Impact of National Wages Council 's 2020 Wage Cut Advisory on Salaries

12 Ms Foo Mee Har asked the Minister for Manpower what will be the impact of wage cuts in the next 12 months given the recent announcement by the National Wages Council that employers can consider temporarily cutting workers' basic pay if necessary to stave off retrenchments.

The Minister for Manpower (Mrs Josephine Teo): Mr Speaker, the National Wages Council or NWC issued its Supplementary Guidelines on 16 October 2020, encouraging employers and employees to work closely together to minimise retrenchments. The NWC expects wage adjustments in the next 12 months to vary across sectors and firms. Not every employer will need to cut wages to save jobs. Some have seen no reduction in demand and thus have no reason to make wage cuts. Others have already adjusted wage levels or non-wage costs, in line with the Guidelines issued in March.

The NWC also expects that employers will deliberate carefully whether to proceed with a wage cut. A key principle is for management to take the lead in taking wage cuts and to accept steeper cuts than what they ask of their workers. Employers will also be mindful that unwarranted wage cuts will make them less attractive to their workers and they will risk losing talent.

The NWC has also clearly marked out a roadmap for the eventual wage restoration. Employers are to quickly restore wage cuts accepted in good faith by employees when business conditions allow them to do so. In addition, the Supplementary Guidelines recommend that for workers earning below $1,400, employers should, if necessary to avoid retrenchment, freeze wages rather than cut wages.

Ms Foo Mee Har (West Coast): Mr Speaker, I thank the Minister for Manpower for her response. I appreciate that the companies are impacted in an uneven way during this COVID-19 pandemic. But the National Wages Council Guidelines for employers to implement temporary wage cuts to save jobs is actually too broad and left too much to the discretion of the businesses. There were a lot of concerns on the ground about the signalling effect of the Guidelines, which may result in more widespread pay cuts than necessary because there is this Guideline, and the potential abuse by some opportunistic firms. So, how do we ensure that companies implement wage cuts fairly and reasonably, and restore wages in tandem with business recovery in a timely manner?

I would like to encourage the Minister to consider putting in place a set of transparent indicators to guide wage adjustments, rather than leave it so broad and at the discretion of the businesses. For example, indicators for companies' efforts to reduce non-wage costs before wage adjustment, or company profitability, and market and economic indicators.

I have a second supplementary question to this. For lower wage workers who are impacted by the wage reduction, will the Government consider a Workfare special payment to cushion the pay cut in order to ensure that these families have a basic level of income to sustain their daily living?

Mrs Josephine Teo: Mr Speaker, I appreciate the Member's concerns that the NWC Guidelines could be too broad. At the same time, I think the NWC in its deliberations has also got to consider the flipside, which is that its Guidelines could be too prescriptive and too one-size-fits-all. So, I think between the two, both of which are equally difficult, they have to strike a balance.

To share with the Member, the NWC very carefully deliberated whether they should even go into, for example, sector-specific Guidelines. Meaning to prescribe a certain range of adjustments that could be applicable on a sectoral basis. And after intense deliberation, the NWC came to the conclusion that even sectoral Guidelines would be too one-size-fits-all. That is because within the same sectors, we have companies that have been impacted by the COVID-19 pandemic to different degrees. And so, the Guidelines on a sectoral basis could be too generous for some companies and too tight for some others.

I give you the example of the logistics sector. If the companies are, for example, serving the aviation and the aerospace or hospitality related industries, then, these logistics companies would be impacted to a larger degree. But if they are serving the e-commerce or some aspects of manufacturing, they could still be doing very well, for example, in healthcare and pharmaceutical.

The NWC ultimately decided that the most reasonable way of going about its Guidelines was to set out a certain set of principles. The principles that they clearly articulated were six: firstly, whichever company in whichever sector, should utilise the range of flexibility under the Flexible Wage System. The presence of the Flexible Wage System differs from company to company. Some companies have implemented the Annual Variable Component and on top of that, they also have the Monthly Variable Component. So, those are the components that should be used first. So, that is the first principle.

The second principle is that if an employer has not adopted a Flexible Wage System, then any adjustments that they make to wages should then constitute a new variable component in the employer's pay structure.

The third principle is for the management to take earlier and deeper wage cuts. I think this applies across the board and is well understood.

the fourth principle is that employers who already pay Annual Wage Supplement, should endeavour to continue to do so. That part is quite specific. The NWC was not vague about it at all.

The fifth principle is that in deciding on the reasonable level of wage cuts, employer should take into account a couple of factors. For example, the sector and the company's performance and outlook. It should take into account the level of Government support that it has already received or it is about to receive. It should take into account the cumulative effect of prior wage cuts and other cost-saving measures that have been implemented. It should take into account the impact on the employees' finances and also the employees continue to contribute full or longer working hours. In other words, this particular criterion already has quite a lot of dimensions.

The sixth principle that the NWC articulated is that these wage adjustments should be negotiated and agreed upon if there is a union in the company, and if there is no union, the employer should do so directly with the employees. In other words, to share information, to exchange an understanding of where the company is right now, in coming to an agreement to what the wage adjustments should be.

I think whilst I understand where the Member is coming from, if the NWC were to go beyond this, I suspect that we would say that it has become too prescriptive and not providing sufficient flexibility for different circumstances across firms and across sectors. So, it is a delicate balance and I know that it is not easy for them to strike. Given that all the tripartite partners were involved in this discussion, they came out with a set of Guidelines that I think were reasonable and something that on the part of the union, they also felt that they could operate on this basis.

The Member's second question with regard to Workfare special payment, I appreciate her concern for our lower wage workers. It has been our intention wherever necessary to provide additional top-ups to help these workers tide over this period of difficulty. This year, there was a Workfare Special Payment made, both tranches have already been paid out. In the considerations for next year's Budget, I am very certain that the Ministries of Finance and Manpower will work very closely together to see how best to support our lower-wage workers.