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Chapter 10

Wage Reform &

Wage Negotiation

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Brief History of Wage System

Early years

After independence

Economic growth

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1985Recession and Wage

Reform

Rigidity in the wage system

- seniority-based

- long time scale

- high maximum

- fixed annual increment

Need for wage reform

New role of NWC

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Flexible Wage System

Link salary with profitability

Change with businessconditions

Motivate with reward forperformance

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Principles of FWS

Reflect job value

Increase: - lag behind productivity growth

- considercompanys profitability

- considerworkers performance

Stability in workers income

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Features of

FWS

Basic wage

-provide income stability AWS: one month

- adjustable

Variable component

- based on performance

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Profit-sharing Model Basic wage

Service increment

AWS: 1 month

Variable performancebonus

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Variable Productivity

Payment Model

Basic wage

Service increment

AWS: 1 month

Variable productivity payment

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Problems Implementing FWS

Wage increase exceeds productivity

Wage exceeds job value Lack performance appraisal system

Capping ofbonus

Difficulty: productivity measurement

Reluctance to share information

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Wage Negotiation

Economic information

A) General economic indicators

B)Labour market indicators

C)Wage-related indicators

D) Company performance E)Wage-productivity link

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A) General Economic Indicato

rs

GDP

GNP per capita

Consumer price index (CPI)

Inflation rate

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B) Labou

rMa

rket Indicato

rs

Labour force

Participation rate

Unemployment rate

Educational profile

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C) Wage-

related Indicato

rs

Annual earningsby industry

Monthly wage by occupation

Annual wage increase

Productivity growth Wage increaseby industry

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D)C

ompanyP

erfo

rmance

Current vs. past performance

Compare with similarcompanies

Companys prospects

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E) Wage-productivity Lin

k

Measure of companys

performance Individual workersperformance

Acceptable formula

Access to information

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