the NWC has urged companies to move to job, competency and/or performance-based wage systems, away from a seniority-based system.  A 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.  This means that workers are rewarded according to the value of their jobs, capabilities and contributions, not on their seniority.

3 More importantly, these flexible wage systems, which are age-neutral, will enhance older workers’ employability as companies are able to compensate them according to their skills and experience.  Based on our experience in previous economic downturns, older and unskilled workers could be harder hit by retrenchments and rising unemployment in future downturns.  Thus, the move towards flexible wages is important as companies can better respond to changing business conditions and more workers can keep their jobs, even in bad times.

Progress Update on Unionised Sector’s Wage Restructuring Efforts

4 Together with the tripartite partners, NTUC has encouraged employers to embark on wage reforms and wage restructuring efforts since the 1980s, moving away from a seniority-based system to a more flexible system.  Over the years, we have worked with companies towards a lower min-max ratio of 1.5 or less; implementing the Monthly Variable Component (MVC), as well as a more variable form of payment; and towards job, competency and performance-based wage systems.

5 Today, nearly all (97%) of the workforce within the unionised sectors is under some form of flexible wage system .  Majority (79%) of the unionised companies negotiate their Annual Increments (AI) yearly.  Only a minority (21%) have locked-in AIs.  The min-max ratio among the unionised sector has also moved from a high ratio of 1.85 ten years ago to the current 1.68.  Similarly, the MVC currently covers 83% of the bargainable workers in the unionised sector, as compared to 63% five years ago.  Progress has also been made in linking rewards to company and individual performance through the use of appropriate key performance indicators (KPIs). Currently, 46% of our unionised companies have implemented some form of KPI for profit sharing.  For these companies, the better bonus payout last year reflects the companies’ and workers’ efforts in contributing towards the KPI.

6 A more flexible wage system will make our companies more resilient.  It will minimise the need for retrenchments during a business downturn, help save jobs for workers, make older workers less vulnerable to being the first to be retrenched, and give workers something to look forward to when business is good.  Companies that have already restructured their wages have found that the restructured system is a win-win outcome for the companies and workers.  Four such companies, which have the strong support of their unions in their wage restructuring efforts, include (please see write-ups of their restructured wage systems in ANNEX):

a) Seiko Instruments Singapore Pte Ltd and Metal Industries Workers’ Union
b) Singapore Cruise Centre and Singapore Industrial & Services Employees’ Union
c) SembWaste Pte Ltd and Building Construction and Timber Industries Employees’ Union
d) Keppel Shipyard Limited, Keppel Employees Union and Shipbuilding and Marine Engineering Employees’ Union

7 With the good economic performance, NTUC urged companies to step up, and not relax on, wage restructuring efforts.  We should build greater flexibility and responsiveness in the wage system to ensure that it is sustainable in the long run.  A well balanced wage system that is easy to understand and well communicated to the workers will reap benefits for company and workers in the long term.  This way, we can help our workers from the harsher aspects of the free market and make them, especially the older ones, more employable.

Cham Hui Fong (Ms)
Director
Industrial Relations Department
National Trades Union Congress

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For media queries, please contact:

Goy Kae Lip
Consultant
Corporate Communications Department
National Trades Union Congress
DID 6213 8184
HP 9792 0650
Email goykl@ntuc.org.sg

ANNEX

NTUC ENCOURAGES MORE COMPANIES TO SPEED UP WAGE RESTRUCTURING EFFORTS

Examples of companies working with their unions on wage restructuring – moving towards job, performance and competency-based wage systems

1) Seiko Instruments Singapore Pte Ltd and Metal Industries Workers’ Union

Seiko Instruments Singapore Pte Ltd (SIS), with support from Metal Industries Workers’ Union, has revamped and overhauled its wage structure since November 2005 to move away from a seniority-based wage system to one that is job-based and skills-based.

The SIS New Wage System (NWS) has many benefits.  Fundamentally, it is fair: It rewards according to job value and worker skills, and not by age and seniority.  It is also fair because workers are paid in relation to the company’s performance, i.e., if the company does well, workers get more.

Because NWS is skills-based, it is also “age-neutral”.  There is no arbitrary timeline for retirement.  Workers can work for longer, as long as their skills are intact.  Also, it is flexible: NWS gives the company mobility, to make timely changes as the market changes.

NWS has three components.  Firstly, the Grade defines the job value of the worker.  Secondly, the Sub-Grade defines the applied ability of the worker within a Grade, further defining the salary.  Thirdly, the Variable Bonus is based on both company and individual performance.  The worker’s performance, in line with the company’s goals, determines the worker’s variable bonus.  All of these can be varied together, in accordance with the company’s performance.  So far, the economy has been strong and the company has been profitable, and thus, the workers have been duly rewarded.

The clarity of the new system, with the company Key Performance Indicators and individual goal setting, means that workers know what to do to earn more, and are thus, better motivated.

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2) Singapore Cruise Centre and Singapore Industrial & Services Employees’ Union

Background

Singapore Cruise Centre Pte Ltd (SCC), with support from the Singapore Industrial & Services Employees Union, restructured its wage structure to one that is performance driven.  SCC has undertaken wage restructuring way before the Tripartite Taskforce on Wage Restructuring made its recommendation.  They have embarked on wage reforms because the management saw it as necessary for their long term well being.

The SARs outbreak made the company realised that there was too much rigidity in their wage system.  The company felt the need to make their wage structure more flexible.  But apart from flexibility, the two other compelling reasons for wage reforms were that of equity and to have a performance-driven reward system.  The company started laying the foundation for wage restructuring by engaging a consultant to do a job valuation exercise, and appointed an internal taskforce to redesign the Performance Appraisal System.

The New Wage Structure

The new wage structure is more equitable in that the salary ranges are based on the job size that the employees are performing and not based on the scheme of service that they were recruited under or their educational qualifications.  Previously, they have employees on different salary ranges although they were performing the same role in the company.  The company has changed that to put them on the same salary range to reflect their job value.

The company has also rationalised the min – max ratio for all the salary ranges to 1.5.  In the past, some grades have very high min-max ratio of 1.93.  The company has restructured the gross monthly salary for all employees into two components comprising of Monthly Salary at 90% and Monthly Variable Component (MVC) at 10%.

On an annual salary package, the company has a flexible wage system comprising of 70% fixed pay and 30% variable component for the support staff, and about 67%  fixed pay and 33% variable pay for the managers.

The company also put in place a performance driven reward structure.  Annual salary increment for the support staff is not fixed and pre-determined as was the case previously, but is variable and dependent very much on the individual’s performance.  Bonus is also dependent on the individual and the company’s performance.  The EVA (Economic Value Added) target is being set yearly, which is then used to determine the bonus payout.  If the company exceeds its EVA target the staff will get an additional bonus payout in proportion to the EVA that has been exceeded, vice versa.

They have also changed the Performance Appraisal System to make it fairer and more transparent as they are now giving more weight to performance in determining bonus and annual increment.

Positive Effects of Wage Reforms

The wage reforms implemented on 1 Jan 2004 have brought about positive changes.  There is higher productivity with staff taking on additional duties and going out of their way in caring for the customers.  About two years ago, they had a case of an Australian tourist who left his air ticket and passport at the SCCPL terminal.  He was just half an hour away from his flight.  One of the staff immediately contacted Changi Airport, took his motorcycle and sped all the way to deliver the air ticket.  If it had not been for this staff, the Australia tourist would surely have missed his flight.

In Jul 2005, they had another case of an elderly New Zealand couple who left their luggage at the Bintan ferry terminal when they returned to Singapore.  The staff immediately arranged for their luggage to be retrieved and delivered to Singapore and worked with SIA to get them on a later flight.  The company subsequently received an unsolicited letter of appreciation from this couple which read:  “Still, after a few weeks, we have a very good feeling about these people and we have never experienced in our life such a good service (We are both over 80 years).” 

Just recently in Feb 2007, a tourist from Hong Kong left his mobile phone at the SCCPL terminal.  He had only 20 minutes to board his flight.  Again, the SCCPL staff tracked down the mobile phone and sends it to him at Changi Airport.  The gentleman was so touched that he wrote an e-mail which read: “Since this was my first time in Singapore, it left a very positive impression about the professionalism and trustworthiness of its people.”

Re-employment of Older Workers

The wages reflected the job value and the older workers are not more expensive than their younger colleagues.  SCC has re-hired two staff above 62.  Currently, they have  36  staff who are aged 50 and above.  This is more than 40% of their workforce.  Majority of these workers are the operation officers.

Workers from Singapore Cruise Centre Pte Ltd

Samsiah is a procurement officer (in her 50s) and Albert (in his 40s) is an operation manager.  Both Albert and Samsiah agreed that the implementation of a flexi wage system by the SCCPL has benefited employees of all levels.  Under the old wage system, the employees' increment and bonuses are fixed, and the top 10% of the employees could receive only one month's bonus more than the rest of the employees.  Whereas, under the new wage system, employees who perform better could receive as high as four months bonus on top of the AWS.
 
Both Samsiah and Albert noted that the new wage system has brought positive changes in the employees' mindset.  The staff is more participative and active, as they know that their increment and bonuses are determined by the outcome of the company's performance and their individual performance.

Janet (in her 60s) felt that a wage system that is not seniority-based makes it easier for SCC to re-employ her upon her retirement.  She added that the new wage system is more performance-based. It rewards workers based on their value and contributions to the company and this is more important.

Samsiah's Experience

She was under a uniform group, and had reached a maximum salary.  In 2003, she was transferred to SCCPL.  Her salary was put under personal to holder basis (salary remains status quo).  With the flexible wage system and variable bonus scheme in place, her bonus is no longer fixed.  This has boosted her morale to work harder and she is now more conscious of her performance as well as the company's business in general.  She is now more involved and would like to see the company grow.  For example as a procurement officer, she is very cost conscious of items to be purchased but of course, not to compromise on the quality.  She also noted that everyone in the company would push and would do their best.
 
Albert's Experience
 
Before he was transferred to SCCPL, he has only one increment ($95) to reach the maximum of the salary range, and thereafter, he could not expect any more increment.  The new wage system in SCCPL has given him the opportunity to earn more.  He can now expect better bonuses and increments.  He also noticed that employees work doubly hard and feel encouraged to do well.
 
Albert highlighted that the SARS period has tested the usefulness of the company's flexible wage system.  There was a wage freeze, but most importantly, jobs were preserved.  Nobody lost his /her job.

Albert reckoned that the flexible wage system is the way to go and as for the employees, there is every reason to accept this wage system.  "Why stick to one month's bonus if you can get 3 to 4 months?", says Albert.

Janet Tan’s experience

Miss Janet Tan is a Senior Administrative Officer and Secretary.  She arranges appointments, does administrative work and ensures that everything scheduled goes smoothly.  After retiring in Oct 2004 at 62, Miss Tan was offered a yearly renewable contract with SCC.  She is willing to work as long as the company employs her.  Working, she says, helps her to keep in touch with technology, her colleagues and friends and also keeps dementia at bay, she adds jokingly.  Even though her company’s medical benefits have been reduced from $500 to $200 a year on account of her age, Miss Tan takes it all in her stride.  Miss Tan’s vast experience is a plus to the company.

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3) SembWaste Pte Ltd and Building Construction And Timber Industries Employees’ Union

Background

SembWaste Pte Ltd (SembWaste), with support from the Building Construction and Timber Industries Employees’ Union, has revamped its wage structure.

SembWaste formerly known as Semac Pte Ltd was established on 1 April 1996.  Its core business includes waste collection in the municipal, industrial and commercial sectors and waste recycling.  The company has 60% of its workforce employed as drivers and crew members.  The majority have been with the company since the acquisition of Semac.

The company recognises the hard work and contributions that the staff have put in over the years and has since reviewed its wage structure to better attract and retain older workers who bring substantial experience and employment stability to the company.

Features of Flexi Wage System

Annual increment is based on work performance instead of seniority.  The system allows this to be achieved through having various job grades for each vocation, thereby allowing for skills upgrading and promotion through the grades.  At the same time, this allows the ratio between the minimum and maximum salary ranges to be kept at a maximum of 1.5 so as to ensure employability of older workers at competitive salary level.  Compensation is based on job scope, functions and performance.  Bonuses paid are also based on individual and company performance as well.

Re-employment of Older Workers

The company has put in place an annual health check for mature workers employed on a rolling year basis after their retirement age.  This allows the workers concerned to be certified medically fit to continue employment in their existing roles.

The company also adopts a policy to allow employees to be reassigned to suit the changing environment and needs.  Reassigned employees may move to a different salary and benefit structure to enable continued employment.

The new wage model is flexible and allows continued employment of older workers with appropriate salary at a competitive level.  This change has benefited driver, Mr Ong Hock, 62 years old who has been re-employed by the company after retirement.

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4) Keppel Shipyard Limited, Keppel Employees Union and Shipbuilding and Marine Engineering Employees’ Union

In 2006, Keppel Shipyard announced that it was giving their employees, inclusive of 30 re-hired workers above the age of 62, and 522 workers above the age of 50 a 7.2- month bonus.  This bonus is calculated in accordance with the wage system that Keppel Shipyard implemented in consultation with its unions, the Keppel Employees Union and Shipbuilding and Marine Engineering Employees’ Union.

Keppel Shipyard has a flexible wage structure in place for many years.  Salary increments are granted based on the employee’s performance (graded through a performance appraisal exercise).  The average annual increment quantum is determined in consultation with the unions.  For employees who had reached the ceiling of their salary scales, they would receive only a non-cumulative monthly lump-sum payment.

There is also a bonus paid to all employees which comprises two parts: the Annual Wage Supplement (AWS) of one month’s basic salary and the Productivity Bonus which is pegged to the Company’s business performance.  The Company rewards its employees through larger productivity bonuses when it does well.  There is also an established formula to peg the total productivity bonus to be paid.

The company has also implemented MVC since year 2000.

The unions support the flexible wage structure as it helps to motivate the workers to achieve more so as to be rewarded better.  The flexible wage structure is also responsive to the ups and downs of the business cycle.

Workers from Keppel Offshore and Marine

Mr Seng Seow Song’s experience

Mr Seng Seow Song, aged 64, works as a Senior Boiler Maker in the Machinery Department.  He has been working with the company for nearly 30 years. Seng is generally satisfied with what he is getting from the company in terms of remuneration and his job duties.

Seng used to be a storekeeper in his department but was later assigned to work onboard.  He was glad that his manager has trusted his ability to work onboard despite his age.  According to Seng, working onboard is definitely more challenging.  He said that climbing up and down the gangway of vessels poses no problem for him.

Seng is happy to be given the chance to be re-engaged.  According to him, this is better than sitting at home and not doing anything.  He thinks that having the chance to be re-engaged, he can maintain a regular source of income.

Seng continues to maintain a cordial relationship with his colleagues at work after his re-engagement.  He also finds himself having a good experience imparting his skills and knowledge to his juniors in the department.  He is happy that he is able to share his knowledge with them.  He derives a great sense of satisfaction from the sharing.
 
Having been re-engaged for 3 years running, Seng wants to work for as long as the company wants him.  He feels for everything around him in the yard and it would definitely be a sad thing to leave the company when the day comes.  Nevertheless, he is taking that in stride at this moment.

Mr Teow Tay Hock’s experience

Mr Teow Tay Hock, aged 63, works as a Foreman in the plant and maintenance department.  He has been with the company for nearly 33 years.  Teow has worked his way up from rank and file.  He joined the company in 1974 as an electrician and worked his way up to the level of a foreman, it had been a long and enriching 32 years for him in the company.  He is glad to be given the chance to be re-engaged last year.

Teow is contented with his current duties.  He shared that due to his experience in the company, he was assigned to take on more responsibilities after his re-engagement.  His main duties include electrical installation and repairs and supervision of workers and ensuring that the work assigned is completed on time and accurately.  Though his duties have increased, Teow believes that he can still undertake these tasks without much difficulty.

Similar to Seng, Teow also maintains a good working relationship with his fellow colleagues after his re-engagement.

Teow mentioned that he is motivated to work in a company that he has stayed for so many years.  He wishes to stay for as long as he can and contribute to the best of his ability.

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