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Wednesday, June 09, 2010

Why I Dislike Across the Board Wage Increases

The wage board recently approved an across-the-board  wage increase (ATBWI) of PHP22.00/day for those who are working in the National Capital Region. When this is implemented, the minimum daily wage will increase to 404 from 382.

This is of course just me venting my frustration in this what I think is a futile exercise. I have every reason to comply with this law in my company when it is implemented. I just want to make clear that I am not complaining about the additional amount that I have to pay my people, I am more concerned about the impact... or in another way the lack of beneficial impact of this move. Before you start thinking that I am a descendant of Scrooge, let me share my opinion.

First, ATBWI's do not improve the lot of those of who receive it. Why, because what follow mandated wage increases are increases in prices of commodities which tend to offset whatever salary increment they gain. It gets worse for those who work in companies that cannot afford the new salary because they end up cutting cost which almost always include reducing manpower. I wonder how many small companies who cannot afford the new salary fold up because of decisions like this?

2nd, the reason why companies have to look into increasing the price of their products or reducing cost is because salary increases like this do  very little to improve productivity. It does not improve profitability hence, companies who need to stay afloat need to find a way to finance the additional cost of operation.

3rd, there is still a gaping hole in the system that allow small companies who can afford to give more than the minimum mandated pay but choose not to because the law that exempt small companies who might not be able to afford the standard pay also exempt them from paying. Just look at some gas stations out there who do not pay their employees the amount they deserve while the owners of the business continue to enjoy the good life. I say fix the law first to make sure that these opportunists cannot getaway with hoodwinking their employees.

4th, because of all the reasons I mentioned above, I believe that ATBWI's are vicious cycle starters (or accelerators?). Why, because it works on messing the pie rather than producing larger pies. Another thing is a lot of the workers don't see the pie or suspect that the pie they are looking at is an illusion, so everything gets really messed up.

And this what I believe is my most important reason for disliking salary increases is because there is a better option that with proper support from the government, will benefit the employees, their companies and the economy. This my friends is GAIN SHARING, the implementation of policies and guidelines that will provide employees with sizable amount of extra income depending on how much they contribute in terms of productivity, cost savings and other metrics that impact on revenue and profit. I've seen good companies implement something like this where their employees can take home much, much more than what the mandated salary increase is offering. I believe this is better because it encourage people to be better at what they do, to put more into their work and improve on their quality. It helps the organizations they belong to because it increases the size of the pie, hence there is more for sharing. It improves the economy because people can buy more. That is also because companies are not forced to increase the prices of products and services, hence people can afford them. It does not only improve the economy, it also improves the mindset of the people. We can think in terms of abundance rather than in scarcity as what this concept of ATBWI is offering us.

In order to make this happen, I believe our business leaders and the government should work together in hammering some kind of law or guidelines that will encourage employers to take this path. Government can give tax relief to companies that comply with the guidelines. They can even use the same principle of getting more by giving more. What I mean is if companies share more gains, they get more tax relief or something. (I'm not sure about the terminologies I'm using here as I'm clearly going out of my area of competence.) 

I believe it's time to come up with a new approach to our people's income problems. Our leaders from the government, the companies and the labor need to come up with a new solution. History have shown us this one of across the board salary increases do not work to improve our situation. They are temporary  pain relievers that hide the real cause of  the pain. Let's consider all sorts of gain sharing, from incentives, performance bonuses and profit sharing that come out of people's productivity and companies profit. It's more healthy, more exciting and more meaningful if you ask me.

4 comments:

  1. Anonymous11:37 AM

    hi-five for you sir i totally agree

    ReplyDelete
  2. In reply to your twitter post> which schools have BA or BS human resource management course? I want to interview some studes for a blog post i want to write.

    Ateneo de Davao University

    Source: Myself > BS HRM Student

    ReplyDelete
  3. Sir, can I ask, if it's across the board, are those on managerial position included in the increase? is it not management's discretion since they're salary is really really high already?

    ReplyDelete

If you have an opinion about this topic or a related experience you want to share, please feel free to leave a comment but please be respectful. No bad words please or I will be constrained to delete it.