productivity-linked wage system (plws) colloquium and straight talk sugumar saminathan14 april 2015...

PRODUCTIVITY-LINKED WAGE SYSTEM(PLWS) COLLOQUIUM AND STRAIGHT

TALK

Sugumar Saminathan 14 April 2015 (Tuesday) Manager, Grand Bluewave HotelMalaysia Productivity Corporation, Shah Alam Tel: +603-79557266 ext 544,DL: +603-79562566, Mobile:+6019-6354078E-mail:[email protected] Website:http//www.mpc.gov.myMinistry of International Trade and Industry (MITI)

Transformation • Innovation • Partnership2


PRODUCTIVITI

BUSINESSMAN:“Productivity is

reducing cost and increase profits.”

WORKFORCE:

“Productivity

means getting

higher wages,

benefits and

better working

conditions and

environment.”

CONSUMER:“Productivity bring good

quality products and services at cheaper

prices and higher living standards.”

Transformation • Innovation • Partnership

WHAT IS PRODUCTIVITY?

Productivity =

Output

Input

Output : Goods & Services

Input : Resources Used

7

5 WAYS OF IMPROVING PRODUCTIVITY?

5 Ways Firm Approach

O

I

O

I

O

I

O

I

O

I

Reduce Cost

Manage Growth

Work Effectively

Work Smarter

Pare Down

Productivity is a measure of efficiency in the use of inputs or

resources in relation to its outputs

Output

●Gross Domestic Product (GDP),● Total Output, ● Added Value,● Monetary Value of Production,● Quantity of physical unit produced

Output

●Gross Domestic Product (GDP),● Total Output, ● Added Value,● Monetary Value of Production,● Quantity of physical unit produced

Input

● Employees,● Total man-hours worked● Labour cost, ● Capital/Fixed assets, ● Energy, ● Material, ● Services

Input

● Employees,● Total man-hours worked● Labour cost, ● Capital/Fixed assets, ● Energy, ● Material, ● Services


PRODUCTIVITY : WEALTH CREATION AND SHARING

Baking & sharing a bigger economic cake

PRODUCTIVITY -LINKED WAGE SYSTEM


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.

Productivity-Linked Wage System

11


PRODUCTIVITY- LINKED WAGE SYSTEM (PLWS)


Malaysia’s Policies on Linking Wages To Productivity


PHASE 1Creating Conducive Environment

PHASE 2Establishing PLWS System

PHASE 3Implementing PLWS System

MPC PLWS MODELMPC 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

8. Establishing PLWS on a trial basis

9. Review and make the necessary adjustments

10. Implement PLWS at the

firm level7. Linking Incentives with Improvement

11. Plan (continuous Improvement)

PHASES IN IMPLEMENTING PLWS

Transformation • Innovation • Partnership 1515

COMPONENTS OF PLWS

BASIC WAGE

FIXED COMPONENTS

Wage increase for the year based on:-

Productivity, orProfit sharing formula

VARIABLE COMPONENTS

There must always be the fixed and the variable component in

the PLWS

ANNUAL INCREAMENT


PLWS Model 1:

Profitability Model

• Payment of bonus according to profit levels based on monthly basic pay.

• Payment of bonus according to profit levels based on monthly basic pay.

Profit After Tax(RM Million)

Bonus[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 1:

Profitability Model

• Bonus payments paid in quantum (RM)

• 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

11 and above 2,000


PLWS Model 2:

Productivity Model

• Bonus paid out at the end of the financial year based on saleable output.

• 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


PLWS Model 2:

Productivity Model

• Incentives given based on the productivity targets achieved (Individual).

• 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% 0


PLWS Model 2:

Productivity Model

• Incentive given base on identified monthly productivity indicators and linked to the team incentives (Team).

• Incentive given base on identified monthly productivity indicators and linked to the team incentives (Team).Performance

CriteriaPerformance

Standard(Target)

1. Production targets Above 80%

2. Quality output Above 90%

3. Customer complaint

Zero complaint

4. Maintenance No machine breakdown

5. Discipline No reminder or warning letter

No. ofCriteria

Achieved

Incentives(RM)

5 100

4 80

3 60

2 0

1 0

• If team of 5 employees able to achieves all 5 criteria RM100/ team member

• If team achieves only 2 criteria No incentives


PLWS Model 3:

Combine Model

• Payment of bonus according to 2 criteria – Company Performance and Employee Performance Rating

• Payment of bonus according to 2 criteria – Company Performance and Employee Performance Rating

Operating Profits (RM Million)

Variable Productivity payment (Months)

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 Rating (%)

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

INDUSTRIAL RELATIONS INDUSTRIAL RELATIONS (AMENDMENT) ACT 2007(AMENDMENT) ACT 2007

2222Transformation • Innovation • Partnership

2323

Section 13: Collective Section 13: Collective Bargaining Bargaining

(2A)(2A) A proposal for a collective agreementA proposal for a collective agreement

may provide for one or more of the may provide for one or more of the

following:following:

(a) (a) provision for training to enhance provision for training to enhance skills skills and knowledge of the workmen;and knowledge of the workmen;

(b)(b) provision for an annual review of provision for an annual review of the the wage system; and wage system; and

(c)(c) provision for a performance-basedprovision for a performance-based

remuneration system.remuneration system.



PLWS in Collective Agreement

25Transformation . Innovation . Partnership

Sector Total Number of Collective Agreement Number of CA / Percentage With PLWS

2010 2011 2012

2010 2011 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

DISTRIBUTION OF COLLECTIVE AGREEMENT (CA) WITH PLWS BY SECTORS –2010- 2012

26Transformation . Innovation . Partnership

No Elements Manufacturing(125)

Services(111)

Agricultural(13)

Construction(3)

Quarry & Mining(4)

Bonus Payments

1. Contractual Bonus 88(70.4%)

51(45.9%)

1(7.7%)

1(33.3%)

2(50.0%)

2. Bonus Based on Management Discretion 37(29.6%)

31(27.9%)

2(15.4%)

1(33.3%)

2(50.0%)

3. Fixed and Additional Bonus 7(5.6%)

3(2.7%) - - -

4. Bonus Based on Profit/ Company Performance

17(13.6%)

30(27.0%)

3(23.1%)

1(33.3%) -

Annual Increment

5. Yearly Increment 115(92.0%)

106(95.5%)

5(38.5%)

2(66.7%)

2(50.0%)

6. Increment based on Merit 23(18.4%)

26(23.4%) - - 1

(25.0%)Incentives/Allowances

7. Group Target 1(0.8%) - - - -

8. Individual Target 1(0.8%) - 2

(15.4%) - -

9. Service Charge - 14(12.6%) - - -

10. Skill Allowance 5(4.00%)

7(6.3%) - - -

11. Piece Rated Incentives - - 2(15.4%) - -

12. Commitment / Attendance Incentives 59(47.2%)

11(9.9%)

3(23.1%)

1(33.3%)

1(25.0%)

13. COLA 5(4.0%)

17(15.3%) - - -

14. Cost and Time Saving Incentives - - - - -

15. Price Bonus - - 2(15.4%) - -

16. Long Service Award 9(7.2%)

21(18.9%) - - -

17. Outturn Incentives - - 6(46.2%) - -

18. Performance Allowances for Maximum Scale Employee - - - - -

19. Trip Incentives 2(1.6%)

9(8.1%) - - 1

(25.0%)

20. Quality Service Allowance 1(0.8%)

1(0.9%) - - -

21. OMO Incentives - - - -

22. Coaching/Teaching Allowance 2(1.6%)

12(10.8%) - - -

23. Productivity Payment 4(3.2%)

3(2.7%) - 1

(33.3%) -

ELEMENTS OF PLWS IN CA BY SECTORS, 2012


PLWS Examples.PLWS Examples.


Wage System

Fixed Components

Variable Components

Basic PayWage

Min. Annual Increment

Profitability ProductivityIncentives

Combined

Example 1:Incentive Based on Performance and Productivity


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

Variable ComponentsProfitability Incentive – the profitability incentives will be pay when the profits fall within a predetermined range as shown in Diagram : Profit Sharing


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


Productivity

Based on team and individual performance against predetermined productivity measurement

• Total output• Quality output• Wastages• Customer Satisfaction• Individual Performance

Productivity Incentives

The incentives will based on team and individual performance against predetermine productivity measurement.Diagram: Productivity Incentives


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

AveragePerformance

(%)

Less 70 70 -80 80-90 90-100


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.


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

Example 2:Increment and Bonus Based on Performance and Productivity


CompanyPerformance Band 1 Band 2 Band 3Employees

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



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



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 -

Example 5:Incentive Based on Profits


NPAT 1million or more or

ROE 6% Bonus NPAT (mil)Whichever is higher 0.33 month 1-1.5

>6.00% to 8.00% 0.50 month 1.5-2 >8.00 to 10.00% 0.75 month 2.00 - 2.75

>10.00% to 12.00% 1.00 month 2.75-3.25>12.00% to 14.00% 1.25 month 3.25-2.75>14.00% to 16.00% 1.50 month 3.75-4.25>16.00% to 18.00% 1.75 month 4.25-4.75

>18.00% 2.00 month >4.75



Planned Rework Actual Acheivements Incentives (RM)*

10% of the monthly output > 11% 0

10% of the monthly output 8%-10% 10.00



10% of the monthly output 0-1% 25.00

Example 7. Rework Incentives

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


Example 8: : Performance Incentives AllowancePerformance 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


Example 10: : Monthly Performance Incentives Scheme Monthly Performance Incentives Scheme

The company will pay performance incentives based on the qualifyingcriteria set by the company. Each employee must meet all the criteria tobe eligible for the incentives. The amount of the incentives will increasefrom month to month. For example in an employee can achieved all thecriteria for January to December than the total incentives received bythe employee will be RM 750.00 (Table 6). However if the employee failto meet any one of the qualifying criteria in any given month will renderthe employee to restart at the minimum amount of RM 35 per month uponmeeting 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 Departmentc. Only one (1) medical leave for the monthd. Nil disciplinary record for the months i.e. written counseling , warning letter


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


PLWS Model

Six Model

Recommended

Bonus Based on Profits/Returns

Increment Based on Performance

Incentives based on employees quality

Transformation, Innovation & Partnership

Incentives Based on Individual/Team/Company Performance/Target

Incentives Based on Skills

Bonus based on Sales/Total Output


HOW TO DEVELOP

PLWS

44


Establishment of PLWS Taskforce

• The company establish taskforce on PLWS implementation comprises of all the head of department and Human Resource Managers as secretariat.

45


PLWS TASKFORCE

Advisor(Directors)

PLWS Committeei.Head of each Department

ii.HR Department (Secretariat)iii.Employee representative

Production QA Safety & Health HR / Finance

Maintenance Sales & Delivery Procurement


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.

47


Current Company’s KPIs Rank the most critical objective to achieve by the company.

No Mission Objective Rank(1-7)

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.

3

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. 5

6 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.

17 To minimize any environmental impact through

conserving resources and preserving the quality of the surrounding environment.

To reduce the industrial waste by 1.5% on yearly basis. 6

48


Based on the ranking the company decided to select the KPI

Based on the ranking the company decided to select the KPI

To reduce operating cost by 10% in year 2015.


• 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%.

50


Production DepartmentProduction 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


Maintenance DepartmentMaintenance Department


1. To reduce overtime cost by 10%.

OT to do non productive job for example repairing job and standby during production.

OT when necessary and spend more for Kaizen and Routine maintenance.

2. To reduce repair & maintenance cost by 10%.

No enough TPM and machine kaizen activity.

Repeating problem same symptom and situation.

Proceed to do major part replacement job, capex and kaizen activity.

Promote root cause analysis activity at Maintenance Department.


QA DepartmentQA Department



Basic understanding QA overtime is follow production schedule.

For QA over time, need to check detail production plan and arrange manpower base on QC Inspector capability.

2. To reduce quality control cost by 10%.

Over plan on QA budget for equipment accessories and for other's item.

Plan QA budget follow actual expenses from last year.

Request Purchasing to get more cheaper quotation for compare.



2. To reduce transportation cost (outbound) by 10%.

Machine problems- Urgent 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 Hi-

Essence to dispose. Joint account with procurement

for in/out bound forwarding.

Sales & Delivery DepartmentSales & Delivery Department


Human ResourceHuman Resource



No proper time management on daily & weekly planning.

Ad-hoc activities.

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.


THE COMMITTEE’S TERMS OF REFERENCE (TOR)

productivity-linked wage system (plws) colloquium and straight talk sugumar saminathan14 april 2015...

Documents

plws systemphase

plws committee4

competitive wage system

wage system andc provision

collective bargaining

collective agreementmay

output input output

total output