COVID-19: How to implement a 'fair' employee pay cut

Singapore’s National Wages Council reminds leaders to 'lead by example' during this turbulent time

COVID-19: How to implement a 'fair' employee pay cut

Singapore’s National Wages Council (NWC) heavily weighted the impact of COVID-19 for this year’s annual wage guidelines.

As company-wide pay cuts may be an unavoidable cost-cutting measure, NWC urged employers to first ensure that management ‘leads by example’, before cutting employees’ salaries.

To facilitate wage negotiation, employers should share relevant information, such as company wage information, business performance and prospects, with unions.

Additionally, the council reiterated the government’s advice to keep retrenchment as a last resort.

“In the good times, we share the gains,” said Manpower Minister Josephine Teo. “In times of crisis, we share the pain - each making mutual sacrifices to sustain businesses and save jobs.”

READ MORE: MOM updates retrenchment guidelines amid COVID-19

To sustain businesses and save jobs, employers should consider the following – in order of priority:

  1. First, reduce non-wage costs, and consider various measures to utilise and manage excess manpower.
  2. Second, tap on government support to offset business and wage costs, and press on with business and workforce transformation.
  3. Third, trim wage costs.
  4. Fourth, if it is necessary to retrench workers as a last resort, ensure it is done in a responsible manner.

Implement a ‘fairer’ pay cut
Despite best efforts, NWC acknowledged that employers may still find it necessary to cute wages in order to save jobs.

To ensure fair wage practices, the council offered the following guidelines:

  • Management should lead by example before giving staff a pay cut

As pay cuts, especially those over an extended period, will affect employees’ livelihoods, employers should seek the consent of unions and engage employees before implementing such measures.

  • Consider all aspects of pay packages

When deciding on a fair pay cut, employers should take into account other factors of their regular packages like commission and overtime pay.

  • Consider a ‘flexible wage’ system

Tap on the monthly variable component (MVC) to adjust wages immediately depending on business performance. If you haven’t included the MVC in employees’ basic pay, consider treating any cuts of up to 10% as an MVC cut.

Employers should be clear about returning the amount cut during the recession through future pay rises or when the business recovers. Similarly, the MVC system needs to be discussed with existing employee unions.

  • Aim to pay the 13th month bonus or AWS

As far as possible, employers should aim to offer employees the annual wage supplement at the end of the year. This may support retention efforts and inspire loyalty through a difficult period, helping the business recover further.

  • Apply all pay cuts fairly

Local and foreign employees should receive the same treatment.

  • Soften impact on low-wage workers

Any wage adjustments may hit low-wage employees harder. Therefore the NWC strongly urged employers to give ‘special consideration’ to them – especially if they’re frontline workers.

One way to soften the blow is to use a ‘graduated’ approach: implement deeper cuts for leaders and higher-wage staff first to save on total wage costs.

READ MORE: HR's "winning strategy" for cost-cutting drama

NWC recognised that some employers may still be thriving despite the general economic situation. They suggested that these employers should continue to reward employees with bonuses commensurate with the company’s performance and the employees’ performance.

The annual wage guidelines should apply to all employees – PMETs and rank-and-file employees, in unionised and non-unionised firms, in both the public and private sectors. They should also apply to re-employed employees, reminded NWC.

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