Cut pay only if needed to minimise retrenchments: NWC

Singapore

WITH the overriding goal of saving jobs and helping businesses to emerge stronger from the current crisis, the National Wages Council (NWC) has given the green light and set out six principles in its supplementary guidelines for temporary wage cuts.

The cuts are to be made to minimise retrenchments - and only after all non-wage saving measures and government support are exhausted, according to the wage guidelines which apply to the period from Nov 1, 2020 to June 30, 2021.

At the same time, while the consensus among NWC's 22 tripartite members (including the chairman) have rejected the call for cuts in employers' contributions to the Central Provident Fund (CPF), the guidelines issued on Friday noted an urgent need for businesses that have not implemented the flexible wage system (FWS) to do so.

A FWS enables wages to go up and down with the business cycle which protects jobs and help business to recover quickly from a downturn, the NWC said. It can be a "shock absorber" in times of crisis, according to council member and Singapore National Employers Federation (SNEF) president Robert Yap at a press conference.

But even though the FWS was introduced in 1986 after the 1985 recession, only 29.3 per cent of employees have a monthly variable component (MVC) and an annual variable component (AVC) built into their wages as of last year, the council pointed out.

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The latest NWC guidelines, which have been accepted by the government, are the second issued this year in response to the economy sinking deeper into recession and the threat of more job losses. The first set, released in March, had urged non-wage costs to be cut first and retrenchment to be exercised only as a last resort.

The updated guidelines continue to make a special plea for low-wage workers, calling on businesses to spare these workers from pay cuts. Specifically for those earning a basic monthly wage of up to S$1,400, it recommended a pay freeze instead of a reduction. For low-wage workers making above S$1,400, the council said that any pay cuts should be "reasonable" - and cuts which reduced basic wages to below S$1,400 ought to be avoided.

The NWC has not recommended a quantum for the pay cuts in the latest guidelines, because the impact of the Covid-19 crisis across sectors and firms are uneven.

Similarly, while the NWC has considered a cut in CPF contributions by employers, it dropped the idea because the cut would be a blunt move that ignores the varying circumstances of individual firms and workers - not to mention its negative impact on retirement adequacy and uneven effect on local employees.

Any cuts in wages to save jobs should get the support of workers and depend on the sector and the firm's performance and outlook, said the new guidelines. The reductions could only be made to the extent needed to minimise retrenchments.

The guidelines also said the burden of wage cuts must not fall excessively on any one group.

"Management should lead by example and employers should consider varying wage cuts to take into account the ability to cope with such cuts at different tiers, while keeping the extent of cuts bearable for all employees," the NWC said.

These temporary cuts are to be restored when business conditions allow.

NWC chairman Peter Seah, who is also chairman of DBS Bank, said the negotiations for the supplementary guidelines were more intense and lasted longer than for the first guidelines as the issues were very complex. "There was a lot of give and take and, very importantly, a lot of trust among the tripartite partners to come up with solutions that are best not only for companies but also employees," he added.

National Trades Union Congress (NTUC) president Mary Liew, also a council member, said the labour movement saw the need to support "more drastic, immediate measures" because of the need to minimise retrenchments.

Indicating that the priority is to minimise retrenchments, permanent secretary for the Ministry of Manpower Aubeck Kam, another council member, said the government supports the recommendation for temporary wage cuts to achieve it - and he urged businesses to stick to the six principles in the guidelines. They include the use of the monthly variable and annual variable components to adjust wages; businesses can only cut basic pay if it is really necessary to avoid retrenchments.

Employers with no FWS can also cut wages to the extent needed to minimise layoffs and keep the business going, but should embrace the FWS immediately by treating any cuts as adjustments to a new variable component, in line with its principles.

For employers who already pay an AWS (annual wage supplement), this can be considered as part of the AVC. If the AWS is regarded as deferred basic wages - that is, it's not variable - businesses must build up the AVC separately. Those who have been paying the AWS should try to continue to do so, to help staff with their seasonal expenses as well as low-wage workers who have too little to no discretionary savings, according to the guidelines.