Wage Transformation Through Productivity-Linked Wage System (PLWS)

1. Wage Transformation ThroughProductivity-Linked Wage System(PLWS) Sugumar Saminathan Manager, Malaysia Productivity CorporationTel: +603-79557266 ext 544,DL: +603-79562566, Mobile:+6019-6354078 E-mail:sugumar@mpc.gov.myWebsite:http//www.mpc.gov.my Ministry of International Trade and Industry (MITI)

4. BUSINESSMAN: “Productivity is reducing cost and increase profits.” WORKFORCE: “Productivity means getting higher wages, benefits and better working conditions and environment.” CONSUMER: “Productivity bring good quality products and services at cheaper prices and higher living standards.” I P T R I O V D I U T C

9. WHAT IS PRODUCTIVITY? 5 WAYS OF IMPROVING PRODUCTIVITY? Productivity is a measure of efficiency in the use of inputs or resources in relation to its outputs O I Productivity = Output Reduce Cost O Input I Output : Goods & Services Input : Resources Used Manage Growth O I Input ● Employees, ● Total man-hours worked ● Labour cost, ● Capital/Fixed assets, ● Energy, ● Material, ● Services Output ●Gross Domestic Product (GDP), ● Total Output, ● Added Value, ● Monetary Value of Production, ● Quantity of physical unit produced O Work Smarter I O Pare Down I Work Effectively

10. PRODUCTIVITY IS VALUE CREATION Create/Add Value Product Innovation IS YOUR COMPANY CREATING VALUE? i-COMPASS i-COMPASS is a self learning application tool that help companies to compute the wealth company created by its own and employees efforts

11. WORK SMART = HIGHER PRODUCTIVITY People Plant & Equipment Work environment Improved Change Mindset

12. CONTENTS LABOUR COMPETITIVENESS

13. LABOUR PRODUCTIVITY • ADDED VALUE PER EMPLOYEE • Indicates the added value genarated by an employee. • A high value indicates high productivity of an employee • TOTAL SALES PER EMPLOYEE • Indicates the total sales genarated by an employee. • A high value indicates high productivity of an employee • TOTAL OUTPUT PER EMPLOYEESS • Indicates the total sales genarated by an employee. • A high value indicates high productivity of an employee • TOTAL OUTPUT PER MAN HOURS • Indicates the total output genarated by an employee per hour. • A high value indicates high productivity of an employee

14. LABOUR COMPETITIVENESS • ADDED VALUE PER LABOUR COSTEE • Indicates how competitive the company is in terms of Labour • Cost. A low ratio indicates high Labour Cost • LABOUR COST PER EMPLOYEE • Indicatesthe average remuneration per employee • A high value means high returns to individual workers and • vice-versa. • UNIT LABOUR COST • Show the proportion of Labour Cost to Total Output • A high ratio indicates high Labour Cost • TOTAL OUTPUT PER LABOUR COST • Indicates how competitive the company is in terms of Labour • Cost. A low ratio indicates high Labour Cost

15. PRODUCTIVITY AND QUALITY ENHNACEMENT PROGRAMME CONTENTS

18. Lean Management System Lean Manufacturing • Transformation • Creativity • Innovation • Wastages • Matlamat Organisasi • VSM • Poke-Yoke • TPM • Kanban • 5S • SMED Type of Lean Lean Service Lean Government Continues Implementation & Impact

19. ‘Famous’ 7+1 types of wastages

20. Baking & sharing a bigger economic cake PRODUCTIVITY : WEALTH CREATION AND SHARING PRODUCTIVITY -LINKED WAGE SYSTEM

21. Why Do We Need To Restructure Our Wages? • A flexible and competitive wage system will enable companies to make quick adjustment to wages that will ensure job stability and reduces the likelihood of retrenchment in the event of an economic slowdown.

22. What Is Wage Restructuring • Wage restructuring is about making wages more • flexible and competitive. • In good times, employees can look forward for • bigger bonuses and better incentives when both • company and employees performance well. • In bad times, employees will have greater job • security as company can make quick adjustment • on wages to avoid retrenchment.

23. For flexible and competitive wage system that ensure job stability and reduces retrenchment in the event of an economic slowdown. “PLWS The Way Forward” 23 Transformation, Innovation & Partnership

24. When Do Company Implement PLWS? • PLWS should be implement when the company • want to enhance its competitiveness and improve • productivity. • The company want to reward good employees and motivate average employees. • The company want create harmonious labour relation and create win-win situation. 24 Transformation, Innovation & Partnership

25. Productivity-Linked Wage System

26. PRODUCTIVITY- LINKED WAGE SYSTEM (PLWS)

27. Malaysia’s Policies on Linking Wages To Productivity

28. PHASES IN IMPLEMENTING PLWS PHASE 1 Creating Conducive Environment PHASE 2 Establishing PLWS System PHASE 3 Implementing PLWS System MPC PLWS MODEL Start 8. Establishing PLWS on a trial basis 1. Create awareness on PLWS among management team 5. Briefing Session with Company’s Workers 9. Review and make the necessary adjustments 2. Measure company’s performance 6. Obtain feedback from employees and management 10. Implement PLWS at the firm level 3. Develop PLWS Committee 7. Linking Incentives with Improvement 11. Plan (continuous Improvement) 4. Developing Corporate, Division & Unit KPI

29. COMPONENTS OF PLWS FIXED COMPONENTS VARIABLE COMPONENTS BASIC WAGE Wage increase for the year based on:- There must always be the fixed and the variable component in the PLWS ANNUAL INCREAMENT Productivity, or Profit sharing formula 29

30. PLWS Model 1: Profitability Model #1 • Payment of bonus according to profit levels based on monthly basic pay.

31. PLWS Model 1: Profitability Model #2 • Bonus payments paid in quantum (RM)

32. PLWS Model 2: Productivity Model #1 • Bonus paid out at the end of the financial year based on saleable output.

33. PLWS Model 2: Productivity Model #2 • Incentives given based on the productivity targets achieved (Individual).

34. PLWS Model 2: Productivity Model • If team of 5 employees able to achieves all 5 criteria  RM100/ team member • If team achieves only 2 criteria  No incentives #3 • Incentive given base on identified monthly productivity indicators and linked to the team incentives (Team).

35. PLWS Model 3: Combine Model #1 • Payment of bonus according to 2 criteria – Company Performance and Employee Performance Rating

36. PLWS AND ITS IMPACT 36 Transformation • Innovation • Partnership

37. INDUSTRIAL RELATIONS (AMENDMENT) ACT 2007 37 Transformation • Innovation • Partnership

38. Section 13: Collective Bargaining (2A) A proposal for a collective agreement may provide for one or more of the following: (a) provision for training to enhance skills and knowledge of the workmen; (b)provision for an annual review of the wage system; and (c)provision for a performance-based remuneration system. 38 Transformation • Innovation • Partnership

39. PLWS in Collective Agreement

40. DISTRIBUTION OF COLLECTIVE AGREEMENT (CA) WITH PLWS BY SECTORS –2010- 2012

41. ELEMENTS OF PLWS IN CA BY SECTORS, 2012

42. PLWS Examples.

43. Example 1: Incentive Based on Performance and Productivity Wage System Fixed Components Variable Components Basic Pay Wage Min. Annual Increment Profitability Productivity Incentives Combined

44. Variable Components Profitability Incentive– the profitability incentives will be pay when the profits fall within a predetermined range as shown in Diagram : Profit Sharing Profitability Profit sharing formula to determine “money in the pot”. The wage incentive will only be given if the profit falls within a predetermined range Total Bonus = Profit After Tax Monthly Payroll Cost

45. Example of profitability Incentives The bonus will be paid when the company makes certain amount of profit that falls within a predetermined range. Table : Profitability Incentives

46. Productivity Incentives The incentives will based on team and individual performance against predetermine productivity measurement. Diagram: Productivity Incentives Productivity Based on team and individual performance against predetermined productivity measurement • Total output • Quality output • Wastages • Customer Satisfaction • Individual Performance

47. Matrix incentives Matrix incentiveswill be given based on the profitability and average performance of division, department and individual as shown below.

48. If the company performance are as follows: Division Performance is 85% Department Performance is 90% Individual Performance is 85% Average Performance of an employee is 86.7% Based on the calculation above the respective employee will received 2 months bonus if the company makes RM 13 million profits .The incentives taking into consideration the overall employees performance. In order to received higher quantum of bonus each employees should contribute to the division and department performance as well as their own performance.

49. There are two components in this model, the fixed and variable components. • The Fixed Component comprises: • Basic Wage • The basic wage comprises the monthly wage which is based on a salary scale with a minimum and maximum range for each category of employee. • Annual Increment • The annual increment is linked to the basic wage and will vary within the scale of pay assigned to the position. 49

50. Example 2. Profit Sharing and Team Incentive • There are two types of incentives which are linked to productivity/performance: • Bonus Based on Profit and Individual Performance • Team Incentive • Bonus Based on Profit and Individual Performance • The profit used in this model is Profit Before Tax which will be distributed to employees based on profit level and performance. The higher the firm’s profitability, the larger will be the amount available for sharing. • Table below shows an example the matrix system of bonus payment. Based on this matrix, the amount of bonus payment received by an employee will depend on the profitability of the firm and employee performance. 50