Wednesday, May 21, 2008

NWC calls for one-off payment to help workers cope with inflation, sustainable wage hikes

The National Wages Council (NWC), chaired by Professor Lim Pin
Weekend • May 17, 2008

IT was something unionists had been quietly hoping for. Even so, Ms Diana Chia was surprised when the National Wages Council (NWC) called for a one-off bonus from employers on Friday to help workers cope with high inflation.

"We did not know if it was going to happen," said the general secretary of the Healthcare Services Employees' Union.

In what has been called an "innovative" measure unprecedented in recent times — a response to inflation that has hit a 26-year high — the council urged companies to consider giving a "one-off special lump sum payment" to its rank-and-file workers, "with a heavier weightage for low-wage workers".

What some pundits are already terming the "inflation bonus" should take into account the company's ability to pay and the Government's recent $3 billion in assistance measures for Singaporeans, said the NWC. At the same time, the council repeated its call, which has become a familiar refrain in recent years, to keep wage hikes sustainable.

Built-in increases ought to commensurate with performance and business outlook; companies should make greater use of variable payment to reward workers, taking into account the total wage increase, said council chairman Lim Pin.

And as before, companies that have done "exceptionally well" should consider a higher variable payment.

Economists call the special bonus an unusual one, born out of a unique confluence of economic factors. While the council has recommended one-off payments before — such as in 1998, 2004 and last year — these were more closely linked to economic and individual corporate performance.

"We have not seen such inflation in a very long time and it comes during a sharp slowdown in the United States, and record energy and food prices," said Ms Selena Ling, an economist with OCBC.

Calling it a "sensible compromise", economist Chua Hak Bin, chief Asian strategist with Deutsche Bank, said the special bonus means workers are rewarded justly given the higher costs of living, without "fanning the inflation fire with large permanent wage adjustments (which) could be self-defeating".

In coming up with its recommendations this year, the NWC said it had taken two special considerations, among others, into account: The global economic uncertainty and high inflation this year.

Even as it noted low-wage workers' worries about the cost of living, it was also mindful that simply pushing wages up would undermine competitiveness – a concern fed by falling productivity and rising unit labour costs (i.e. labour cost per unit of output).

While the Government has accepted the NWC guidelines for 2008/2009 -- which apply to all private and public sector employees – questions and challenges remain.

For one, it remains to be seen if employers embrace the one-time payout idea. While the Singapore National Employers Federation (SNEF) and the Singapore Business Federation believe it would be welcomed, economists are more sceptical.

"Frankly, I suspect not all employers will necessarily follow this recommendation because NWC guidelines are non-binding," said Kit Wei Zheng, Citigroup's chief economist.

In theory, these recommendations are sensible and good, he added, but the tight economic situation also begets the question if companies "have enough space" to implement them.

But NTUC assistant secretary general Halimah Yacob said, employers should not see this as a "Santa Claus gesture". In the past, workers had accepted CPF contribution cuts and flexible wages in lieu of high fixed-wage increments – so, she said, it was time for employers to "reciprocate" in these difficult times.

As to how much the payout could be, Mdm Halimah said it was best left for unions and employers to negotiate.

But estimates from economists and unionists indicate a range of figures. Mr Kit proposed a modest 5 per cent of annual wages "to offset the erosion of purchasing power caused by inflation".

Mr Fang Chin Poh, general secretary of the National Transport Workers' Union, said they would likely negotiate for 10 per cent of monthly salary for those earning $2,300 and below.

Dr Chua thought a 1.5-month to 2.5-month payout, on top of the usual annual bonus, to be "a fair quantum given the steep rise in living costs and tight labour markets".

And as wage negotiations begin, Mr Alexander Melchers, SNEF council member and secretary of the Singapore-German Chamber of Commerce, advises companies: "Sit down, think about what you are going to do, about the impact of inflation on your lower wage workers. Determine the amount that you can afford and be forthcoming."
See related article: NWC wants feedback on wage guidelines
Question
Analyse the challenges faced by firms and the government in deciding whether, and how much, to award to workers in the one-off "inflation bonus" suggested by the NWC.