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National Wages Council recommends lower MVC or 10% of basic pay, if cuts needed

IF wages must be cut, the National Wages Council (NWC) is recommending that the Monthly Variable Component (MVC) be adjusted downwards, the extent of which hinges on the company's situation and any key performance indicators or guidelines agreed with unions.

For firms with no MVC, such as many of the small and medium-sized enterprises, the NWC suggests an equivalent cut of up to 10 per cent in the basic pay.

"In the case of management, depending on the circumstances and requirements of the company, the MVC set aside could be more than 10 per cent of basic wages, in line with the principle of leadership by example," the NWC said on Monday.

When considering a pay cut, employers should take into account their workers might have already been receiving less or no income from overtime work, commissions or no-pay leave, it added.

It said that before trimming wage cost, the first cut in costs should be made in non-wage areas. Firms should also tap government support schemes to offset business and wage costs, and press on with business and workforce transformation.

"Where wage reductions are necessary, employers should adopt a graduated approach, with deeper reductions at the management level and for higher-wage employees to effect the desired extent of reduction in total wage cost."

Low-wage workers earning a basic monthly wage of up to S$1,400 should be treated differently, according to the NWC. It recommends a freeze in their wages instead, if a wage reduction is necessary. The council also said: "If employers are implementing a policy of wage freeze or reduction, then, with respect to such workers, ... consider a built-in wage increase of up to S$50 instead."

If employers can afford it, the NWC said "they should provide special consideration to workers who have stepped up to assist the business during this challenging period". This could be an ex gratia payment, depending on business performance.

The NWC added that firms which have done or are still doing well despite Covid-19 should continue to reward workers with variable payments in line with the firm's performance and workers' contributions. "If their business prospects are uncertain, they may exercise moderation in built-in wage increases."

As far as possible, companies should make an effort to pay the Annual Wage Supplement to "retain and inspire loyalty" among their workers and be "well positioned for the recovery", the council said.

Retrenchment of workers should be considered only as a last resort and ought to be done in a responsible way, the NWC said, adding that companies should think of measures to utilise and manage excess manpower.

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