Wage Reform

1
Chapter 10

• Wage Reform
• Wage Negotiation

2
Brief History of Wage System

• Early years
• After independence
• Economic growth

3
1985 Recession and Wage Reform

• Rigidity in the wage system
• - seniority-based
• - long time scale
• - high maximum
• - fixed annual increment
• Need for wage reform
• New role of NWC

4
Flexible Wage System

• Link salary with profitability
• Change with business conditions
• Motivate with reward for performance

5
Principles of FWS

• Reflect job value
• Increase
• - lag behind productivity growth
• - consider companys profitability
• - consider workers performance
• Stability in workers income

6
Features of FWS

• Basic wage
• - provide income stability
• AWS one month
• - adjustable
• Variable component
• - based on performance

7
Profit-sharing Model

• Basic wage
• Service increment
• AWS 1 month
• Variable performance bonus

8
Variable Productivity Payment Model

• Basic wage
• Service increment
• AWS 1 month
• Variable productivity payment

9
Problems Implementing FWS

• Wage increase exceeds productivity
• Wage exceeds job value
• Lack performance appraisal system
• Capping of bonus
• Difficulty productivity measurement
• Reluctance to share information

10
Wage NegotiationEconomic information

• A) General economic indicators
• B) Labour market indicators
• C) Wage-related indicators
• D) Company performance
• E) Wage-productivity link

11
A) General Economic Indicators

• GDP
• GNP per capita
• Consumer price index (CPI)
• Inflation rate

12
B) Labour Market Indicators

• Labour force
• Participation rate
• Unemployment rate
• Educational profile

13
C) Wage-related Indicators

• Annual earnings by industry
• Monthly wage by occupation
• Annual wage increase
• Productivity growth
• Wage increase by industry

14
D) Company Performance

• Current vs. past performance
• Compare with similar companies
• Companys prospects

15
E) Wage-productivity Link

• Measure of companys performance
• Individual workers performance
• Acceptable formula
• Access to information