CONTENTS

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CONTENTS
Concept High Income Economy
Concept Productivity
Productivity Linked Wages System
Impact on PLWS Implementation
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CONCEPT HIGH INCOME ECONOMY IN MALAYSIA
VISION 2020
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A high-income economy is defined by the World
Bank as a country with a gross national
income per capita above US12,746
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CONCEPT PRODUCTIVITY and PLWS
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Different people have different perspectives on
the definition of productivity
CONSUMER Productivity bring good quality
products and services at cheaper prices .
BUSINESSMAN Productivity is reducing cost and
increase profits.
WORKFORCE Productivity means getting higher
wages, benefits and better working conditions and
environment.
ECONOMIST Productivity as a ratio of output to
input of resources used in the process of
production.
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• Productivity is the ability to produce output
  from a given set of inputs measures the
  efficiency and effectiveness of resource
  utilisations such as employees, technology,
  system and management etc., in converting inputs
  into useful outputs.
• Mathematically,

• Output
• End-product of the process which can either be
  the finished goods or the services rendered.
• Gross Domestic Product (GDP)
• Total Output
• Added Value
• Monetary Value of Production
• Quantity of physical unit produced

• Input
• The amount of resources that are utilised in
  producing the goods or in providing the services.
  
• Employees
• Total man-hours worked
• Labour cost
• Capital/Fixed assets
• Energy
• Material
• Services

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Output
Added Value
Productivity
Number of Employee
Input
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5 WAYS OF IMPROVING PRODUCTIVITY?
5 Ways Firm Approach





Reduce Cost
Manage Growth
Work Smarter
Pare Down
Work Effectively
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PRODUCTIVITY LINKED WAGE SYSTEMIN MALAYSIA
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PLWS in Malaysia
INDUSTRIAL RELATIONS DEPARTMENT (IRD)
PROMOTE PLWS
As of MAC 2015
77,683 employers implemented PLWS
3,286,735 employees throughout Malaysia
BENEFITING
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Guidelines on Wage Reform 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
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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 the company
  achieved their performance target
• Government assists companies in developing the
  system and negotiation process.

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PLWS MODELS
Three basic models for companies to adapt and
adopt
Profitability Model
Productivity Model
Combined Model
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Components OF PLWS
FIXED COMPONENT Basic Wage and an Annual
Increment
There must always be the fixed and
the variable component in the PLWS
VARIABLE COMPONENT Wage increase for the year is
based on a productivity or profit sharing
formula
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ELEMENTS PLWS
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THE PROFITABILITY MODEL

• 1. Fixed Component
• Basic wage
• An annual increment

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• 2. Variable Component
• A variable component performance bonus to be
• determined by a profit-sharing formula and where
• applicable-
• a) The formula is to be agreed upon between the
• management and union and spelt out in the
• collective agreement or through consultation
• for the non-unionised sector
• b) Wage incentive is paid when profits have
  exceeded a
• predetermined or threshold level which can be
• calculated based on return on investment,
  return on
• Assets, return of equity and the average profit
  earned over
• a number of years in the past.

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Example of Profitability ModelBonuses are paid
only if profits are made
Profit After Tax (RM) million Bonus (month(s) of salary)
Less than 1.5 0
1.5 2.49 1
2.5 3.49 1.5
3.5 4.49 2
4.5 5.0 2.5
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THE PRODUCTIVITY MODEL

• Fixed Component
• Basic Wage
• An Annual Increment
• Variable Component
• A variable productivity payment to be determined

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Productivity Model Formula
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• Example of Productivity Model
• Year 1
• If Basic wage RM1000 per month, A 2 and P
  3,
• Basic wage A RM1000 2 (RM1000) RM1020
• (A will form part of next years basic wage).
• P 3 x RM1000 x 12 months RM360 per annum
• (Note A and P are derived from the total
  productivity for the year,
• The annual increment must never be greater than
  productivity).

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• 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 RM848.60

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COMBINED MODELPayment of Bonus is made
according to profitability and individual
performance
Firm Performance (Profit Before Interest and Tax (PBIT)- RM million) lt5 5-10.99 11-15.99 16-20 gt20
Individual Performance Ratings Months of Bonus Months of Bonus Months of Bonus Months of Bonus Months of Bonus
Poor (Less than 50) 0 0 0 0 0
Satisfactory (40-64) 0.5 0.5 0.5 0.5 0.5
Good (65-74) 1.00 1.25 1.50 1.75 2.00
Very Good (75-85) 1.25 1.50 1.75 2.00 2.25
Excellent (85 and above) 1.50 1.75 2.00 2.25 2.50
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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 2/3 of 3 years CPI average.

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• 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
  multiskill 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.

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Incentive Based on Performance and Productivity
Wage System
Fixed Components
Variable Components
Basic Pay Wage
Min. Annual Increment
Profitability
Productivity Incentives
Combined
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• i) 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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• 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

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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) Incentives (Months) Incentives (Months) 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
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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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Profitability-linked bonus
EXAMPLE 2

• 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.

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Profit Sharing and Team Incentive
EXAMPLE 3

• 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.

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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.

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Profit Sharing Incentive Matrix
Profit (RM million) Variable Incentive Bonus (Months) Variable Incentive Bonus (Months) Variable Incentive Bonus (Months) Variable Incentive Bonus (Months) Variable Incentive Bonus (Months) Variable Incentive Bonus (Months)
gt 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
lt 4 0 0.0 0.0 0.5 0.6 0.9
Employee Performance Rating () lt40 40-49 50-59 60-69 70-80 gt80
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Team Incentive
Performance Criteria Performance Criteria Performance 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
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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.

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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.

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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

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Bonus Based on Company and Individual Performance
Company Performance Based on Business Plan Company Performance Based on Business Plan below 85 85 - 100 101 - 120 121 - 140 Above 140
Individual Performance Individual Performance Bonus Payout Bonus Payout Bonus Payout Bonus Payout 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.

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EXAMPLE 6
Debt Incentive Collection
Debt Collection Current 30 days 60 days 90 days
ltRM100,000 2.0 1.5 1.0 0.5
RM100,000-200,000 1.0 0.5 0.25 0.1
gtRM200,00 0.5 0.25 0.1 0.05
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EXAMPLE 7
Rework Incentives Incentives will be paid when
there is reduction in rework rate.
Planned Rework Actual Achievements Incentives (RM)
10 of the monthly output gt 11 0
10 of the monthly output 8-10 10.00
10 of the monthly output 5-7 15.00
10 of the monthly output 2-4 20.00
10 of the monthly output 0-1 25.00
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Performance Incentives Allowance
EXAMPLE 8

• 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
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Monthly Performance Incentives Scheme
EXAMPLE 9

• 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. 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
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IMPACT OF PLWS
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PLWS AND ITS IMPACT
Companies with PLWS Elements in Collective Agreements 2001 2004 2005 2008
Companies with PLWS Elements in Collective Agreements 691 1,566
Impact of PLWS Implementation 2006 () 2008 ()
Productivity 2.64 5.17
Staff Turnover 5.21 2.13
Absenteeism 8.80 4.17
Rejects and Reworks 5.33 2.85
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Research on implementing PLWS towards high income
Economy
Found that
Using PLWS Economic Model Shows that higher PLWS
adoption Rate would lead to higher Productivity
and GDP growth
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STEPS IN IMPLEMENTING PLWS
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PLWS COMMITTEE TERMS OF REFERENCE (TOR)
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BENEFITS
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PRODUCTIVITY AND INNOVATION
If we can tie productivity with innovation and
creativity, the improvements in problem solving
will see a quantum leap instead of just being
incremental
(Y.A.B. Dato' Sri Mohd Najib Tun Abdul Razak, May
5, 2009)
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Thank you
JABATAN PERHUBUNGAN PERUSAHAAN
PUTRAJAYA
www.plws.gov.my