Wage compensation: Ending the annual tug of war

Representatives of employers and employees are back at their annual tug of war to determine wage compensation for this year. The whole lot will be arbitrated by the government who is also an employer and who gets to call the final shot by deciding on the quantum of compensation. On both sides, there is rampant dissatisfaction as to the effectiveness of this mechanism.

The annual wage compensation exercise seeks to compensate workers for the loss in purchasing power due to inflation during the previous year. This practice has been common during the heydays of the sugar industry as windfall gains on sugar exports were then distributed to workers. The practice has permeated into the economic fabric to such an extent that it has become a quintessential part of the employment practices.

However, over the years employers as well as employees – for different reasons albeit – have complained of the rationale behind keeping an “outdated” system. Attempts to modify the compensation setting mechanism have always been met with suspicion. One of the reasons why this practice is still ongoing is because there are hardly any other means for workers of many industries to have annual wage hikes and the modicum they get through the mechanism, for those at the lower rungs of the social ladder, come in as godsend.

As says former Chairman of the National Pay Council, Krish Ponnusamy, many people confuse the term salary increase and wage compensation. “Wage and salary compensation is more about an adjustment of wages. The present method of compensation is different in the private and public sector. It is a yearly exercise done with the collaboration of the trade union, private sector and government to determine the amount to be paid. There is an urgent need to look closely at the limitations. At the end of the day, nobody is happy with the decision. Usually, it is the government who takes the final decision. There are lots of discontent. There is a system where is no satisfaction,” he says.

Need for different mechanisms

According to him, there is need for a different mechanism where we will be getting better results. “Many countries have their own model for wage and salary adjustments. Normally, the mechanism is based on four factors: productivity, growth, employment situation, international competencies and growth perspective. Many countries can take these factors into consideration and the proper amount is given. In the same of case of some countries, the system relies more on collective bargaining. Collective bargaining is a discussion at the level of trade union and employees sitting around a table. They then agree on the amount to be paid. In Mauritius, the mechanism is totally different. There is a general review of salaries of the public sector every five years conducted by the Pay Research Bureau. Many companies in the private sector are governed by the Remuneration Orders which are supposed to regularly review private sector wages level.”

The former Chairman believes that one good model exists in Singapore. “Singapore has a National Wage Council which was set up in 1972. It is an old institution but has matured over the years. It involves the private sector and trade union. One of its objectives is to formulate wage guidelines in line with long term economic growth. The NWC meets every year to liberate and discuss on the national consensus on wages. The guideline is based on four pillars: productivity, GDP, employment situation, and international perspective. The institution only issues guidelines and does not determine any quantum. This system seems to have worked.”

Tripartite system

Commenting on the tripartite system, he says that this forum should be supported by all governments. “All three actors: private sector, trade union and government should be involved. It is a good philosophy and cannot be swiped away. We need a better system and which one remains a big question. There is need to think deeply on the matter. The National Pay Council has a good mechanism but it was unable to work with the three actors to find solutions to economic and social issues. So it is up to the government to see which mechanism is best for us.”

Deepak Benydin: “There is some confusion prevailing”

President of the Federation of Parastatal Bodies and Other Unions Deepak Benydin explains that it is important to understand that compensation is not an increase in salary but it is to compensate the purchasing power of employees. “There is some confusion prevailing. Some people are talking about collective bargaining. There is no doubt that the cost of living has increased. Those at the bottom of the ladder hardly earn Rs6,000 per month and compensation benefits them. We have always asked for 100% compensation.”

He further adds that the tripartite system exists in various countries and we cannot jeopardise its existence. “There are some international norms that we need to follow. Workers do not benefit from increase of salary each year. Wage compensation is minimal. Collective bargaining does not exist in the private sector. Various sectors are being set up but there is no regular report. We want at least a Rs 500 compensation.”

Reeaz Chuttoo: “Rs 500 to those earning less than Rs 10,000”

The general secretary of Private Sector Employees Union Reeaz Chuttoo states that according to Statistics Mauritius, the inflation rate is below 1%. “The calculation of the inflation rate has been made in accordance with a basket of goods and services that amounts to Rs 26,500 which has been determined in the last Household Budget Survey. The average household expenditure represents a family of two adults and two children with an average of 1.75 income earners. Thus 1.75 earner average expenditure is equal to Rs 26,500.  The rate of inflation that Mauritius Statistics has published is in relation to a wage which not less than Rs 15,000 (approx) monthly and which for 2016 is below that of 2015. Therefore, for a worker earning below Rs 15,000 monthly, the rate of inflation is much higher.” Reeaz Chuttoo has proposed the following: “That a sum of Rs 500 be granted to all those earning less than Rs 10,000 per month and that a staggered compensation between Rs 500 and Rs 350 be introduced for wages between Rs 10,000 and Rs 15,000. All pensions, that is, Basic Retirement Pensions and other Social Allowances be increased by Rs 500.”

Soodesh Callichurn: “Reviewing the mechanism is not on the agenda”

“If the government ever decides to review the salary mechanism, it will do so in consultation with the employers’ representatives and the unions, but for the time being the issue is not on the agenda,” said the Minister of Labour, Soodesh Callichurn, following the meeting of the technical committee on Thursday.

Representatives of the employers and trade union leaders will have to submit their proposals on wage compensation no later than this Friday at 4 pm to the Minister of Labour. The Finance Minister Pravind Jugnauth will chair a meeting on Monday December 5th, where the quantum of the compensation compensation will be announced.

Trade unionist Lall Dewnath called for a compensation for workers earning less than Rs10,000 a month. “Workers have lost at least Rs1,500 on their purchasing power since 2009.” For his part, the CEO of Business Mauritius, Raj Makoond has wished for an overhaul of the present wage determination mechanism. 

Former Minister of Labour Vasant Bunwaree: “Annual compensation causes higher inflation”

For the former Minister of Labour, the wage compensation mechanism should not be changed at this stage. According to Vasant Bunwaree, the present system is not adapted to the contemporary socio-economic landscape. “But it does not seem to have been the priority of the government this year. In the medium term, it should definitely be reviewed to make place for a better system which does not cause vicious circles but virtuous ones.”

What are the limitations of the tripartite system? For the former Minister, this system is based on the previous years’ price increases of commodities which are summed up in the official rate of inflation. “Furthermore, the inflation rate supposedly covering one full year is based on figures obtained for 10-11 months of the year and for the remaining weeks, the rate is extrapolated as the year has not yet ended. Then immediately after the compensation is awarded, you will observe that the price of commodities tends to surge upwards which makes the wage compensation become useless. Furthermore, the payment of the wage compensation to workers (of the private and public sectors) constitutes a huge injection of money with a negative impact on the country’s finances.”

Vasant Bunwaree believes that the wage compensation is to a great extent a reason why wages are not progressing. “Wages do progress but not in a way that improves the standard of living in the country for the main reasons that it is an inflation fuelling system which is in essence ‘anti-worker’ but this is hidden by an illusion of annual increase in salary,” he argues. 

Are there alternative models that can be used? “For political motives, the system was changed in 2011 back to the old archaic inflationary ‘anti-worker’ system which is still on today. However, we have started hearing of the wage council,” says Vasant Bunwaree. 

He is of the opinion that “the best model for our country was the one we established in 2006 with Rama Sithanen as Minister of Finance, backed by a fully operational collective bargaining mechanism and supported by institutional regulatory and facilitation mechanisms with government involvement.” The former Minister of Labour trusts that the tripartite model is outdated in the modern world. “But it keeps vacillating only in the Mauritius system which has until today maintained the 2 following steps of (i) salary increases episodically (PRB/NRB) (ii) salary compensation annually, in my opinion be merged.”

Pradeep Dursun, Chief Operating Officer of Business Mauritius: “The government is changing the whole mechanism”

For Pradeep Dursun, the very fact that the government is coming forward with the National Minimum Wage is changing the whole mechanism. “The annual wage compensation had its role and meaning before but if we are going forward with the minimum wage, there will definitely be changes,” utters the Chief Operation Officer of Business Mauritius. He trusts that the tripartite system was used to adjust and re-establish loss of the purchasing power. 

“This year, inflation is very low, at 1%. So in such context, what compensation can we speak of and what compensation should be given? Wage compensation is allocated when inflation hits the 5% mark. “During tripartite forums, trade unionists always blame employers while the government is a mute spectator and at the end, the government imposes the compensation quantum on employers.” Pradeep Dursun does not believe that wage compensation is a reason why wages are not progressing. “Those saying that enterprises are not reviewing salaries, it’s just hear-say. Many enterprises are reviewing wages.” He explains that it all has to do with the direct and indirect cost. “People must bear in mind that a compensation has an impact on everything and it must be carefully measured. For example, it will raise costs of production. Conditions must be created whereby growth picks up, and then they can increase wages. This is why the government is coming with the national minimum wage,” he trusts. 

What alternative models can be used besides the tripartite forum? “The best model is collective negotiation. It gathers employees and employers to discuss and negotiate wages, compensations, terms and conditions of work, among others, in line with the resources, capacity to pay, type of enterprise among others.”  However, if the government implements and imposes a compensation, then an enterprise which cannot pay, will have to find solutions such as reducing its workforce.