National Wages Council urges all employers to adopt flexible wage system

Key Concepts

Flexible Wage System: A compensation structure that allows for adjustments in wages based on company performance, economic conditions, and individual contributions, rather than solely relying on fixed built-in increases.
Variable Pay: A component of compensation that fluctuates based on performance metrics, such as company profits, team achievements, or individual productivity.
Built-in Wage Increases: Fixed, predetermined increases in base salary that are applied regularly, regardless of performance or economic conditions.
Progressive Wage Model (PWM): A framework that links salary increases to skills upgrading and career progression, particularly for lower-wage workers.
Productivity Growth: The increase in output per unit of input (labor, capital, etc.) over a period.
Upskilling/Reskilling: The process of acquiring new skills or updating existing ones to remain relevant in the workforce, especially in the face of technological advancements.
Total Rewards: A comprehensive approach to employee compensation and benefits that includes salary, bonuses, benefits, recognition, and development opportunities.
Psychic Pay: Non-monetary benefits or rewards that contribute to employee satisfaction and motivation, such as flexible work arrangements or a positive work environment.

Adoption of Flexible Pay and Wage Guidelines for 2026

Decline in Flexible Pay Adoption

Statistic: In 2024, approximately 76% of companies adopted some form of variable pay, a slight decrease from 77.3% in the previous year.
Attribution: This data is attributed to the Manpower Ministry.

National Wages Council (NWC) Recommendations for 2026

Urgency: The NWC is strongly urging all employers to adopt wage flexibility in 2026.
Rationale: This recommendation is driven by concerns about potential downside risks, including reescalating tariffs and geopolitical tensions.
Objective: The flexible wage system aims to allow companies to adjust wages during economic downturns, thereby avoiding retrenchment and fostering mutual navigation of business uncertainties.

Guidance for Employers

Companies Performing Well with Uncertain Prospects: These employers are advised to moderate built-in wage increases.
Companies Not Performing Well: These employers are encouraged to exercise wage restraint, with management setting an example.

Focus on Lower Wage Workers

Recommendation: The NWC recommends reviewing job ladders and increasing basic wages for lower-wage workers.

Wage Growth and Productivity

Wage Growth Linked to Productivity

Principle: The NWC emphasizes that wage growth should continue to track productivity increases.
Data: Overall labor productivity rose by 2.9% year-on-year in the first half of 2025.
Application: Built-in pay increases should reflect the business outlook, while bonuses and variable components should be tied to firm performance and individual contributions.

Sectoral Productivity Trends

External-Oriented Sectors: Sectors like financial and insurance services, and manufacturing, have demonstrated stronger productivity growth. These sectors are crucial for creating jobs.
Domestically Oriented Sectors: Sectors such as administrative and support services, and food and beverages services, are currently lagging in productivity. These sectors need to focus on business transformation to enhance competitiveness and productivity.

Compensation Adjustments and Support for Lower Wage Workers

CPF Wage Ceiling Increase

Fact: The monthly CPF wage ceiling will be raised from $7,400 to $8,000 in January.
Implication: Employers can consider both wages and CPF contributions as part of an employee's overall compensation.

Recommended Wage Increases for Lower Wage Workers

Target Group: Workers earning below $2,700 per month.
Recommendation: A 5.5% to 7.5% increase, or at least $15 to $125, whichever is higher.

Progress of Lower Wage Worker Wages

Data: Last year, over two-thirds of firms provided wage increases.
Impact of PWM: The Progressive Wage Model, combined with other efforts, has led to reasonably healthy wage growth for low-wage workers.
Wage Gap Narrowing: From 2021 to 2024, low-wage worker wages grew by 6.3%, compared to 3.2% for medium-wage workers, indicating a narrowing of the wage gap.

Investment in Skills and Enhanced Schemes

Importance of Upskilling

NWC Stress: The council highlights the necessity for employers to continue investing in upskilling to support long-term productivity and workforce resilience.
Government Acceptance: These recommendations have been accepted by the government and will be implemented from December.

Enhanced Scheme for Administrators and Drivers

Beneficiaries: Nearly 58,000 administrators and drivers will see their minimum wage floors rise.
Implementation: These increases will commence in July of the following year and will be further raised in 2027.
Specifics:
- Administrative Assistants: Wages will increase by $190 annually over the next two years from the current baseline of $1,980.
- Drivers: Annual salary increments will range from $165 to $235 until 2027, depending on licenses and job roles.

Recognition of Bus Captain Roles

Statement: Yoan Ling, Executive Secretary of the National Transport Workers Union, acknowledges that the roles of bus captains have evolved to include operating complex systems and ensuring passenger safety.

Challenges and Perspectives on Wage Increases

Challenges for Firms in Meeting Wage Increases

Singapore School Transport Association: This association, representing over 500 members and more than a thousand drivers, notes that clients are tightening their budgets due to economic uncertainty, often cutting transport spending first.
Contractual Limitations: Many bus contracts are on fixed monthly terms, meaning drivers are employed on fixed salaries. Wage increases may have to come from profit margins or savings, unless larger contracts are secured.

Singapore National Employers Federation (SNEF) Perspective

Support for Guidelines: The SNEF supports the wage guidelines.
Concerns: Some firms may find wage increases difficult due to revenue streams, cost pressures, and cross-border issues.
Urging: The SNEF encourages employers to regularly review market benchmarks and adjust wage ranges to remain competitive.
Quote: "It's quite a sizable number for a lot of businesses. And I can understand where not all businesses can adopt that. But I think we continue to try and preach a message that um, you know look at look at your workforce if your company can accommodate some some of these increases. Try because it's not a very good idea and I think all of us can employers relate to if if the lower wage in a company continues to remain low wage and the gap widens." (Attributed to SNEF representative)

Labor Movement and Platform Workers

Flexible Wage System as a Tool for Agility

Labor Movement View: A flexible wage system helps employers remain agile in uncertain conditions, enabling cost reduction through wage adjustments rather than job cuts.
Fairness and Sustainability: Employers are urged to share productivity gains and reward workers with fair and sustainable wage increases.

Inclusion of Platform Workers

Recognition: The NWC guidelines now include platform workers for the first time, recognizing their contributions.
Opportunities: Platform workers will gain access to training and career planning opportunities.

Digitalization and AI Impact

NTU Statement: Digitalization and AI-driven changes necessitate firm transformation and investment in reskilling and upskilling.
Job Redesign: This includes redesigning jobs to boost productivity, build long-term capabilities, and allocate budgets for skills upgrading.
Company Training Committees (CTCs): There is a significant push to help workers adapt to these changes.
Quote: "I think awareness is high now is to take action and to enable them to be equipped with the skills to manage geni in different sectors and different settings and for training very important." (Attributed to a labor movement representative)

Expert Insights on NWC Guidelines

Alo Pekkim, President of the Singapore Human Resources Institute

Annual Anticipation: HR practitioners, companies, and employees look forward to NWC guidelines annually for guidance on wage increases and benefits.
Balanced Guidelines: This year's guidelines are considered well-balanced, taking into account business challenges and offering flexibility for companies with varying performance levels.
Worker Perspective: The guidelines also consider the worker's perspective, focusing on salary increases, upskilling, and capability enhancement for future preparedness.

Significance of Flexible Wage System

Long-Standing Concept: The flexible wage system has been discussed for over 20 years.
Increased Pronouncement: Its significance is amplified due to geopolitical challenges and the disruptive impact of AI.
Benefit: It allows employers to avoid layoffs by adjusting wages collaboratively with unions or workers during downturns, with the potential for future recovery and investment in training.
Current Context: The slightly lower adoption numbers might be due to companies being more cautious and conservative amidst tariff changes and economic uncertainty. This also leads to a greater need to retain existing workers, making drastic wage changes potentially counterproductive due to fear of attrition.

Sustainable Implementation of Variable Wage System

Beyond Salary: Implementation should extend beyond salary to encompass "total rewards."
Psychic Pay: Non-monetary benefits like flexible benefits that offer greater utility to employees can serve as incentives.
Flexible Work Arrangements: Valued by employees for work-life harmony, these can be a significant part of the reward package.
Mindset Shift and Trust: Successful implementation requires a mindset shift and fostering a culture of trust within the organization.

Conclusion

The NWC's 2026 wage guidelines emphasize a shift towards greater wage flexibility, driven by economic uncertainties and technological advancements. While the adoption of flexible pay saw a slight dip in the previous year, the council is strongly urging employers to embrace these systems to navigate downturns without resorting to retrenchments. The guidelines advocate for wage growth to be aligned with productivity, with built-in increases reflecting business outlook and variable components tied to performance. Specific recommendations are made for lower-wage workers, including increased basic wages and a focus on job ladder reviews. The importance of upskilling and reskilling is paramount, with government acceptance of these recommendations set to impact nearly 58,000 administrators and drivers through enhanced wage schemes. Challenges remain for some businesses in meeting these increases, particularly those with fixed contracts. However, the labor movement and HR experts highlight the long-term benefits of flexible wage systems, including enhanced agility, employee retention, and a more resilient workforce, advocating for a holistic approach to total rewards and a culture of trust. The inclusion of platform workers and the emphasis on preparing for AI-driven changes underscore the forward-looking nature of these recommendations.