Progress in Wage Restructuring in 2006 Driven by Gains in SMEs

Driven by gains in SMEs and non-unionised establishments, wage restructuring made further progress in 2006. 90% of the workforce in large establishments and 73% in small and medium enterprises (SMEs) were under some form of flexible wage system  as at Dec 2006. SMEs (employing 25-199 employees) had registered a notable improvement from 68% a year ago and the low of 63% in June 2004. Overall, 83% of the workforce in the private sector  was employed in establishments that have implemented at least one key wage recommendation of the Tripartite Taskforce on Wage Restructuring.

Key Findings

2.    Good progress has been made on wage restructuring since its introduction in January 2004.  Then, the Tripartite Taskforce had made three recommendations to restructure our wage systems:

1. Implement variable bonus linked to Key Performance Indicators (KPIs);
2. Introduce the Monthly Variable Component (MVC) in wage structure;
3. Narrow the maximum-minimum salary ratio for the majority of their employees to an average of 1.5 or less.

3.    As at December 2006, 83% of the workforce in the private sector was under some form of flexible wage system, up from 81% a year ago and 76% in June 2004 when the data was first collected. Large establishments (employing 200 or more employees) continued to lead in the implementation, with 90% of their workforce having at least one key wage recommendation in their wage system.  Although the share was lower at 73% in SMEs (employing 25-199 employees), it is a notable improvement from 68% a year ago and the low of 63% in June 2004. This follows concerted efforts by the Ministry, tripartite partners and industry associations to help SMEs implement a flexible wage system.  Customised seminars and workshops were organised for SMEs. Handbooks on wage restructuring in English and Chinese were also produced and distributed.

4.    Non-unionised establishments also made progress. A larger share of their employees now has at least one key recommendation implemented in their wage structure (76% in December 2006 as against 73% in December 2005 and 66% in June 2004).  Nevertheless, they still lag the unionised sector, where nearly all (97%) the workforce was under some form of flexible wage system.

5.    Nearly half (46%) of the private sector workforce were in establishments that had implemented at least two wage recommendations in 2006, comparable to 47% in 2005.  Unchanged from a year ago, one in five workers in the private sector (21%) had a fully flexible wage system comprising all three key wage recommendations.  On the other hand, the share of workforce with one recommendation rose from 34% to 37%.  

6.    More commonly-adopted were the recommendations to have a narrow maximum-minimum salary ratio, and to link variable bonus to KPIs. Narrowing of the maximum-minimum ratio is a key factor in moderating high wages for older workers.  The proportion of workforce employed in establishments with MVC in their wage structure was however still low at 37%.   

7.    These are some of the findings from the “Wage Restructuring Outcome (as at December 2006)” report by the Ministry of Manpower's Research and Statistics Department. The report is available on the MOM website.