Wage-setting changes eyed

Gov’t to propose pay floor plus productivity-based adjustments

PROPOSED CHANGES to the minimum wage-setting mechanism will be announced next week, with the National Wages and Productivity Commission (NWPC) set to endorse a two-tiered approach to pay adjustments.

Extensive consultations on the new system will follow the release of an agency resolution, NWPC Executive Director Ciriaco A. Lagunzad III told BusinessWorld.

“The end of process, after the consultations, is an amendment on the implementing guidelines of Republic Act 6727 (Wage Rationalization Act),” Mr. Lagunzad said.

“It will be issued by [the] DoLE (Department of Labor and Employment). [The guidelines] could be out before the end of the year.”

Mr. Lagunzad said amendments to the law — approved in 1989 and which removed the power to set wages from Congress — were not needed. Article 121 states that the commission can “formulate policies and guidelines on wages, incomes and productivity improvement at the enterprise, industry and national levels.”

RA 6727 created the regional tripartite wage and productivity boards that determine pay adjustments based on local economic conditions.

Under the NWPC proposal, the boards’ work will now be done under a two-tiered wage structure where a “national” floor wage will shield vulnerable sectors from excessively low pay and minimum wage hikes will be based on productivity.

“On the floor wage, NWPC will issue guidelines that will clarify the [floor wage] concept and how to operate it, which means specifying statistical indicators… will be used by the regional boards in calculating the floor wage.”

During the transition period, Mr. Lagunzad said, current minimum wages may be higher or lower than the floor wage, with subsequent adjustments to be made through wage orders.

“This gives time for enterprises in the regions to adjust gradually,” he said.

Operational and legal implications of the new system will also be threshed out, with assistance to be sought from agencies such as the National Statistics Office and the International Labor Organization.

Mr. Lagunzad said the new system was based on an NWPC-commissioned study which showed that minimum wage increases had resulted in unintended outcomes such as risks to inflation and unemployment; increasing informality; distortion of pay structures; weakening of the incentive for collective bargaining; and discouragement of pay-for-performance schemes.

“With the proposed two-tiered [system], anchored on productivity performance, it is envisioned that unintended outcomes particularly on distortion of pay structure will be reduced significantly,” he said.

Wage boards, based on petitions or on their own volition, are empowered by law to adjust the daily minimum pay after holding consultations and public hearings.

The latest round of adjustments kicked off recently, with Metro Manila, Davao, Western Visayas, Northern Cotabato, Caraga and the Autonomous Region in Muslim Mindanao having raised daily minimum wages by as much as P25. Petitions in Region 4-A (Cavite, Laguna, Batangas, Rizal, Quezon), Region 4-B (Mindoro, Marinduque, Romblon, Palawan), Zamboanga Peninsula and Central Visayas are pending.

“Realistically, all the petitions are decided on or before the end of the year. If the [revised] guidelines are issued by the end of the year, it will apply to 2011,” Mr. Lagunzad said.

Asked if the measure was expected to meet resistance, Mr. Lagunzad replied: “Based on my 20 years experience, employees and workers want a new system. [The new system will] encourage companies to grant increases based on performance, encourage CBA (collective bargaining agreements) and wage-setting at industry and enterprise level.”

The Employers Confederation of the Philippines (ECoP) said it backed the scheme but noted the need for a thorough review of guidelines.

“We have to study the mechanics of [the two-tiered wage system]. But the principle is acceptable to the employers,” Edgardo G. Lacson, ECoP president, said in a telephone interview.

In a separate interview, Ernesto F. Herrera, Trade Union Congress of the Philippines secretary-general, asked: “What are the factors that would be considered in determining productivity based increases? These have to be clearly defined in tripartite consultations.” –ANA MAE G. ROA, Reporter, Businesmirror