Dec 16, 2008

The Possibility of the Impossible Wage Increase in Singapore

Last month Mercer Singapore, a consultancy firm, did a survey. It polled 233 firms in Singapore. The survey indicated that wages in Singapore would rise by an average of about 4 per cent next year.

The government's response was quite loud and sarcastic. Here's an ST report (4 Dec 08):

Be realistic about wage increase
By Li Xueying

UNIONISTS and employer group Singapore National Employers Federation (SNEF) have scoffed at a recent survey that shows wages next year will increase by 4.2 per cent.

'It is highly unrealistic,' was how NTUC secretary-general Lim Swee Say put it bluntly on Thursday.

Also questioning the salary projection was SNEF president Stephen Lee who said a study by his federation showed a 'very different picture'.

'Given the sentiments, this 4 over per cent seems to be too high,' he said.

... Mr Bob Tan, chairman of Jurong Engineering, who is also vice-president of SNEF, started the dialogue yesterday with the first question, asking panel members Manpower Minister Minister Gan Kim Yong, Mr Lim and Mr Lee, for their opinion of the projection.

It met with this quip from NTUC president John De Payva: 'The unions sent bouquets of roses to Mercer and thanked them for their optimism.'
(Small note: Minister Lim Swee Say and his friends were speaking in their capacity as unionists ... but in Singapore, you can more or less take that as a government response).

Anyway, I was a little amused by Lim Swee Say's choice of adjective "unrealistic", and the Straits Times' description of Mercer's data as a "projection". Why?

Because the Mercer survey data wasn't a "projection". It was simply survey data. Data isn't "realistic" or "unrealistic". Data is just ... data.

Mercer Singapore wasn't trying to offer its own guess as to how much wages would increase next year. All it did was (1) ask 200+ companies for their expected salary increases in 2009, and (2) calculate the average. That worked out to slightly more than 4%.

Whether companies will indeed actually increase wages by that much remains to be seen. But to say that Mercer Singapore was making a "projection", and that the projection was "highly unrealistic" (when Mercer Singapore was simply doing a survey) doesn't seem, ummm, terribly intelligent on the part of Lim and friends.

On the other hand, Lim can't be all that dumb (I hope). So the essential question is - in these bad times, how would companies be able to afford a relatively generous 4% wage increase?

A rather brutal answer came to my mind. The 4% wage increase would be possible, if firms retrenched more employees now.

Of course, the poor performers would go first. The savings from these job cuts could then be used to partially fund higher wages for the remaining employees in 2009. In fact this way, the top performers might even get quite substantial wage increases:

Carrot for performers
One in 10 bosses invest more in talent, while two-thirds not cutting bonuses, incentives
Tuesday • December 16, 2008
Neo Chai Chin

THE recession is not stopping some bosses from throwing cash at top talent.

While most employers are shrinking or freezing their budgets for salary increases, more than one in 10 — or 13 per cent — are investing more in their high performers, a survey by management consulting firm Hay Group has found.

This targeted allocation of resources is shown in the pay increases Singapore companies are dishing out to their workers. Star performers will see base salaries increase by 60 per cent more than the company’s average this year. This is nearly twice the global average of 33 per cent, but lower than the Asian average of 67 per cent.

So, if the average Singapore employee gets a five per cent increment, the star performer would receive an eight per cent raise.

This is a reflection of the talent crunch in Singapore, said Mr Christian Vo Phuoc, country manager of Singapore for Hay Group’s reward information services.

Companies know they “cannot afford to be complacent and assume their high performers will not have motive or opportunity to leave”, he said.

29 comments:

khirsah said...

Mr Wang,
I'm always amazed by the way you managed to look beyond the supposed "obvious".

As a layperson, I can never rationalize how is it possible that wage can increase given the gloomy forecast for next year.

Now that you mentioned it, you're right, wage may increase if companies cut staff now. However, I am doubtful if the lower income employees will fall within the average-4%-wage-increase. My gut feel is that the average has been skewed positively by the high income earners.
P/S I did not read the Mercer survey report :p

klimmer said...

Hay Group is in the recruiting business. It would be really out of character for them to proclaim that there will be no new hires in the next 6 months, only firings.

The situation in Tokyo, London and New York is really bad. Never mind an increase - keeping the job is an issue. I'd suspect Singapore would be dancing to the same tune pretty soon. I seriously doubt employers can give anyone a raise at this stage.

Mr Wang Says So said...

Mercer is not in the recruiting business (AFAIK). Mercer is the organisation that did the survery which led to the 4% figure.

Anonymous said...

Mr Wang, another very obvious one.

ST on Saturday, 13 December 2008. Did you read the report on Lim's meeting with the employers to "clarify" his statement on Singaporeans should get priority and foreigners should be retrenched first?

He clarified, very clearly, there are 3 types of foreigners.

1 - thoss who have skills Singaporeans do not have

2 - those who have the exact same set of skills Singaporeans have

3 - those do dirt cheap work (read depressing salaries) that Singaporeans can't afford to do (he said "don't want", but if you pay high enough, you'll always get people who WANT to work)

Lim said, his statement applies only to the last group.

And there was this follow up statement which said something like "Singaporeans may now take up these jobs at the low wages".

Curious don't you think? That an elite administration which prides itself to be so good, they pay themselves pegged to highest paid CEOs, expect Singaporeans to take up low wages, and offers protection and priority to citizens only in low wage jobs!

Starts me guessing who really needs the foreigners? The Singaporean who needs the jobs "created" by foreigners competing on "equal footing" but different real wage.

Or the elite team which has for past decade unable to take Singapore out of our 1980s employment model, and wage rate, to give us the value-added jobs not requiring us to compete for cheaper wages. In fact, they should have brought us or established conduits for us to be competing in foreign soil successfully as talents in group 1 defined by Lim!

I am deeply sadden that those who only have the skills that Singaporeans have, can just come and go without obligations to this nation! And we are expected to compete "fairly" with them, when they do not have to pay for HDB flats worth at least 2 landed bungalows with front and backyards even in American suburbs, pay for a Government way above any Government in this world, pay for HDB "property tax" based on income we never earned, expensive food prices, expensive transport prices which goes up with the oil price, but do not come down with it!

Wonderful people we have on this little island, don't we?

hojiber said...

eh Wang, I really very funny feeling that a Unionist is telling employees "you should be expecting low wage" while so many reports of Singapore having more millionaires.

On a shallow, surface reading, doesn't this indicate a skewed income redistribution, or those who supposed (paid damn highly) to do income redistribution sleeping on the job?

Anonymous said...

http://72.14.235.132/search?q=cache:xiYRJD-BGoYJ:www.straitstimes.com/STI/STIMEDIA/pdf/20080817/PM-SPEECH2.pdf+Lee+hsien+Loong+foreigners+not+here+to+depress+wages&hl=en&ct=clnk&cd=1

Extracts from
Prime Minister Lee's national Day Rally Speech, 2008.

Foreign workers and new immigrants

8. a. Some say that foreign workers and new immigrants take away jobs for Singaporeans and depress wages.

10. c. This shows that foreign workers have not taken away the rice-bowl of Singaporeans, but have instead helped to enlarge the pie.

12. c. Foreign workers keep many SMEs in business, by lowering their cost. Without them, local workers and SME bosses will also lose their jobs

Anonymous said...

Who does Lim Swee Say represent? The workers or the employers? Looks like he is giving an early loud and clear hint that employers should not give anything resembling a 4.2 per cent salary increase next year, calling it unrealistic. I guess Bob Tan and Stephen Lee must be quite happy that the Union chief is in effect already endorsing a lower salary increase for workers next year. Workers must be happy that their esteemed union chief is helping employers to make more profits while depressing wages more and more with the influx of cheap foreign workers willing to accept much lower salaries. So, Singaporeans must either take it or leave it. Unique indeed!

Mr Wang Says So said...
This comment has been removed by the author.
Mr Wang Says So said...

Well, to be frank, nowadays there are many MNCs & institutions in Singapore with a significant representation of foreign talent in their senior management ranks.

Seriously, I would think that most of them neither have any idea who Lim Swee Say is, nor are able to see how Singapore's trade unions have anything to do with their companies.

In other words, Lim Swee Say's and SNEF's views would have little or no influence on their management decisions as to whether to hire or fire or freeze wages or raise wages or whatever.

HaveAHacks said...

The simple answer is that Mercer's survey was for base salaries. Total compensation is predomninantly determined by bonuses. Every month of bonus is 8% of base annual salary, so if your salary goes up 4% but you get one less month of bonus, your total compensation still goes down 4%.

Read the fine print. Of course, you don't need any visual aids to see that the govt is reconvening the NWC to endorse their plans to reduce labour costs.

Cavalierio said...
This comment has been removed by the author.
Anonymous said...

Actually, I thought it was rather rude of them to dismiss the Mercer's survey, the comments were rather sarcastic especially for a unionist...makes me wonder who were they speaking on behalf of, workers or employers.

Anonymous said...

And oh, about the NWC, they're convening in January 2009...probably to make recommendations to cut the MVC...

Anonymous said...

The NWC wage decision wastaken in view of both good economic conditions and persistant high inflation.

Now they want to reconvene the NWC to probably lower the wages, but only for one reason, which is bad economic conditions.

Whatever happened to considerations for inflation, which suddenly goes off the radar? Someone tell me that the inflation has gone away to allow lower wages? I don't see SMRT and bus companies lowering their fares!

Anonymous said...

They should reduce RENTAL costs.

Anonymous said...

"the poor performers would go first. The savings from these job cuts could then be used to partially fund higher wages for the remaining employees in 2009. "

Not quite agree with this. In manufacturing, this is a good time to remove those who are a threat to you. If you are in the middle management (manager) you will likely remove some senior engineer who could take over your position.

klimmer said...

Mr Wang,

There's a big difference between giving a pay rise of 4% to existing staff (what Mercer's saying), to paying top dollar to recruit new talents (what Hay's saying).

Further, Mercer conducted an industry wide survey which realistically, would take at least 3 weeks to complete. In that time, so much has happened. The situation would change much more, as the bad news trickle down.

Such surveys are as useful as reading last year's papers for the following reasons:
1) Interviewing middle management is not the same as interviewing top management;
2) Decisions to lay off is seldom shared with distant branch offices;
3) Order cancellations happen overnight, resulting in sudden lay offs.

What we need are intuitive, interpolating. I tend to agree with the ministers - compensation across all industries will be severely depressed for the next 2 years and unemployment figures will rise. Singapore, being a service oriented economy with a large middle management will be badly hit.

Anonymous said...

Employers don't give a damn about the toothless unions and Lim lah. Lim and these unions are just grandstanding for the media and bluff local workers.

Mr Wang Says So said...

???

1. Hay Group wasn't talking about paying more money to recruit new talent. Hay Group was talking about salary increases to existing employees, including existing top performers.

2. I agree that unemployment figures will rise. Mercer did not say that unemployment figures would not rise. My own theory in fact indicates that unemployment figures *will* rise, if companies will indeed give an average 4% wage increases to their employees, and an even higher % wage increase to their best-performing employees.

3. In fact, Mercer's survey data *is* indicating a drop in the rate of wage increase. Average wages rose by 5% in 2008. Survey data indicates that average data will rise by 4% in 2009. That's a 20% drop, from 5 to 4 per cent.

Mr Wang Says So said...

"Not quite agree with this. In manufacturing, this is a good time to remove those who are a threat to you. If you are in the middle management (manager) you will likely remove some senior engineer who could take over your position."

Of course, human politics and subjective personal evaluations will inevitably enter, to some degree, into all redundancy exercises ... except the most severe kind (the kind where an entire business division or department is shut down).

Anonymous said...

No matter what Lim Swee Say or the government says, let us all remind ourselves that the economics of wage rates is determined by demand and supply of the market.

That is why some of us choose to pursue Economics in school and not LIm Swee Say or the TV or Mercer. Funny it can be sometimes when you read the local news.

Anonymous said...

You know employers always look to what the Union chief says or what the Government or NWC says as a guideline to what they should give in increments, so it does matter.

klimmer said...

Mr Wang,

My bad - I didn't read it carefully.

I also notice another phenomenon in finance - top performers getting fired so that others get paid.

GS and MS just announced their bonuses and I don't see that 4% anywhere.

Mr Wang Says So said...

"You know employers always look to what the Union chief says or what the Government or NWC says as a guideline to what they should give in increments, so it does matter."

What I meant was that there is an increasing number of Singapore-based employers who really don't care what the government or NWC says about increments. And the reasons are:

(1) NWC guidelines are non-binding.

(2) Our regional hub strategy means that many employers in Singapore are quite international ... and their HR policies are really driven more by regional or global considerations within their organisation, rather than anything that Ah Lim is nattering about.

To give you a simple example, my organisation (a bank) recently had job cuts. What was the driver of these cuts?

Instructions from our European head office ... handed down to the branches all over the world ... first by business division ... then by region (Asia-ex-Japan; Europe; the Americas etc).

Do you seriously think that our European head office even knows who "Lim Swee Say" is? Or what "NWC" is?

Haahahaaha. Please lah, Singapore itself is just one country out of more than 70 countries around the world where my bank operates.

Anonymous said...

Mr Wang,

You are right. Ah Lim and gang or NWC looks important only in little red dot and of course helped by the official "media".

In reality little red dot floats or sinks with the global economic tide. That's why whether paying million dollar salary or peanuts to Ah Lim and gang doesn't make any difference to their ability to steer red dot in the right direction. Of course the official "media" which also parrots the old man will say it matters a lot.

Anonymous said...

Why will anyone in their right mind want higher wages?
We need more companies to move/stay here and the best thing to do is to keeps wages competitive (low).

When it comes to management, why will anyone in their right mind not pay higher wages?
We need attract/retain talent to move/stay here and the best thing to do is to keeps wages competitive (high).

So long as one's voice is inconsequential, so's your lot in life.

'It's our lot in life. It's not a lot, but it's a life.'
- The queen ant's mother in the movie A Bug's Life, on being a small export-driven ant colony


JC

Onlooker said...

Different set of rules for different set of people.
Just like different set of SOP for different set of people.
One aircraft to ferry one extremely VIP stroke/heart patient.
Some how that remind me of the extremely discriminative caste system in some other country.
The principle in such obsolete system is to create a under caste where the upper caste can live off the wealth generated by the under caste toil/hard work.
Yet time have proven once and again that such system can never last in a truly free society.

Anonymous said...

I uses Mercier report. The results from Aug 08 and Nov 08 differ by 0.5% reduction... but in the 4% range.

We also have retretchment. contrary to what is propagated in the press, cuts are made to preserve the increment/bonus of the existing Senior Management. And yes, life is never fair. A lot of these actions is to compile with the instructions from the "HQ". Those on the lower rungs of the pecking order (or high threat/maintainance) is the first to go.

Lessons earned?? whether u r a local/expat/senior management etc, you should compete irregardless of place of origin. One got to build your own fences, entretch yourself into the role.

fatsolow

Anonymous said...

Wage increase only for Global performers ie. those who can transverse between global capital cities in search of jobs.

For Singapore's ordinary wage earners, simple multiple choice question [pick one]:-
a. Salary cut + more work hours
b. Retrenchment/Forced resignation
c. Replace by Chinaman

No brainer here!