Until and unless the pathway to a progressive wage model is clearer, these methods remain the better option, two economists FMT Business spoke to said.
Barjoyai Bardai of Universiti Tun Abdul Razak said companies in Malaysia typically allocate 36% to 37% of their earnings for their employees’ salaries.
He said a significant portion of the allocation often goes to senior-level staff in upper management, leaving little for the rank and file.
“(As a result) in Malaysia we have reached a situation where some CEOs are paid (as much as) RM70 million a year, while some workers earn only RM1,200 a month,” he said.
In contrast, he said, businesses in more developed countries offer as much as 60% of their earnings as salaries to their employees.
Barjoyai was commenting on a statement by economy minister Rafizi Ramli that the federal government was considering a plan for a progressive wage model that could entail mandatory annual salary increments.
This was part of a Pakatan Harapan election pledge to reform an economy driven by cheap labour.
The model has been successfully implemented in Singapore.
The ministry of manpower in the island republic explains on its website that the model, developed by a tripartite committee comprising representatives of unions, employers and the government, maps out a clear career pathway for wages to rise along with training and improvements in productivity and standards.
It says that in sectors where the model has been implemented, wages have risen at a “sustainable and meaningful pace without hurting the livelihoods of lower-wage workers”.
It also says the model has helped to improve productivity and profits for employers while customers enjoy better service standards and quality.
Barjoyai said that in Malaysia, employers only assume they should pay based on productivity.
“However, the problem here is that employees have little opportunity to go for reskilling to improve their productivity,” he said.
He said that in the past, employers rewarded staff based on their ability to increase productivity.
“However, it is now used to bait employees, to make them more motivated,” he said.
He said employers could face difficulty in recouping the additional costs associated with implementing a progressive wage model given that they are compelled to make profit maximisation in the long term a priority.
“When we talk about how an employer recovers the increase in costs, it isn’t easy because they need to ensure maximum profit to recover what is spent, hence the easiest way is to push it to the customer by increasing prices of products,” he said.
Center for Market Education CEO Carmelo Ferlito said it is not yet clear how wages are going to be adjusted and these mechanisms do not take into account that each worker is different.
“Will it be inflation? Productivity? Certification? So far, ‘progressive’ is just a word without content and therefore, any serious consideration cannot be outlined,” he said.
He said individual negotiations, coupled with a clear rationale of the key performance indicator (KPI) would stand as an optimal framework, as it is already being practised in Malaysia.
“Although imperfect, individual negotiations, supported by a clear definition of KPI, remains the best available system,” he added.