MOHD SHARIFFUDIN BIN PADZILPEN PENGARAH KANAN,

UNIT PROMOSI DAN PUBLISITI PLWS

JABATAN PERHUBUNGAN PERUSAHAANPUTRAJAYA

mshariffudin@mohr.gov.my

CONTENTSConcept High Income Economy

Concept Productivity

Productivity Linked Wages System

Examples Model of PLWS

HIGH INCOME ECONOMYIncome per capita usd 15k – 20k

Malaysia’ Productivity And GDP Growth

New Economic Model (NEM)

High IncomeEconomy

♦ ♦ Creating a high income nation will mean higher Creating a high income nation will mean higher wages throughout the economy. wages throughout the economy.

♦ ♦ Allow wage level to be reflective of the skill levelAllow wage level to be reflective of the skill level

♦ ♦ Raise wage through productivity gains.Raise wage through productivity gains.

♦ ♦ Protect workers through stronger safety net while Protect workers through stronger safety net while encouraging labour market flexibilityencouraging labour market flexibility

♦ ♦ Encourage higher productivity activities and pave the Encourage higher productivity activities and pave the way for more robust future increase in wagesway for more robust future increase in wages

CONCEPT PRODUCTIVITY• Productivity is the ability to produce output from a given set of inputs ~

measures the efficiency and effectiveness of resource utilizations such as employees, technology, system and management etc., in converting inputs into useful outputs.

• Mathematically, PRODUCTIVITY = OUTPUT INPUT

OutputEnd-product of the process which can either be the finished goods or the services rendered. Gross Domestic Product (GDP) Total Output Added Value Monetary Value of Production Quantity of physical unit produced

Input The amount of resources that are utilise in producing the goods or in providing the services. Employees Total man-hours worked Labor cost Capital/Fixed assets Energy Material Services

PRODUCTIVITY LINKED WAGE SYSTEM

IN MALAYSIA

Malaysia’s Policies on Linking Wages To Productivity

PRODUCTIVITY LINKED WAGE SYSTEM

PLWS in Malaysia

INDUSTRIAL RELATIONS DEPARTMENT (IRD)

PROMOTE PLWS

As of APRIL 2014

BENEFITING

76,858 employers

implemented PLWS

3,104,038 employees throughout Malaysia

Key Players in PLWS

Employer – the main player that will initiate the implementation of PLWS at company level.

Employee (unionised or non-unionised) – is the main catalyst that will ensure that the KPIs set under the PLWS are achieved.

Government – assists companies in developing the system and negotiation process.

Linking wages to productivity makes the following possible:

a) Higher wages for worker and higher

profits for companies.

b) Greater competitiveness for companies.

Wages Profits

Output Output

Wages Profits

2 BASIC COMPONENTS OF PLWS

There must always be the Fixed and the

Variable component in the PLWS

ELEMENTS PLWS

MODEL PLWS

PRODUCTIVITY MODEL

FIXED COMPONENTBasic Wage &

Annual Increment

VARIABLE COMPONENT

A variable productivity payment to be determined.T = A + P

Where T = total wage increase A = annual increment

P = variable productivity payment

Example Productivity model• Year 1

• If Basic wage = RM1000 per month, A = 2% and P = 3%,

• Basic wage + A = RM1,000 + 2% (RM1,000) = RM1,020 (built into basic wage).

• P = 3% x RM1000 x 12 months = RM360 per annum• Year 2:

• If basic wage = RM1,020; A = 2% and P = 4%

• Basic Wage + Annual Increment = RM1,020 + 2% (RM1,020) = RM1,040 per month

• P = 4% x RM1,020 x 12 months = RM489.60 per annum

• Annual Variable Payment at end of year 2:

• P for year 1 RM360.00

• P for year 2 RM489.60

• Cumulative for 2 consecutive yearsRM849.60

Example Profitability Model

PLWS Model 1:

Profitability Model

• Payment of bonus according to profit levels based on monthly basic pay.

Profit After Tax(RM Million)

Bonus[Month(s)Salary]

<1.5 (threshold) 0

1.5 - 1.99 0.5

2.0 - 2.49 1.0

2.5 - 2.99 1.5

3.0 and above 2.0

PLWS Model 3:

Combine Model

• Payment of bonus according to 2 criteria – Company Performance and Employee Performance Rating

Operating Profits (RM Million)

Variable Productivity payment (Months)

Above 5.00 1.00 1.00 1.25 1.50 1.75 2.00

4.00 – 5.00 0.75 0.75 1.00 1.25 1.50 1.75

3.00 – 4.00 0.5 0.5 0.75 1.00 1.25 1.50

2.00 – 3.00 0.25 0.25 0.5 0.75 1.00 1.25

Below 1.00 0 0 0.25 0.5 0.75 1.00

Employee Performance Rating (%)

<40 40 - 49 50 - 59 60 - 69 70 - 79 >80

Combined Model

Annual Profit (RM Million)

Months of Basic wage

Above 1.49 1.00 1.00 1.25 1.50 1.75 2.00

1.00 – 1.49 0.75 0.75 1.00 1.25 1.50 1.75

0.77 – 0.99 0.50 0.50 0.75 1.00 1.25 1.50

0.50 – 0.69 0.25 0.25 0.50 0.75 1.00 1.25

Below 0.50 0.0 0.0 0.25 0.50 0.75 1.00

Productivity growth

<1 1.0 – 2.49 2.5 – 4.99 5.0 - 7.45 7.5 – 9.99 >10.0

Examples Model PLWS

Example 1 Performance and Productivity Incentives

Incentives based on performance and productivityrefers to reward system that linked variable pay or incentives to the performance or productivity of the employees. The incentives will vary according to the achievement of the employees. The firm implement wages system which comprises fixed and variable components. Under the fixed component the company gives basic pay and minimum annual increment based on not less than 2/3 or 60 % of 3 years CPI average.

The increment will provide element of income stability and form a small portion of the wage bill to meet escalating living cost.

The variable components comprises annual performance increment, annual performance bonus, monthly productivity payment and monthly multi skill allowance.

The variable components will determine the total take home pay and the incentives will be based on performance and less efficient will receive lower returns.

Wage System

Fixed Component

s

Variable Component

s

Basic Pay

Wage

Min. Annual

Increment

Profitability

Productivity

Incentives

Combined

Incentive Based on Performance and Productivity

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

Profits After Tax(RM Million)

Monthly Payroll Cost(RM Million)

Bonus = Profit After Tax Monthly Payroll Cost

Less than 5 5 0

5 5 1month

6 5 1.2 month

7 5 1.4 month

8 5 1.6 month

9 5 1.8 month

10 5 2.0 month

Based on team and individual performance against predetermined

productivity measurement

ii) Productivity Incentives

The incentives will based on team and individual performance against predetermine productivity measurement.Diagram: Productivity Incentives

Productivity

• Total output• Quality output• Wastages• Customer Satisfaction• Individual Performance

Matrix incentives

Matrix incentives will be given based on the profitability and average performance of division, department and individual as

shown below.

Profits(RM million) Incentives (Months)

Less 5 0 0.1 0.3 0.5

5- 7 0.1 0.3 0.5 0.7

7-9 0.2 0.5 0.7 1.0

9-11 0.3 0.7 1.0 1.3

11-13 0.4 1.0 1.5 2.0

13-15 0.5 1.5 2.0 3.0

AveragePerformanc

e(%)

Less 70 70 -80 80-90 90-100

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.

Profitability-linked bonus

Fixed Bonus:

The Company shall pay an annual guaranteed bonus equivalent to one month of the last drawn basic salary.

Variable Bonus:

Should the company make a profit of:

RM1,500,000/= to RM2,500,000/=, the company shall pay one and a half (1.5) months of the last drawn basic salary as bonus;

Profits exceeding RM2,500,000/=, bonus payment shall be two (2) months of the last drawn basic salary.

Notwithstanding the above, the guaranteed bonus of one month, based on last drawn basic salary, shall continue to be applicable.

EXAMPLE 2

Profit Sharing and Team Incentive

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.

EXAMPLE 3

Variable ComponentThere 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.

Profit (RM million)

Variable Incentive Bonus (Months)

> 12 0 0.3 0.5 1.0 1.1 2.1

9-12 0 0.2 0.3 0.9 1.0 1.5

6-8.9 0 0.0 0.2 0.8 0.9 1.3

4-5.9 0 0.0 0.1 0.7 0.8 1.1

< 4 0 0.0 0.0 0.5 0.6 0.9

Employee Performance

Rating (%)<40 40-49 50-59 60-69 70-80 >80

Team Incentive

Performance Criteria Performance Standard

(Target)

1. Production targets above 80%

2. Quality output above 90%

3. Customer complaint Zero complaint

4. Maintenance No machine breakdown

5. DisciplineNo reminder or warning letter

Team Incentive Payout based on Criteria Achieved

Number of Criteria Achieved Incentives

5 RM 100

4 RM 80

3 RM 60

2 RM 0

1 RM 0

Monthly Incentives

• If a team of 5 employees are able to achieve all the five criteria, each team member will receive RM 100 as a monthly incentive.

• However, if the team achieves only 2 criteria then there will be no pay out.

Productivity Targets In the case of this example, the service organisation gives incentives based on the productivity targets achieved.

Table below shows an example of planned targets against achievable targets.

Planned Target Actual Achievements Incentives (RM)

80% Above 100% 150

80% 91%-100% 100

80% 80% - 90% 50

80% Below 80% 0

EXAMPLE 4

Incentives are given to the employees when the actual productivity

achievement is higher than the planned target.

For example, if the planned target is 80% and the actual achievement

is 95% then the employees will receive RM100.00 for achieving the

productivity targets.

Bonus Based on Company and Individual Performance

The manufacturing firm in this example shall

pay performance bonus based on the company

and the individual performance.

The company performance shall be based on

achievements against business plan of the year

and employee performance shall be based on

the performance appraisal rating and points

awarded in accordance to their annual

appraisal

EXAMPLE 5

Bonus Based on Company and Individual Performance

Company Performance

Based on Business Plan

below

85%

85% -

100%

101% -

120%

121% -

140%

Above

140%

Individual Performance Bonus Payout

Unsatisfactory below 40% 0 0.1 0.2 0.3 0.4

Average 40% - 54% 0.3 0.4 0.5 0.6 0.7

Good 55% - 69% 0.5 0.7 0.9 1.1 1.3

Very Good 70% -85% 0.7 1.0 1.3 1.6 1.9

Outstanding above 85% 1.0 1.3 1.6 1.9 2.2

If the company’s performance rating is 100% and individual performance is 75% which is “very good”, then the quantum of bonus that will be granted to the employee will be 1.0 month. Therefore, this clearly indicates that whenever both parties i.e. employees and firm perform very well, there will be higher quantum of bonus distributed among the employees.

Debt Collection Current 30 days 60 days 90 days

<RM100,000 2.0% 1.5% 1.0% 0.5%

RM100,000-200,000 1.0% 0.5% 0.25% 0.1%

>RM200,00 0.5% 0.25% 0.1% 0.05%

Debt Incentive CollectionEXAMPLE 7

Planned Rework Actual

AchievementsIncentives

(RM)*

10% of the monthly output

> 11% 0

10% of the monthly output

8%-10% 10.00

10% of the monthly output

5%-7% 15.00

10% of the monthly output

2%-4% 20.00

10% of the monthly output

0-1% 25.00

Rework Incentives

Incentives will be paid when there is reduction in rework rate.

EXAMPLE 8

MERIT AND PROFIT SHARING SCHEME

The Scheme consist of two components:

(a) Fixed Component which comprises of basic wage plus an annual increment of 3%of

basic salary and an annual bonus of one month’s basic salary.

(b) Variable Component. Among the tools used to determine the variable component

are profit sharing and personal performance review (PPR).

EXAMPLE 9

Performance Incentives Allowance

• The company decided to reward employees which already reach their maximum salary. Employees who have reached the maximum on their salary scale and have performed commendably during the period of review, shall be eligible for a monthly allowance for the next 12 month. Performance Incentives Allowances shall include the following category of performance as shown in table below.

Performance Category Monthly Allowance

Highly Effective RM 60.00

Competence RM 40.00

EXAMPLE 10

PLWS and its impact

Companies with PLWS Elements in Collective Agreements

2001 - 2004 2005 - 2008

691 1,566Impact of PLWS Implementation 2006 (%) 2008 (%)

ProductivityProductivity 2.642.64 5.175.17

Staff TurnoverStaff Turnover 5.215.21 2.132.13

AbsenteeismAbsenteeism 8.808.80 4.174.17

Rejects and ReworksRejects and Reworks 5.335.33 2.852.85

4444

ENHANCE PLWS PRACTICES

Benefits

Improved Productivity and Competitiveness at the firm level

Provide continuous improvement

Job stability and reduces retrenchment

Motivation and job satisfaction

Improves communication and cooperation

THANKS YOU

Further Information please logon to The Portal My PLWSwww.plws.gov.my