PRODUCTIVITY-LINKED WAGE SYSTEM
(PLWS) COLLOQUIUM AND STRAIGHT
TALK
Sugumar Saminathan
Manager,
Malaysia Productivity Corporation,
Tel: +603-79557266 ext 544,DL: +603-79562566,
Mobile:+6019-6354078
E-mail:sugumar@mpc.gov.my
Website:http//www.mpc.gov.my
Ministry of International Trade and Industry (MITI)
14 April 2015 (Tuesday)
Grand Bluewave Hotel
Shah Alam
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BUSINESSMAN:
“Productivity is
reducing cost and
increase profits.”
CONSUMER:
“Productivity bring good
quality products and
services at cheaper
prices and higher living
standards.”
I
PROD
T
I
UCTIV
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WHAT IS PRODUCTIVITY?
Productivity is a measure of
efficiency in the use of inputs or
resources in relation to its outputs
5 WAYS OF IMPROVING
PRODUCTIVITY?
5 Ways
Firm Approach
Output
Productivity
=
O
Reduce Cost
Input
Output : Goods & Services
Input
Manage Growth
: Resources Used
Output
●Gross Domestic Product
(GDP),
● Total Output,
● Added Value,
● Monetary Value of
Production,
● Quantity of physical unit
produced
I
O
I
Input
● Employees,
● Total man-hours worked
● Labour cost,
● Capital/Fixed assets, ●
Energy,
● Material,
● Services
O
Work Smarter
I
Pare Down
O
I
O
Work Effectively
I
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PRODUCTIVITY : WEALTH CREATION AND SHARING
Baking & sharing a bigger
economic cake
PRODUCTIVITY -LINKED WAGE SYSTEM
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Why Do We Need To Restructure
Our Wages?
• A flexible and competitive wage system will enable
companies to make quick adjustment to wages that
will ensure job stability and reduces the likelihood
of retrenchment in the event of an economic
slowdown.
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Productivity-Linked Wage System
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PRODUCTIVITY- LINKED WAGE SYSTEM (PLWS)
PLWS is a wage system which establishes a link between wages
and productivity/performance.
PLWS ensure any increase in wages commensurate with
increase in productivity/performance.
PLWS enables employees to obtain a fair share of gains that
arise from productivity growth and performance improvements.
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Malaysia’s Policies on Linking Wages To Productivity
Guidelines on Wage Reform was established
in August 1996 with the following objectives:
i) Establish a closer link between wages
and productivity
ii) Develop a wider and systematic
approach towards improving
productivity and wages
iii) Ensure active involvement and
cooperation of employees to develop
PLWS
iv) Ensure that employees obtain a fair
share of gains from productivity growth
and performance
improvements
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PHASES IN IMPLEMENTING PLWS
PHASE 1
PHASE 2
PHASE 3
Creating Conducive Environment
Establishing PLWS System
Implementing PLWS System
MPC PLWS MODEL
Start
1. Create awareness on PLWS
among management team
2. Measure company’s
performance
3. Develop PLWS Committee
4. Developing Corporate,
Division & Unit KPI
5. Briefing Session with
Company’s Workers
6. Obtain feedback from
employees and management
7. Linking Incentives with
Improvement
8. Establishing PLWS on a trial
basis
9. Review and make the
necessary adjustments
10. Implement PLWS at the
firm level
11. Plan (continuous
Improvement)
Transformation • Innovation • Partnership
COMPONENTS OF PLWS
FIXED
COMPONENTS
VARIABLE
COMPONENTS
BASIC WAGE
ANNUAL
INCREAMENT
Wage increase
for the year
based on:-
Productivity, or
Profit sharing
formula
There must always be the fixed
and the variable component in the
PLWS
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PLWS Model 1:
Profitability Model
#1
• Payment of bonus according to profit
levels based on monthly basic pay.
Profit After Tax
(RM Million)
<1.5 (threshold)
Bonus
[Month(s)Salary]
0
1.5 - 1.99
0.5
2.0 - 2.49
1.0
2.5 - 2.99
1.5
2.0
3.0 and above
Transformation • Innovation • Partnership
PLWS Model 1:
Profitability Model
#2
• Bonus payments paid in quantum
(RM)
Profit Before Tax
(RM Million)
Bonus
(RM)
<5 (threshold)
0
5-7
500
7-9
1,000
9 - 11
1,500
2,000
11 and above
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PLWS Model 2:
Productivity Model
#1
• Bonus paid out at the end of the
financial year based on saleable
output.
Production
Volume (000 m2)
(Saleable Output
<5,500
<5,600
<5,750
<6,000
<6,250
<6,500
Bonus
(Months)
0
0.25
0.75
1.25
1.75
2.00
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PLWS Model 2:
Productivity Model
#2
• Incentives given based on the
productivity targets achieved
(Individual).
Planned Target
Actual Achievements
Incentive (RM)
80%
Above 100%
150
80%
91 – 100%
100
80%
80% - 90%
50
80%
Below 80%
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PLWS Model 2:
Productivity Model
#3
• Incentive given base on identified
monthly productivity indicators and
linked to the team incentives (Team).
Performance
Criteria
Performance
Standard
(Target)
1.
Production targets
Above 80%
2.
Quality output
Above 90%
3.
Customer
complaint
Zero complaint
4.
Maintenance
5.
Discipline
No machine
breakdown
• If team of 5 employees able
to achieves all 5 criteria 
RM100/ team member
• If team achieves only 2
criteria  No incentives
No. of
Criteria
Achieved
Incentives
(RM)
5
100
4
80
3
60
2
0
No reminder or
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PLWS Model 3:
Combine Model
#1
• Payment of bonus according to 2
criteria – Company Performance and
Employee Performance Rating
Operating Profits
(RM Million)
Above 5.00
Variable Productivity payment (Months)
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
70 - 79
>80
Employee Performance Rating
<40
40 - 49
50 - 59
60 - 69
(%)
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INDUSTRIAL RELATIONS
(AMENDMENT) ACT 2007
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Section 13: Collective Bargaining
(2A)
A proposal for a collective agreement
may provide for one or more of the
following:
(a) provision for training to enhance skills
and knowledge of the workmen;
(b) provision for an annual review of the
wage system; and
(c) provision for a performance-based
remuneration system.
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PLWS in
Collective Agreement
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DISTRIBUTION OF COLLECTIVE AGREEMENT (CA) WITH PLWS BY SECTORS –20102012
Sector
Total Number of
Collective Agreement
Number of CA / Percentage With PLWS
2010
2010
2011
2011
2012
2012
No.
%
No.
%
No.
%
Manufacturing
195
180
147
144
73.85
129
71.67
125
86.81
Services
116
117
127
88
75.86
95
81.20
111
87.40
Agricultural
17
17
13
15
88.23
17
100.00
13
100.00
Others
2
6
9
2
100
6
100.00
7
77.78
Total
330
320
293
249
75.45
247
77.19
256
87.37
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ELEMENTS OF PLWS IN CA BY SECTORS, 2012
No
Elements
Manufacturing
(125)
Services
(111)
Agricultural
(13)
Construction
(3)
Quarry & Mining
(4)
88
(70.4%)
37
(29.6%)
7
(5.6%)
17
(13.6%)
51
(45.9%)
31
(27.9%)
3
(2.7%)
30
(27.0%)
1
(7.7%)
2
(15.4%)
1
(33.3%)
1
(33.3%)
2
(50.0%)
2
(50.0%)
-
-
-
3
(23.1%)
1
(33.3%)
-
115
(92.0%)
23
(18.4%)
106
(95.5%)
26
(23.4%)
5
(38.5%)
2
(66.7%)
-
-
-
-
-
-
-
2
(15.4%)
-
-
-
-
-
-
-
-
Bonus Payments
1.
Contractual Bonus
2.
Bonus Based on Management Discretion
3.
Fixed and Additional Bonus
Bonus Based on Profit/ Company
Performance
Annual Increment
4.
5.
Yearly Increment
6.
Increment based on Merit
2
(50.0%)
1
(25.0%)
Incentives/Allowances
1
(0.8%)
1
(0.8%)
7.
Group Target
8.
Individual Target
9.
Service Charge
-
10.
Skill Allowance
5
(4.00%)
14
(12.6%)
7
(6.3%)
11.
Piece Rated Incentives
-
-
12.
Commitment / Attendance Incentives
13.
COLA
14.
Cost and Time Saving Incentives
59
(47.2%)
5
(4.0%)
-
11
(9.9%)
17
(15.3%)
-
15.
Price Bonus
-
-
16.
Long Service Award
9
(7.2%)
17.
Outturn Incentives
18.
Performance Allowances for Maximum Scale
Employee
19.
Trip Incentives
20.
Quality Service Allowance
21.
OMO Incentives
22.
Coaching/Teaching Allowance
23.
Productivity Payment
2
(15.4%)
3
(23.1%)
-
-
1
(33.3%)
1
(25.0%)
-
-
-
2
(15.4%)
-
-
-
-
21
(18.9%)
-
-
-
-
-
6
(46.2%)
-
-
-
-
-
-
-
2
(1.6%)
1
(0.8%)
9
(8.1%)
1
(0.9%)
12
(10.8%)
3
(2.7%)
-
-
1
(25.0%)
-
-
-
-
-
-
-
-
-
-
1
(33.3%)
-
2
(1.6%)
4
(3.2%)
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PLWS Examples.
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Example 1:
Incentive Based on Performance and Productivity
Wage System
Fixed
Components
Basic Pay
Wage
Variable
Components
Min.
Annual
Increment
Profitability
Productivity
Incentives
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Combined
Variable Components
Profitability Incentive – the profitability incentives will be pay when
the profits fall within a predetermined range as shown in
Diagram : Profit Sharing
Profitability
Profit sharing formula to determine
“money in the pot”. The wage
incentive will only be given if the
profit falls within a predetermined
range
Total Bonus = Profit After Tax
Monthly Payroll Cost
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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
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Productivity Incentives
The incentives will based on team and individual performance
against predetermine productivity measurement.
Diagram: Productivity Incentives
Productivity
Based on team and individual performance
against predetermined productivity measurement
• Total output
• Quality output
• Wastages
• Customer Satisfaction
• Individual Performance
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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
Average
Performance
(%)
Less 70
70 -80
80-90
90-100
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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.
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Example 2:
Increment and Bonus Based on Performance and
Productivity
Performance
Rating
Increment
Rate
Performance
Bonus
5-Well above target
4.00%
2.5 months
4-Above target
3.00%
2.25 months
3-Target realized
2.50%
2 months
2-Target almost realized
1.50%
1.25 months
1-Target not realized
0.00%
0.5 month
Transformation • Innovation • Partnership
Example 3:
Incentive Based on Performance and Productivity
Company
Performance
Employees
Performance
A
B
C
A
B
C
A
B
C
Fixed
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
Variable
0.7
0.6
0.5
0.6
0.5
0.4
0.5
0.45
0.4
Total
1.9
1.8
1.7
1.8
1.7
1.6
1.7
1.65
1.6
Band 1
Band 2
Band 3
Transformation • Innovation • Partnership
Example 4:
Incentive Based on Performance and Productivity
Company Performance
(After Tax) RM
Bonus (Month)
No Profit
0.50
Zero but less than 10 million
1.00
10 million but less than 25 million
1.25
25 million but less than 50 million
1.50
50 million and above
1.75
Transformation • Innovation • Partnership
Example 5:
Incentive Based on Profits
Variable Incentive Scheme
Gross Operating Profits
(in term of percentage of achievement)
Bonus in term of number of
months
More than 110% of annual budget
1.5
105% to 109.99% of annual budget
1.25
100% to 104.99% of annual budget
1.0
95% to 100% of annual budget
0.5
90% to 95% of annual budget
0.25
<90% of annual budget
-
Transformation • Innovation • Partnership
Example 6:
Incentive Based on Performance and Productivity
NPAT 1million or more
or
ROE 6%
Whichever is higher
>6.00% to 8.00%
>8.00 to 10.00%
>10.00% to 12.00%
>12.00% to 14.00%
>14.00% to 16.00%
>16.00% to 18.00%
>18.00%
Bonus
0.33 month
0.50 month
0.75 month
1.00 month
1.25 month
1.50 month
1.75 month
2.00 month
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NPAT (mil)
1-1.5
1.5-2
2.00 - 2.75
2.75-3.25
3.25-2.75
3.75-4.25
4.25-4.75
>4.75
Example 7. Rework Incentives
Incentives will be paid when there is reduction in rework rate.
Planned Rework
Actual Acheivements
Incentives (RM)*
10% of the monthly
output
10% of the monthly
output
10% of the monthly
output
10% of the monthly
output
10% of the monthly
output
> 11%
0
8%-10%
10.00
5%-7%
15.00
2%-4%
20.00
0-1%
25.00
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Example 8: 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
Transformation • Innovation • Partnership
Example 10: Monthly Performance Incentives Scheme
The company will pay performance incentives based on the qualifying
criteria set by the company. Each employee must meet all the criteria to
be eligible for the incentives. The amount of the incentives will increase
from month to month. For example in an employee can achieved all the
criteria for January to December than the total incentives received by
the employee will be RM 750.00 (Table 6). However if the employee fail
to meet any one of the qualifying criteria in any given month will render
the employee to restart at the minimum amount of RM 35 per month upon
meeting the qualifying criteria for the month.
Qualification Criteria:
a. Nil late attendance for that month except with valid late comings reasons needs to
be approved by respective Head of Department.
b. Nil absenteeism for the month except with valid reasons needs to be approved by
respective Head of Department
c. Only one (1) medical leave for the month
d. Nil disciplinary record for the months i.e. written counseling , warning letter
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Months
Monthly Amount
(RM)
Accumulated Monthly Amount
(RM)
January
35
35
February
40
75
March
45
120
April
50
170
May
55
225
June
60
285
July
65
350
August
70
420
September
75
495
October
80
575
November
85
660
December
90
750
Transformation • Innovation • Partnership
PLWS Model
Bonus Based on Profits/Returns
Bonus based on Sales/Total Output
Six
Model
Recommended
Increment Based on Performance
Incentives based on employees quality
Incentives Based on Individual/Team/
Company Performance/Target
Incentives Based on Skills
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HOW TO DEVELOP
PLWS
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Establishment of PLWS Taskforce
• The company establish taskforce on PLWS
implementation comprises of all the head of
department and Human Resource Managers
as secretariat.
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PLWS TASKFORCE
Advisor
(Directors)
PLWS Committee
i. Head of each Department
ii. HR Department (Secretariat)
iii. Employee representative
Production
QA
Maintenance
Safety & Health
Sales & Delivery
HR / Finance
Procurement
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Determining KPI
• The company identify 7 critical KPIs that
determine company performance
• The members will rank from 1-7 the KPIs and
will choose the most important KPIs to be deal
with.
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Current Company’s KPIs
Rank the most critical objective to achieve by the company.
No
Mission
1
To proactively pursue sustainable growth, provide
products, services and solutions of the highest quality
and deliver more value to ensure a high level of
satisfaction among our customers.
To increase 15% domestic
market share by the year 2015.
2
We place the upmost importance on the Health and
Safety of our employees.
To achieve zero accident rate
consecutively for 6 months.
2
3
We promote and implement creative, innovative
ideas and solutions to produce value added and
innovative products and services.
To implement one breakthrough
kaizen project per department
per year.
4
4
We act with absolute honesty, integrity and fairness
in all our business dealings and corporate activities in
compliance with the laws and regulations.
To achieve 100% compliance
with all the laws and regulations
and code of conduct.
7
5
We recognize, respect and value diversity as a
source of strength in building the team, while
embracing the importance of both personal and
professional ethics in our work, behavior, and lives.
To conduct the yearly employee
satisfaction survey and take
necessary actions.
Proactively pursue cost reductions and eliminate
operational waste to improve the competiveness of
our products.
To reduce 10% operating costs
by the year 2015 by improving
the efficiency of the
manufacturing process.
6
7
Objective
Rank
(1-7)
3
To minimize any environmental impact through
To reduce the industrial waste by
conserving resources and preserving the quality of
1.5% on yearly basis.
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the surrounding environment.
5
1
6
48
Based on the ranking the company
decided to select the KPI
 To reduce operating cost by 10% in
year 2015.
Transformation • Innovation • Partnership
• All the department were given task to reduce
their monthly operating cost by 10%.
• The head of department will identify the area,
root cause and action plan to reduce the
cause by 10%.
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Production Department
S/N
KPIs
ROOT CAUSE
ACTION PLAN
1.
To reduce overtime
cost by 10 %.
 OT to do non productive job
for example repairing job and
waiting time during trouble.
 OT when necessary and
spend more for Kaizen
and Routine
maintenance.
2.
To reduce energy
cost i.e. natural gas
& electricity by
10%.
 Energy audit and eliminate
unnecessary motors and air
wiper.
 Energy audit and
provide one year action
(PDCA)
3.
To reduce
consumable &
spare by 10%.
 SCR : Frequent change belt
and IPA easy to evaporate
 Drawing : Dies, capstan ring
and contact parts damaged.
 SCR : Review belt life
time and install IPA
recovery machine
 Drawing : Root cause
analysis and PDCA
activity
Transformation • Innovation • Partnership
Maintenance Department
S/N
KPIs
ROOT CAUSE
1.
To reduce overtime  OT to do non productive job
cost by 10%.
for example repairing job and
standby during production.
2.
To reduce repair &
maintenance cost
by 10%.
ACTION PLAN
 OT when necessary and
spend more for Kaizen
and Routine
maintenance.
 No enough TPM and machine  Proceed to do major
kaizen activity.
part replacement job,
 Repeating problem same
capex and kaizen
symptom and situation.
activity.
 Promote root cause
analysis activity at
Maintenance
Department.
Transformation • Innovation • Partnership
QA Department
S/N
KPIs
ROOT CAUSE
1.
To reduce overtime  Basic understanding QA
cost by 10%.
overtime is follow
production schedule.
2.
To reduce quality
control cost by
10%.
 Over plan on QA budget
for equipment accessories
and for other's item.
ACTION PLAN
 For QA over time, need to
check detail production
plan and arrange
manpower base on QC
Inspector capability.
 Plan QA budget follow
actual expenses from last
year.
 Request Purchasing to get
more cheaper quotation for
compare.
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Sales & Delivery Department
S/N
2.
KPIs
To reduce
transportation
cost (outbound)
by 10%.
ROOT CAUSE
ACTION PLAN
 Machine problemsUrgent delivery.
 Delivery of small orders
under full load capacity.
 Collection for empty
baskets.
 Pallet collection from
northern - high cost/pc.
 Limitation in outbound
forwarding rate due to
volume constraint.
 Negotiation with provider for
lower charges.
a) Urgent delivery before 10.00am
- normal rate.
b) Urgent delivery after 10.00am additional 50% of normal rate.
If unavoidable, try to arrange
for collection of basket.
 Consolidating with other loose
cargoes.
 Full load collection.
 Collection for recycling. For HiEssence to dispose.
 Joint account with procurement
for in/out bound forwarding.
Transformation • Innovation • Partnership
Human Resource
S/N
1.
KPIs
ROOT CAUSE
To reduce  No proper time management on
overtime
daily & weekly planning.
cost by
 Ad-hoc activities.
10%.
ACTION PLAN
 Monitor overtime hours
according to budgeted
overtime hours.
 Plan and execute project
in advance to allow
sufficient time for the
work to be completed
during normal working
hours.
Transformation • Innovation • Partnership
THE COMMITTEE’S TERMS OF REFERENCE
(TOR)
To identify Key Performance Areas and Key Performance
Measure that has an impact on company performance;
1
2
To identify the key player or the PICs
(company/department/unit);
3
To facilitate the implementation of the Key
Performance Areas;
4
To monitor the achievement of the Key
Performance Indicator;
5
To engage the relevant stakeholders for further
deliberation on initiative to achieve the targeted KPIs;
6
To develop the linkages between wages and
productivity; and
7
To act as a mediator and reconcialter on PLWS
implementation.
Transformation • Innovation • Partnership
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Transformation • Innovation • Partnership