Managing Excess Manpower
Find out how your company can manage excess manpower appropriately so that your workers' interests would not be compromised.

Flexible Wage System
In 1987, the Wage Reform Committee introduced a flexible wage system that enables companies to reward employees and to adjust wage costs in line with business performance. It also recommended that the annual variable component should constitute 20% of the total wages. By 1998, the annual variable component had built up to 16% of total wages in the private sector.

The economic recession in 1998 has shown that while our wage system is flexible in allowing companies to link performance to rewards, it is not flexible enough to enable companies to make quick adjustments to their wage costs in response to a sudden and severe business downturn. To provide the necessary flexibility in our wage structure, the National Wages Council has since 1999, recommended that a Monthly Variable Component [MVC] be introduced. The MVC, to be progressively built up from wage increases, could form about 10% of the total wages. The percentage of the wage increase to be set aside as MVC would be determined by employers in consultation with unions. Over time, the flexible wage structure could be evolved into a wage structure of 70:10:20 representing basic wage, monthly variable and annual variable components respectively.

Subject to mutual agreement between you and the employees/union, the MVC can be cut in the event of a sudden and sharp business downturn. With MVC, there may not be a need to resort to a cut in the employer's CPF contributions as a measure to remain cost competitive.

How can my company use the flexible wage system to reduce manpower costs and avoid retrenchment?
If your company has a flexible wage system in place and a reduction in manpower costs is required to avoid retrenchment, you may consider adjusting the various wage components with the consent of the trade union or employees concerned. The various wage components include:

	Variable Bonus Payment This is the first component to be cut during a business downturn as payment is directly linked to the company's performance. The continuation of such a payment will depend on the profitability of the company. Hence, when a company is not performing well, bonus payment may be reduced or not be given.
	Monthly Variable Component Depending on economic and company performance and timing, there may be situations where it is more timely and appropriate for this component to be cut first.
	Annual Wage Supplement If business conditions continue to worsen, another component to be considered for reduction is the AWS, which varies from 1 to 3 months.
	Annual Wage Increment If the need arises, the company may also consider reducing or delaying the annual increment. The extent of reduction or length of the delay would depend on the company's business and financial position.
	Basic Wage In extreme situations where companies need to further reduce their wage costs to remain viable, a wage freeze without any annual increment or even a wage cut may be considered.

Even if your company does not have a flexible wage system, you may consider adjusting the relevant wage components that are applicable to your company to avoid retrenchment, e.g. a temporary wage freeze or wage cut, especially if you are expecting business to pick up in the near future. The adjustment of these measures is subject to the consent of the employees concerned.

For more information on the various alternatives to retrenchment, please do not hesitate to contact any of the following agencies:

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