By Aaron Low

THE National Wages Council (NWC) will take the unusual step of meeting again next month to revise the wage guidelines it set earlier this year.
The review, announced by the NWC yesterday, is prompted by the worsening global economic crisis.

Said its chairman Lim Pin: 'Given the weakening economic situation, there is a need for the NWC to take stock of the new situation and review its May guidelines to help companies and workers manage the downturn.'

These will be watched closely by organisations in the public and private sectors as they set the direction for wage policies for the coming year.

When the NWC made its recommendations in May, economic conditions were favourable, with growth expected to be between 4 and 6 per cent.

It also took into account the global economic uncertainty and high inflation.

So the council asked companies to increase basic pay in line with their performance and business prospects. It also urged them to consider giving a one-off lump sum payment to rank-and-file workers to cope with inflation.

These suggestions were to apply for the period from this July to next June.

However, since September, the global financial turmoil has led Singapore to revise growth downwards to 2.5 per cent or less this year, the NWC noted.

Next year, the economy could contract by as much as 1 per cent or grow by up to 2 per cent, the council said.

Meanwhile, more and more companies are facing low demand and overcapacity and are looking for ways to cut costs to cope with the severe downturn, it added.

With this new scenario, the NWC may suggest several new measures, said council members interviewed yesterday.

The vice-president of the Singaporean-German Chamber of Industry and Commerce, Mr Alexander Melchers, expects it to support the recent guidelines issued jointly by the labour movement, employers and the Government.

These outline how bosses can deal with the downturn: Have a shorter work week, let workers take off from work temporarily and use the flexible wage system to cut wage costs.

Mr Melchers is not ruling out a wage reduction, especially the variable portion of the salary linked to performance.

However, it is not the only solution, he was quick to add, saying: 'It is important to send the message to both employers and employees not to panic as we will provide solutions as far as they can be provided.'

Union leader Cyrille Tan said the top priority for him is to save jobs and cut costs.

'The economic situation is clearly bad. By January, we will have a clearer picture of how businesses are doing and we will make decisions that are relevant to the situation,' said Mr Tan, who is also vice-president in the NTUC's central committee.

Economists like Dr Tan Khee Giap said the review was not a surprise, adding that it was unrealistic to maintain the call for wage increases 'with the economy looking very bad'.

Said Dr Tan, who is from the Nanyang Technological University: 'NWC made those recommendations at a time when inflation was high but it has subsided somewhat.'

A council review of its guidelines is not a first. It has happened at least twice before: in November 1998 during the Asian financial crisis, and in December 2001, after the Sept 11 terrorist attacks in America.

In 1998, the council recommended wage cuts of between 5 and 8 per cent. In 2001, it recommended that wages be frozen or reduced and urged companies to retrench staff only as a last resort.

Economists like Professor Hoon Hian Teck and Mr Alvin Liew of Standard Chartered Bank foresee the council making similar recommendations next month. These would include cutting the variable components in salaries, freezing wages and making bigger cuts in senior executives' pay, they said.

Prof Hoon, of Singapore Management University, expects these to precede a cut in employers' Central Provident Fund (CPF) contribution rates.

He said: 'Over the past few years, more companies have been encouraged to introduce variable components to their compensation packages...

'Also, workers today rely on CPF contributions to finance not only their mortgage payments but also their medical needs and life annuities. It is preferable to rely on wage cuts and a wage freeze to save jobs.'

This article was first published in The Straits Times on December 17, 2008.