The creation of a wage council was aimed at developing a coherent wage system that would promote long-term economic development. In those days, wage rates differed significantly at large and small firms. Many companies also practised creative remuneration measures to attract workers, leading to much confusion and the inability of foreign multinational companies to project wage costs for new investments.
Tasked to helm this new National Wages Council (NWC) was Economics Professor Lim Chong Yah from the National University of Singapore. Comprising three members each from the employer and manufacturer associations, the labour movement represented by the National Trades Union Congress (NTUC) and the government agencies, the Council would advise the government on wage policy guidelines and other related issues .
Economist Albert Winsemius was the key advisor to the government on Singapore's economic and industralisation programme in the early post-independence days. In this January 1972 report, 'Labour Market and Wages Policy', he explains why a policy of (variable) bonus payments is detrimental for productivity, and instead advocates a policy of wage increases, complemented by standards for equal work . Referring to earlier discussion with the government, he advises that a 13th month payment would be acceptable if it were a firm wage obligation on the part of employers .
Further to the Economic Committee's 1986 finding that the wage structure in Singapore was too rigid and had limited businesses' flexibility to adjust cost in the 1985 recession, wage reform was undertaken to allow companies to respond more quickly in future downturns. A flexible wage system was introduced such that 80% of wages would comprise a fixed basic salary, and the remaining 20% made up of a variable component that depended on the performance of the company. In order to successfully transit to flexible wages, the National Productivity Board was also actively engaged in helping companies put in place the necessary systems for measuring performance and productivity - key requirements of the wage reform .
As part of the flexible wage system, companies that had paid two or more months' in AWS (Annual Wage Supplement), such as those in the insurance sector, converted part of this into the variable wage component .
Wage reform was not without difficulties as it presented trade-offs and implementational problems, particularly in a recovering economy.
One of the recommendations for implementing flexible wages was to convert AWS in excess of one month to variable wages. This presented a problem as the unions regarded AWS as deferred salaries and would not agree to coverting it into a variable wage component unless workers were compensated in some way .
The robust economic growth and tight labour market in 1988 following the economic recovery in 1987 and two years of wage restraint led to more difficulties for wage reform. Unions wanted higher wage increases in view of the economic growth and tight labour market, but the Singapore National Employers Federation (SNEF) sought to keep built-in wage increases low, in keeping with the principles of wage reform. The open disagreement between the National Trades Union Congress (NTUC) and SNEF reflect the difficulties in balancing the interests of workers and employers .