MOHD SHARIFFUDIN BIN PADZIL

PEN PENGARAH KANAN,

UNIT PROMOSI DAN PUBLISITI PLWS
JABATAN PERHUBUNGAN
PERUSAHAAN
PUTRAJAYA
mshariffudin@mohr.gov.my
 CONTENTS
Concept High Income Economy

Concept Productivity

Productivity Linked Wages System

Examples Model of PLWS

HIGH INCOME ECONOMY
Income per capita
usd 15k 20k

2020
PRODUCTIVITY GROWTH MUST
BE AT LEAST 4.5% - 6 % PER
ANNUM CONSISTENTLY

2014
Malaysia Productivity And GDP Growth
 New Economic Model (NEM)

Creating a high income nation will mean higher wages

throughout the economy.

Allow wage level to be reflective of the skill level

High Raise wage through productivity gains.

Income
Economy Protect workers through stronger safety net while
encouraging labour market flexibility

Encourage higher productivity activities and pave the

way for more robust future increase in wages
 CONCEPT PRODUCTIVITY
Productivity is the ability to produce output from a given set of inputs ~
measures the efficiency and effectiveness of resource utilizations such as
employees, technology, system and management etc., in converting inputs
into useful outputs.
PRODUCTIVITY = OUTPUT
Mathematically,
INPUT
Output Input
End-product of the process which can either The amount of resources that are utilise in
be the finished goods or the services producing the goods or in providing the
rendered. services.
Gross Domestic Product (GDP) Employees
Total Output Total man-hours worked
Added Value Labor cost
Monetary Value of Production Capital/Fixed assets
Quantity of physical unit produced Energy
Material
Services
PRODUCTIVITY LINKED WAGE SYSTEM
IN MALAYSIA
Malaysias Policies on Linking Wages To Productivity

Guidelines on Wage Reform Was

Established in August 1996.

Establish a closer link between wages

and productivity

Develop a wider and systematic approach

towards improving productivity and
wages

Ensure active involvement and

cooperation of employees to develop
PLWS

Ensure that employees obtain a fair share

of gains from productivity growth and
performance improvements
PRODUCTIVITY LINKED WAGE SYSTEM

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.
PLWS in Malaysia

INDUSTRIAL RELATIONS DEPARTMENT (IRD)

PROMOTE PLWS
As of APRIL 2014

76,858
employers 3,104,038 employees
BENEFITING
implemented throughout Malaysia
PLWS
 Key Players in PLWS

Employer the main player that will initiate the

implementation of PLWS at company level.

Employee (unionised or non-unionised) is the main

catalyst that will ensure that the KPIs set under the PLWS
are achieved.

Government assists companies in developing the system

and negotiation process.
Linking wages to productivity makes the
following possible:
a) Higher wages for worker and higher
profits for companies.
b) Greater competitiveness for companies.

Wages Profits
Wages Profits

Output Output
2 BASIC COMPONENTS OF PLWS
Basic salary
Annual Increment
FIXED Bonus Contractual (
COMPONENT if any )

There must always be the Fixed and the

Variable component in the PLWS
Wage increase for
the year is based
VARIABLE on a productivity or
COMPONENT profit sharing
formula
ELEMENTS PLWS
NON INCREMENT
SERVICE
CONTRACTUAL BASE ON
CHARGES
BONUS PERFORMANCE

PIECE RATE INDIVIDUAL ATTENDANCE

SYSTEM ACHIEVEMENT ALLOWANCE

COACHING /
TRIP SALES
TEACHING
INCENTIVE INCENTIVE
ALLOWANCE
MODEL PLWS 3 BASIC
MODELS

COMBINED
MODEL

PRODUCTIVITY PROFITABILITY
MODEL MODEL
PRODUCTIVITY MODEL
FIXED COMPONENT
Basic Wage &
Annual Increment

VARIABLE COMPONENT

A variable productivity payment to be determined.

T= A+P
Where T = total wage increase
A = annual increment
P = variable productivity payment
Example Productivity model
Year 1
If Basic wage = RM1000 per month, A = 2% and P = 3%,
Basic wage + A = RM1,000 + 2% (RM1,000) = RM1,020 (built into
basic wage).
P = 3% x RM1000 x 12 months = RM360 per annum
Year 2:
If basic wage = RM1,020; A = 2% and P = 4%
Basic Wage + Annual Increment = RM1,020 + 2% (RM1,020) =
RM1,040 per month
P = 4% x RM1,020 x 12 months = RM489.60 per annum
Annual Variable Payment at end of year 2:
P for year 1 RM360.00
P for year 2 RM489.60
Cumulative for 2 consecutive years RM849.60
Example Profitability Model

Basic Wages

Fixed Annual Increment

Bonus Contractual (if any)

component

bonus to be determined by a profit-sharing

formula and where applicable:-
Variable The formula is to be agreed upon between
the management and union and spelt out in
component the Collective Agreement or through
consultation for the non-unionised sector
PLWS Model 1:
Profitability Model
#1

Payment of bonus according to profit

levels based on monthly basic pay.

Profit After Tax Bonus

(RM Million) [Month(s)Salary]

<1.5 (threshold) 0

1.5 - 1.99 0.5

2.0 - 2.49 1.0

2.5 - 2.99 1.5

3.0 and above 2.0

PLWS Model 3:
Combine Model
#1
Payment of bonus according to 2
criteria Company Performance and
Employee Performance Rating
Operating Profits Variable Productivity payment (Months)
(RM Million)
Above 5.00 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

Employee Performance <40 40 - 49 50 - 59 60 - 69 70 - 79 >80

Rating (%)
Combined Model
#2
Annual Profit Months of
(RM Million) Basic wage
Above 1.49 1.00 1.00 1.25 1.50 1.75 2.00
1.00 1.49 0.75 0.75 1.00 1.25 1.50 1.75
0.77 0.99 0.50 0.50 0.75 1.00 1.25 1.50
0.50 0.69 0.25 0.25 0.50 0.75 1.00 1.25
Below 0.50 0.0 0.0 0.25 0.50 0.75 1.00
Productivity <1 1.0 2.49 2.5 4.99 5.0 - 7.45 7.5 9.99 >10.0
growth
Examples Model PLWS
Example 1 Performance and Productivity
Incentives

Incentives based on performance and productivity

refers to reward system that linked variable pay or
incentives to the performance or productivity of the
employees.
The incentives will vary according to
the achievement of the employees . The firm
implement wages system which comprises fixed
and variable components.
Under the fixed component the company gives
basic pay and minimum annual increment based
on not less than 2/3 or 60 % of 3 years CPI average.
The increment will provide element of income
stability and form a small portion of the wage bill
to meet escalating living cost.
The variable components comprises annual
performance increment, annual performance
bonus, monthly productivity payment and
monthly multi skill allowance.
The variable components will determine the total
take home pay and the incentives will be based
on performance and less efficient will receive
lower returns.
 Incentive Based on Performance and Productivity

Wage System

Fixed Variable
Components Components

Basic Pay Min.

Annual Productivity
Wage Profitability Combined
Increment Incentives
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 Monthly Payroll Cost Bonus = Profit After Tax
(RM Million) (RM Million) 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
ii) 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
 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
Performanc
Less 70 70 -80 80-90 90-100
e
(%)
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.
EXAMPLE 2 Profitability-linked bonus

Fixed Bonus:
The Company shall pay an annual guaranteed bonus equivalent to
one month of the last drawn basic salary.

Variable Bonus:
Should the company make a profit of:
RM1,500,000/= to RM2,500,000/=, the company shall pay one and a
half (1.5) months of the last drawn basic salary as bonus;

Profits exceeding RM2,500,000/=, bonus payment shall be two (2)

months of the last drawn basic salary.

Notwithstanding the above, the guaranteed bonus of one month,

based on last drawn basic salary, shall continue to be applicable.
EXAMPLE 3 Profit Sharing and Team Incentive

There are two components in this model, the fixed and variable
components.

The Fixed Component comprises:

Basic Wage
The basic wage comprises the monthly wage which is based on a
salary scale with a minimum and maximum range for each category
of employee.

Annual Increment
The annual increment is linked to the basic wage and will vary
within the scale of pay assigned to the position.
Variable Component
There are two types of incentives which are linked to
productivity/performance:

Bonus Based on Profit and Individual Performance

Team Incentive

Bonus Based on Profit and Individual Performance

The profit used in this model is Profit Before Tax which will be
distributed to employees based on profit level and
performance. The higher the firms profitability, the larger will
be the amount available for sharing.

Table below shows an example the matrix system of bonus

payment. Based on this matrix, the amount of bonus payment
received by an employee will depend on the profitability of the
firm and employee performance.
 Profit
Variable Incentive Bonus (Months)
(RM million)

> 12 0 0.3 0.5 1.0 1.1 2.1

9-12 0 0.2 0.3 0.9 1.0 1.5

6-8.9 0 0.0 0.2 0.8 0.9 1.3

4-5.9 0 0.0 0.1 0.7 0.8 1.1

<4 0 0.0 0.0 0.5 0.6 0.9

Employee
Performance <40 40-49 50-59 60-69 70-80 >80
Rating (%)
 Team Incentive

Performance Standard
Performance Criteria (Target)

1. Production targets above 80%

2. Quality output above 90%

3. Customer complaint Zero complaint

4. Maintenance No machine breakdown

No reminder or warning
5. Discipline
letter
Team Incentive Payout based on Criteria Achieved
Monthly Incentives

Number of Criteria Achieved Incentives

5 RM 100
4 RM 80
3 RM 60
2 RM 0
1 RM 0
If a team of 5 employees are able to achieve all the five
criteria, each team member will receive RM 100 as a
monthly incentive.
However, if the team achieves only 2 criteria then there
will be no pay out.
EXAMPLE 4 Productivity Targets
In the case of this example, the service organisation gives incentives based on
the productivity targets achieved.

Table below shows an example of planned targets against achievable targets.

Planned Target Actual Achievements Incentives (RM)

80% Above 100% 150

80% 91%-100% 100

80% 80% - 90% 50

80% Below 80% 0

Incentives are given to the employees when the actual productivity
achievement is higher than the planned target.
For example, if the planned target is 80% and the actual achievement is 95%
then the employees will receive RM100.00 for achieving the productivity
targets.
EXAMPLE 5 Bonus Based on Company and Individual
Performance

The manufacturing firm in this example shall pay

performance bonus based on the company and the
individual performance.

The company performance shall be based on

achievements against business plan of the year and
employee performance shall be based on the
performance appraisal rating and points awarded in
accordance to their annual appraisal
 Bonus Based on Company and Individual Performance

Company Performance below 85% - 101% - 121% - Above

Based on Business Plan 85% 100% 120% 140% 140%

Individual Performance Bonus Payout

Unsatisfactory below 40% 0 0.1 0.2 0.3 0.4

Average 40% - 54% 0.3 0.4 0.5 0.6 0.7

Good 55% - 69% 0.5 0.7 0.9 1.1 1.3

Very Good 70% -85% 0.7 1.0 1.3 1.6 1.9

Outstanding above 85% 1.0 1.3 1.6 1.9 2.2

If the companys performance rating is 100% and individual performance is 75%

which is very good, then the quantum of bonus that will be granted to the employee
will be 1.0 month. Therefore, this clearly indicates that whenever both parties i.e.
employees and firm perform very well, there will be higher quantum of bonus
distributed among the employees.
EXAMPLE 7
Debt Incentive Collection

Debt
Current 30 days 60 days 90 days
Collection

<RM100,000 2.0% 1.5% 1.0% 0.5%

RM100,000-
1.0% 0.5% 0.25% 0.1%
200,000

>RM200,00 0.5% 0.25% 0.1% 0.05%

EXAMPLE 8 Rework Incentives
Incentives will be paid when there is reduction in rework rate.

Actual Incentives
Planned Rework
Achievements (RM)*
10% of the monthly > 11% 0
output
10% of the monthly 8%-10% 10.00
output
10% of the monthly 5%-7% 15.00
output
10% of the monthly 2%-4% 20.00
output
10% of the monthly 0-1% 25.00
output
EXAMPLE 9 MERIT AND PROFIT SHARING SCHEME

The Scheme consist of two components:

(a) Fixed Component which comprises of basic wage

plus an annual increment of 3%of basic salary and an
annual bonus of one months basic salary.

(b) Variable Component. Among the tools used to

determine the variable component are profit sharing
and personal performance review (PPR).
EXAMPLE 10
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
PLWS and its impact

Companies with PLWS 2001 - 2004 2005 - 2008

Elements in Collective
Agreements 691 1,566

Impact of PLWS
2006 (%) 2008 (%)
Implementation
Productivity 2.64 5.17
Staff Turnover 5.21 2.13
Absenteeism 8.80 4.17
Rejects and Reworks 5.33 2.85
 ENHANCE PLWS PRACTICES

Improved Productivity and

Competitiveness at the firm level

Job stability and reduces retrenchment

Provide continuous improvement

Benefits

Motivation and job satisfaction

Improves communication and

cooperation

44
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