Effects of globalization on forms and delivery of compensation
Globalization as a concept has been around for two to three decades now. However, what makes the discussion current is the marked shift in the epicentre of the globalization activity. While it was the US and European organizations that took the world by storm in the early 80s and 90s, today it's the turn of Indian organizations and their Asian counterparts to spread their wings on the global stage.
As the world economy becomes increasingly integrated and entwined, the environment has become more uncertain and complex. Organizations are grappling with innumerable issues ranging from diverse economic environments to varied cultural nuances, pronounced by the need to find a balance between global consistency & control and locally effective practices.
In this scenario, global compensation has emerged as one of the key challenges for organizations today. And while there is much to learn from global multinationals, there are a number of opportunities and challenges that are unique to an emerging market's landscape, such as India.
a framework we developed to study how Business, Workforce, Culture and Strategy intertwine -- to deliver an effective global compensation philosophy.
With each organization interpreting the BWCS construct differently, Aon Hewitt's recent panel discussion at the Annual Rewards Conference on "Growing Beyond Our Shores: Opportunities, Challenges and Learnings" had leading organizations sharing wide-ranging points of view, and equally effective global compensation strategies that have helped them create the right value for their multiple stakeholders.
The west rewrites the rules of competitiveness
Globalization in the early 80s was driven by technological advances, but more importantly, it was driven by large organizations in the west looking for new ways to grow. With a flat growth rate in their home markets, organizations needed to venture beyond their shores in search of new consumers.
Not surprisingly, these organizations found Asia, with its large population and heavy proportion of younger demographics, their fastest growing region. Take the case of the fast-food giant McDonald's. When it released its financial results for 2010 in January, operating income was up 8% in Europe, 7% in the US, and a whopping 21% in Asia Pacific, the Middle East and Africa (APMEA). McDonald's is not an isolated example. Most international brands find that their home markets account for less than 10% of global profits today.
The steady internationalization of Indian organizations
India with its large middle-class – more than the size of the population of some countries – quickly found favor with a majority of multinationals. Today over 125 Fortune 500 companies have already established their R&D bases in India. In fact, India accounted for nearly 10% of all Foreign Direct Investment (FDI) inflows to the developing world in 2009.
But what started out with cost savings in mind, has slowly undergone a perceptible change. Organizations are no longer here simply from a cost point of view, but from a value-based and intellectual arbitrage perspective, resulting in an organization like Cisco establishing India as its parallel headquarters outside the US.
Similarly, on a mission to diversify revenues and strengthen their business models, several homegrown organizations have moved beyond traditional destinations to increasingly create outposts in emerging/developing countries in South Asia, the Middle East, Africa and Latin America.
Destinations of Outbound Expatriates
The impact of globalization on HR and rewards
Globalization has been a definite turning point in the management of Human Resources. The recentralization of business activities, transnational mergers and strategic alliances, an increasing proportion of employees residing in non-headquarter countries, and the global sourcing of talent translate into the need to manage a diverse, more mobile workforce and strike a balance between global strategy and local needs & constraints.
On the ground, organizations adopt varied strategies. While an organization like Mahindra & Mahindra propagates the importance of following a strategy of localization and not falling prey to the temptation of replicating the success of one market in another, ICICI Bank strongly believes that if an organization has a global management ethos in place, it is imperative to make it consistent across countries.
Whichever way organizations perceive the impact of globalization on HR, they realize the great opportunity to drive both strategic growth and cost efficiency with a global model. In fact, an increasing number of business leaders have begun to view HR as the function that can truly help organizations transition from "international" to "global" players.
We have thus seen modifications in training, recruitment and career development programs –while organizations continue to implement these at a local level, there is a concerted effort to develop a more strategic and integrated approach globally.
Unfortunately, relatively few organizations have considered the role that total compensation – pay and benefits – ought to play in supporting the efforts of globalization. This stems from the fact that devising global compensation programs is fraught with challenges, such as diverse economic situations, differing demographic patterns, and conflicting talent management priorities.
For most organizations, trying to navigate through this complex landscape has been a case of trial and error, rather than a well-thought-out game plan. Hardly surprising then, that compensation has remained one of the most underdeveloped aspects of a global business today.
Rewards for a global organization
Going back to the drawing board, whenever there has been a significant change in business objectives, the rewards strategy has needed to undergo some transformation. Globalization is that significant shift in business strategy that demands a change from the way things were done before to a new way of looking at it.
To maintain their competitiveness in the global market, organizations need rewards programs that will enable them to:
effectively ensure that their people strategy and costs in the new location are aligned to the business objectives
facilitate global mobility for the required talent
ensure competitiveness of the employment offer in the new location and offer scalability
treat employees comparably, irrespective of their home country
provide flexibility in order to balance global and local needs
be compliant with local requirements.
The BWCS Approach
This entails studying the mix of Business, Workforce, Culture and Strategy and it provides the framework for organizations to start defining global compensation.
Different markets have different business compulsions that consequently demand different talent priorities.
First and foremost, a rewards strategy needs to be relevant to the market in which an organization is operating.
For example, in a developed market, growth is hard to come by, and is essentially a factor of eating into the competition's share; while in an emerging market, there is tremendous potential in penetrating the market and tapping new customers. In addition, what may constitute a traditional business in a developed market may be a sunrise industry in an emerging market, creating different priorities such as "war for talent", higher attrition rates, and the need to manage a better return on investment.
There is no magic bullet that can provide answers to the diverse challenges an organization faces in different markets. In fact, organizations have to be sensitive to variations and appropriately fine-tune their strategies around attracting and retaining talent, goal setting and identifying real performance.
Talent availability, capability and differing demographic patterns dictate the motivators of a workforce in a market.
Compensation strategies need to align with the top talent needs across markets. This begins with the imperative of identifying the talent profile in the target market. In a high growth market like India, where the talent readiness is high and there is healthy competition to deploy talent across industries, an organization's priorities revolve around attracting and retaining talent.
In other high growth markets, such as Latin America and Africa, where talent readiness is relatively low, organizations focus on acquiring and readying that talent. Training the talent becomes imperative across these markets. Conversely, in flat growth economies, such as the UK, US and Western Europe, there is a growing need to re-skill talent to drive differentiation and growth. In these markets, organizations find that their priorities revolve around motivation and readiness of critical talent. The compensation programs under the overall umbrella of a global compensation philosophy, need to ensure that they are addressing the right talent need in every specific market.
Identification of Talent Profile in the Target Market
The significance of distinguishing the nature of workforce becomes doubly essential, given the vast difference in the demographics of a developed vs. an emerging market. A younger workforce in countries like India vs. an ageing population in developed countries will possibly lead to differing employee preferences and hence, different rewards structures.
Looking beyond regional differences to some globally consistent shifts
Diverse markets mean diverse regional and cultural nuances. Traditionally, factors that drove pay increases differed widely across different cultures – from performance in North America, to role and scope of responsibility in Europe, to age and years of service in many parts of Asia.
While the jury is still out on whether globalization has made the world flat and rewards have become culture-neutral, we have noticed some globally significant shifts:
a greater focus on differentiating and rewarding performance
increased prevalence of variable pay programs
importance of market competitiveness.
Echoing the fact that there are some rapidly converging similarities across markets is Cisco. The organization feels that the talent pool itself is increasingly becoming global in its perspective. Employees above a certain level are, in fact, oblivious to where they are placed in the organization, but more conscious of what their responsibilities are. So, an employee may be based in Mumbai or Bengaluru, but still capable of pursuing a global career. In fact, with the workforce in developing economies becoming more dynamic and aspirations becoming more assertive, these markets are second to none. The organization also adopts a fundamental philosophy of paying for performance that remains consistent across regions. Mahindra & Mahindra, on the other hand, strives hard to understand the cultural nuances of new markets they enter and then align their pay philosophies accordingly.
The eternal debate to decentralize vs. consolidate
Globalization often forces organizations to confront the crucial issue of how best to balance the desire for global consistency and control with the desire for local effectiveness and efficiency. In resolving this issue, it is important to note that there is no single "correct" approach. Rather than focusing on the most appealing approach theoretically, well-managed global organizations need to identify the strategy that makes the most sense for their business and then rigorously review, redesign, measure and re-adjust to make sure that the strategy is being faithfully applied.
Defining the Rewards Strategy
Leading organizations are learning to become more strategic and deliberate about what can and should be managed in global Centers of Excellence (CoE), while leaving to local markets, programs that need to be governed by local governance and regulations, cultural norms, and local considerations.
Defining the Rewards Strategy
Finally, the rewards strategy is one that allows an organization to avoid "reinventing the wheel" in different markets and, at the same time, keeps itself open to local core competencies, thus facilitating an exchange of best practices and building a strong value proposition for the brand.
The rewards function is truly the conscience-keeper of the organization. No longer is it bound by the considerations of local managers, but rather embodies a well-thought-out product of global and regional perspectives.
The key deliverables of creating a global rewards framework should be reflected in a corporate architecture that is agile, rather than just lean; responsive, rather than just standardized; and internally and externally optimized, rather than centralized.
Starting with imbibing the BWCS approach, as the world becomes more interconnected, organizations can anticipate additional progress in an HR model that resonates with all.
1. Effects of Globalization toProductivity-based Compensation Arrangement & Decent Work
2. Compensation & Decent Work Compensation and decent work usually go hand-in-hand. Higher wage means more decent work. But today, this may not be true anymore. A worker may not receive any wage (only non-wage rewards) but may be able achieve decent work. Or vice versa, a worker may receive high wages but not decent work.
3. What is compensation
Compensation- all forms of financial returns and tangible services and benefits employees receive as part of an employment relations. used interchangeably as pay applies to all types of workers, whether employed or self employed, and those in the formal and informal sector unpaid family workers and own account workers in the informal sector are compensated in terms of tangible services and benefits in doing work
4. Components of Compensation1. Monetary rewards (or pay)2. Non-monetary rewards (or employee ‘fringe’ benefits)3. Psychological rewards
5. Components of Compensation1. Monetary rewards (or pay) - base pay, supplemental pay like overtime premium and night shift differential, cost of living allowances, seniority pay, merit pay, incentives pay and knowledge or skill-based pay.
6. Components of Compensation2. Non-monetary rewards (or employee ‘fringe’ benefits)- leaves (vacation or service incentives, holiday, sick, maternity/paternity, solo parents and other leaves); insurances (life, health, hospitalization unemployment and disability); retirement and savings/pension plans; legally required benefits like social security, medical care, disability, unemployment insurance, etc.; & performance- based benefits like bonuses, profit sharing and other forms of gain-sharing rewards.
7. Components of Compensation3. Psychological rewards - recognition, status, employment security, work challenge and learning opportunities.
8. Rationale forVariable Compensation System Globalization broke the assembly line production system into decentralized offshore operations as a result of electronic based machines and internet communications technologies and wide wage differentials between the developed and less developed economies. There has now been a rapid shift to variable compensation system and outsourcing as the key to survival and growth.
9. Productivity-based compensationarrangements (variable pay) Compensation other than base wages or salaries that fluctuate in accordance with the employees’ attainment of some standard work output. These outputs are measured in terms of a pre-established formula, individual or group goals, contract or company earnings.
10. 3 Forms of productivity-basedcompensation arrangements1. Time rate compensation system that incorporate merit-based incentives or benefits adjustments, overtime pay, commissions, night shift differentials, tips and other service charges, and payment in kinds.
11. 3 Forms of productivity-basedcompensation arrangements2. Payment-by-result like piece rate work, productivity bonuses, stock-option benefits, work-improvement incentives, etc. Payment-by-result is either individualized or group-based.3. Franchising and joint venture arrangements for self-employed and own-account workers.
12. Wage Determination determined by the supply and demand, as well as the quality of labor if the determination of wages is left alone solely to employers and workers, the result would tilt more in favor of the employers and the workers and their movement will likely be radicalized.
13. Government Interventionin Wage Determination minimum wage fixing collective negotiations with unions safety nets and consumer subsidies third party arbitration Regulation of both internal and external labor mobility
14. Result of government interventionin wage determination more equitable income distribution in the more developed countries Intensified wage inequities among the developed and less developed nations
15. 4 Objectives of compensationadministration
1. Equity- to narrow income inequity by protecting the purchasing power and real wages of the workers.2. Efficiency- to link cost and reward of labor to productivity to allow employers reasonable profits for growth and expansion.
3. Macro-economic stability- to attain a balanced and sustainable economic development through high employment and low inflation.4. Proper allocation of labor in the labor market- to administer internal and external labor migration.
17. Objectives of the StudyIdentify and explain: the productivity-based compensation arrangements that have evolved in the Philippines as globalization intensified; and the extent of government regulations on these new mechanisms and how these mechanisms have contributed to equity, efficiency, macro- economic stability and proper allocation of labor in the labor market.
18. Implications to the Philippines During the 1950s when Japan was replicating American and western technologies via “reverse engineering”, the Philippines adopted the ISI strategies and was second to Japan in industrialization and economic growth. After 50 years however, “we are not only lagging behind, we are almost dead last in the [ASEAN] region”
19. Implications to the Philippines The Philippines did not fail miserably considering that it has grown moderately within the world’s fastest growing region. Despite its educated and creative people and natural resource endowment, the country continues its hit-and-miss methods in the formulating and implementing the EOI strategies.
20. Implications to the Philippines One possible roadblock toward industrialization is its policy on compensation. With an institutionalized labor and social standards in place that are equal or better than other Asian countries, it offers better protection for decent work at least for workers in the formal sector that is comparable with the more advanced tiger economies. This may attract investments for high technology production and services operations but not on the low end.
21. Implications to the Philippines The country is indeed placed in a tight squeeze since it is also competing for the low end manufacturing and services businesses due to its high unemployment and underemployment as a result of the ‘jobless growth’ phenomenon and high population growth rate.
22. Positive effects of globalization to Asia New jobs for wage workers especially in the export processing zones (EPZs), in addition to new technologies transferred and adapted. Provided better alternatives to local workers especially the women workers who were offered alternatives for urban informal employment or agricultural employment. The informal sector indirectly benefited from the increased incomes of formal sector workers.
23. Negative effects of globalization to Asia1. Industries shifted to greater capital intensity resulting to ‘jobless growth’ both in agriculture and manufacturing2. Over-all unemployment rate increased & labor market conditions probably deteriorated for unskilled workers3. Increased inequality between urban & rural income, and skilled & unskilled workers4. Increased flexibilization and informalization of production and employment relationship.
24. Philippine Experience in Globalization and Industrial Development Compared to the Asian tiger economies, the Philippine industrial sector has not performed well in the last three decades even after it has joined WTO in the last 10 years. Faced with lower tariffs on imported goods, domestic producers are handicapped with high power cost, inadequate infrastructure, government red tapes and corruption, and shaky peace and order situation.
25. Philippine Experience in Globalizationand Industrial Development Many manufacturing and agricultural enterprises closed down due to lack of preparations, safety nets and unfair playing field where smuggled goods abound in the market.
26. Philippine Experience in Globalization The Philippine growth pattern was characterized by the increase in services with agricultural and industrial sectors declining. As of 2000, more than half of the country’s employed labor force which used to be in agriculture was absorbed by the service sector.
27. Philippine Experience in Globalization The Philippine growth rate was driven by domestic demand and consumer spending unlike the Asian tiger economies where exports led the economic growth. The economy failed to grow fast enough to provide jobs for the labor force.
28. Philippine Experience in Globalization Despite the weakening industry and agriculture sectors, the economy grew by 6% in 2004. The World Bank (2005) described this as the fastest in 16 years.
29. Factors that contributed toPhilippine growth the electronics industry and offshore business process services estimated at $3.8 Billion in 2006; inflow of earnings of overseas Filipino workers (OFWs) amounting to $11.6 Billion in 2005; and gross international reserves of $20.58 Billion in 2006
30. Effects of Globalization onEmployment and the Labor Market Many enterprises adopted lean and mean structures- managed by a small group of professionals and technical staff with multi-skilled workers operating the core businesses activities and a large group of contractual or outsourced workers.
31. Effects of Globalization onEmployment and the Labor Market The core of professionals, technicians and operators are adequately trained and compensated. The peripheral workers on the other hand barely received minimum wages and benefits mandated by the Labor Code and other social legislations.
33. Effects of Globalization onProductivity The country’s productivity increased only at 1% per year on the average in contrast with 4.4% average of neighboring countries (China, Indonesia, Korea, Malaysia, Singapore, Taiwan and Thailand) or 1.4% for all developing countries.
34. Reasons for Low Productivity High costs of doing business. The Philippines has the highest power rates in East Asia. Electricity is as high as 41% of operating cost compared to only 10% in Malaysia. High underemployment in agriculture and services industries in the informal sector.
35. High Productivity in Manufacturing Despite high power costs, labor productivity in manufacturing industries was high. Labor productivity in manufacturing from 1980 – 1991 grew at an average of 8.9% while the nominal wage of workers grew only at 6.1% average.
36. Effects on Wages and Cost of LaborReal and Nominal Daily Wages in the Philippines, 1991-2003300 Nominal daily wage- agri.250 Nominal daily wage- non-200 agri.150 Real daily wage- agri.10050 Real daily wage- non-agri. 0 Line 5 1 2 5 6 8 9 3 4 7 0 1 2 3199199199199199199199199199200200200200Source of Basic Data: Bureau of Agricultural Statistics and BLES, real wages based on 1995 prices)
37. Labor cost in the Philippines The Philippine manufacturing labor cost per year of $2,450 was more expensive than China ($729) and Vietnam ($711) but cheaper than Singapore ($21,317), Thailand ($3,868), Malaysia ($3,429) and Indonesia ($3,054). What is important for business is not the cost but the skills of labor. Training costs accounted for a mere 0.76% of the total labor cost in non- agricultural firms. Manufacturing firms spent much less at 0.57% on the average. Companies can easily cope up with globalization with a highly skilled workforce
38. Labor Flexibility Evident Flexibility in labor cost in the formal and informal sectors of the economy is evident in the country. The big firms (200 or more workers) have higher labor costs at 23.5% since they required more skilled workers. Labor costs of firms with 20-99 workers is only 19%, lower than the average labor cost in non- agricultural firms at 21%. Manufacturing, which has high productivity, has a low labor cost at 20%. This may be explained by the employment of contingent workers.
39. Average wages received are higher thanminimum wages Unskilled workers were paid higher than the minimum wage rates. As of the first quarter of 2006, the establishments inspected which violated minimum wage standards was down to 15% from the previous year of 22% (DOLE BWC 2006)
40. Wages in the Formal Sector Monthly wages are highest at the financial intermediation industry at P14,857 ($288). This was followed by electricity, gas and water (P13,612 or $264), private educational services (P12,043 or $234), and transport, storage and communication (P10,303 or $200).
41. Wages in the Formal Sector The lowest wages were in real estate, renting and business activities (P6,687 or $130); construction (P6,798 or $132); hotels and restaurants (P6,903 or $134); manufacturing (P6,934 or 135); and wholesale and retail trade (P7,031 or $136). These 5 sub-sectors have the highest levels of non-regular/contractual and agency-hired workers.
42. Compensation in the Informal Sector The informal sector employed 20 million workers or 65 percent of the employed labor force in 2003. These workers do not enjoy safety nets. Cost of labor in the informal sector can not be accurately recorded since most of the workers are unpaid family workers, domestic helpers and own-account workers.
43. Compensation in the Informal Sector In a 2002 survey of contractual workers in Metro Manila, the Laride reported that 2/3rds of their respondents earned between P100 ($1.94) to P250 ($4.85) per day. Majority were not covered by the SSS. Half of them lived in one-room house with a bathroom annexed. 45% had no separate bedroom; 72% did not have a dining area; and 50% did not have running water.
44. Importance of the informal sector In 2003, micro-enterprises (1-9 workers) and small enterprises (10-99 workers) accounted for 99.3 percent of all establishments in the country. Employment generation is therefore very dependent on the viability and growth of these enterprises.
45. Effects on balancing work and family life& flexible work arrangements Foreign-owned companies, companies with foreign equities and those with unions provided more decent work. Foreign-owned companies or those with foreign equity are usually tied up with the global chain of production and marketing. They are normally subjected to compliance standards. Unionized firms also have more decent workplace because of the high awareness and vigilance of trade unions in the local and international labor standards.
46. Effects on balancing work and family life More than 60% of establishments implemented balanced work and family life programs in 2003. The percentages were higher in foreign-owned companies (79%), companies with foreign equities (68.9%) and in unionized companies (65.4%). More than 50% allowed extended maternity and paternity leaves without pay. The practice of flexible work arrangement ranged from 31% (for unionized) to 42%. Facilities for employees with children were minimal in most establishments at a range of 3.5% to 6.5%
47. Effects on flexible workarrangements Half of the firms practiced sliding flexible works arrangements, higher in foreign firms, local firms with foreign equity and in non-unionized companies. Compressed workweek ranged from 30% to 39%, or higher in foreign companies and in unionized firms. On-call arrangement was lower at a range of 16% to 31%, or lower in foreign companies and in unionized firms. Teleworking arrangement was very minimal at 4% or less.
48. Effects on Hiring of Regular andContingent Employees During the last 2 decades of deepening globalization, new forms of hiring patterns emerged in addition to the traditional model of “full-time protected regular wage employment”.
49. Composition of Employment, Non-AgriculturalEstablishments with 20 or More Workers, 2004 (All Industry Groups) Total Employment= 2.413 M Owners/Unpaid Workers 1.1% (20,600) 13.1% Non-Regular (628,500 or 26%) Managers/Executives 86.0% (316,000) Regular (1.4 M or 60%) Rank and File Workers (2.077 Million) Source: 2003/2004 BLES Integrated SurveyAlmost 70% were regular or permanent employees. They usually enjoyed jobsecurity, salary adjustments and promotions. The rest were non-regular (orcontingent) workers comprising less than 1/3 (or 628,495) of rank and fileworkers.
50. Extent of Non-regular (Contingent)Employment In a survey of establishments employing 10 or more workers from 1991-1997, non- regular workers have increased from 20.5% in 1991 to 28% in 1997. 1997 was the start of the Asian financial crisis. Non-regular workers were highest in the construction industry at 65% or 47,985 out of 84,794 workers in 2004.
51. Non Regular Workers in Establishments Employing 10 or more Workers, 1991-1997 (in thousands) % of Non-Regular Workers to Total Employment 1997 Others- Casuals, part-time, pakyao 1995 Commission-Paid 1993 Contractuals 1991 Non-regulars 0 5 10 15 20 25 30Source: BLES, Survey of Specific Groups of Workers (SSGW), various years. Excludesagriculture, fishery and forestry.
52. Category of Non-Regular Workers in Non-Agricultural Establishments with 20 or MoreWorkers, 2004Total Non-Regular Workers= 628,500 Contractuals/Project Based (47.4%) Casuals (22.5%) Probationary (19.5%) Seasonal (5.5%) Apprentices/Learners (5.2%) Source: 2003/2004 BLES Integrated Survey
53. Contractual/Project-Based Employment in Non-Agricultural Industries with 20 or MoreWorkers, 2004 Contractual/Project-Based Workers Manufacturing (28.3%) (Percent Distribution) R. Estate, Renting & Bus. Activities (24.1%) Construction (13.4%) Wholesale & Retail (12.3%) Hotels & Restaurants (10.3%) Other Industries (11.4%)Source: 2003/2004 BLES Integrated Survey Slice 7
54. Employment Patterns in theManufacturing Sector There were 894,932 workers in the manufacturing industry in 2004 representing 37% of the 2.4 million workers in non-agricultural establishments with 20 or more workers. Their products ranged from food, apparel, steel, cement, machineries and equipment, chemical products, wood and furniture products, etc.
55. Employment Patterns in theManufacturing Sector 88.7% were rank-and-file workers. The rest were managers/executives (3.6%), supervisors/foremen (7.1%) and owners and unpaid workers (0.6%). 64% were regular & 25% non-regular. non-regular workers were composed of contractual/project-based workers (9.4%), casual (6.7%), probationary (4.1%), apprentices/ learners (3.1%) and seasonal (1.8%).
56. Employment Patterns in theManufacturing Sector Manufacturing also employed the most number of output-rate workers- the piece- rate workers, the pakyao/takay workers, and the quota workers. There were very few hourly paid workers (2.2%), part-time workers (0.4%), task workers (0.1%) and commission workers (0.1%) in manufacturing
57. Employment Patterns in the Retail andWholesale Trade Sector The retail and wholesale trade was the 2nd biggest employer among non-agricultural industries. It employed 367,703 in 2004 or 15% of the 2.4 million workers covered by the survey. Almost 59% of the rank and file workers were regulars while 25% were non-regulars, the same percentage as in manufacturing. Non-regular employment among the rank and file was higher in the retail industry at 31.4%.
58. Employment Patterns in the Retail andWholesale Trade Sector Among the 94,155 non-regular employees, 36,724 were contractual or project based, 29,813 were casuals, 18,299 were on probation, and 8,200 were seasonal workers. Output workers were very minimal in numbers at 8,714 or 2.4 or non-regular workers. More than one half (6,346) were piece-rate workers and the rest were paid by commissions (1,181) and pakyao/takay (1,058).
59. Employment Patterns in the Transport,Storage & Communications Sector There was a high number of commission paid workers in the transport, storage and communications industry at 25,177 workers or 13% of the total output rate workers.
60. Hiring Through Labor Contractors andAgencies 30% of large sized enterprises (with 200 or more workers) contracted out more jobs compared to medium-sized (100-199 workers) companies at 25.8% and small-sized (20-99 workers) companies at 15.2%. More foreign owned companies (45%) and companies with foreign capital (36.6%) relied more on subcontractors than locally-owned firms (14%).
61. Hiring Through Labor Contractors andAgencies Those serving the local markets only have the lowest subcontracting activities at 15% compared to those serving both local and export markets at 32.6%. Those serving the export market only have lower subcontracting activities at 26.3%.
62. Nature of outsourced jobs The most common jobs/services contracted out were general administrative services (41%), production processes/assembly activities (26.3%) and transport services (20.9%). Manufacturing firms were the highest users of subcontracted production and assembly activities. Service firms subcontracted mostly administrative and transport services.
63. Hiring through agencies Agency-hired workers were not considered part of the workforce of the business establishment. They were usually given employment contracts of limited duration (usually less than 6 months) and were not entitled to benefits given to regular employees.
64. Hiring through agencies As 2003, agency-hired workers comprised 10.8% (316,000 workers) of the total number of persons engaged in non-agricultural establishments with 20 or more workers. The average number of agency-hired worker was 21 per establishment. Security services comprised the biggest bulk at 37%, followed by production/assembly (23%), janitorial (15%), marketing/sales (10.6%), general administrative (3.3%), transport service (3%), and others (7.5%).
65. Hiring through agencies The bigger sized enterprises hired more agency workers than the smaller firms. Companies with foreign capital, catering to the export-oriented, or unionized hired more agency workers than firms that were Filipino-owned, catering to the local market or non-unionized (Labstat 2005).
66. Conclusions and Recommendations Productivity-based compensation arrangements intensified with globalization. The leading industries in the country like electronics, garments, business process outsourcing, call centers and other service establishments have extensively used overtime pay, night-shift differential and other premium pay, commissions, tips and service fees and payments-by-result.
Several industries have increased their hiring of contingent workers whose compensation payments are productivity- based. In manufacturing, workers are paid on piece-rates. In the transportation industry, workers are paid on commission and in hotel, restaurant and education services, many workers are hired on part- time basis.
Big firms, especially foreign owned and those with foreign equity and are linked with the international value chain hired more contingent workers compared to smaller firms and those that cater to the domestic market. Studies showed that these firms have high levels of compliance to labor standards and therefore offer more decent work. One factor that contributes to high compliance to labor standards in big firms is the presence of trade unions
It is disturbing to note that trade union membership is on a rapid decline as globalization deepens. This may be due to the trade unions themselves as they have been too traditional in their dealings with employers, or that the employers are becoming proactive themselves and have openly been competing with unions in empowering their workforce unilaterally.
In the voluntary self-assessment of big companies in compliance to labor standards, non-unions like labor- management committees, health and safety committees and similar employee groups are substituted for employee representation.
As was posited in this paper, variable compensation contributes to the competitiveness of enterprises operating in the Philippines. High skilled and productive workers as core regular employees are retained by employers for high productivity operations while the hiring of contingent workers for services and peripheral work helps them compete with low wages in nearby countries.
The main pitfall of productivity-based compensation arrangement is that it may lead to overwork that may result to health hazards, higher risks of accidents and unbalanced family and work life on the part of the workers. This is especially true for women workers as experienced in the electronics, garments and call center industries.
In the hiring of contingent workers using variable payment, there are many documented incidents of compensation that are below labor and human standards and therefore not leading to decent work especially among the informal sector workers. This is true in some manpower cooperatives whose members are categorized as self-employed or individual contractors. They have used this as an excuse for exemption from coverage of social security and other labor standards.
Productivity-based compensation arrangements are also intensified in the informal sector workplaces because the micro and small service and agricultural enterprises are exposed to stiff competition from imports as a result of low tariffs and smuggling. Most of the workers here are unpaid family workers, own-account workers and domestic helpers. If the agricultural family enterprises lose out to imported vegetables from China for example, their meager earnings will be further depleted and this will push them deeper into poverty and undernourishment.
The extent of government intervention in compensation administration through the minimum wage fixing, labor standards policy formulation and enforcement, and provisions of safety nets and subsidies to workers is weak to moderate. Some employers and neo-liberals have been advocating less, if not very minimal state intervention. The left-leaning pressure groups, on the other hand, are batting for more government interventions in favor of the workers.
Considering the desires of the extremist groups, the status quo is still tolerable at present. More government interventions should be done in close partnership and cooperation with the social actors that should include not only the employers and the trade union organizations but also other actors like the NGOs, informal sector organizations, church, academe, etc. Changes in the status quo should be formulated and implemented on case-to-case basis- per legislation, industry, region, locality or firm.
Using the objectives of compensation administration as standards (equity, efficiency, macro- economic policy and proper allocation of labor in the labor market), the government and the major social actors have achieved some positive and negative results.
1. EquityPositive Results Negative Results Increased earnings of High unemployment and formal sector employers underemployment and workers in resulting to high levels of electronics, garments, poverty and BPOs, services and undernourishment, and overseas employment income inequity among classes and regions high level of compliance - low levels of decent with labor standards in work in the informal the formal sector sector and in small and micro-enterprises
2. EfficiencyPositive Results Negative Results increased productivity low productivity and lack in the bigger of safety nets in the enterprises in the informal sector and in formal sector but small and micro jobless growth enterprises flexible compensation some flexible work schemes contributed arrangements and to competitiveness subcontracting lead to and higher incomes of very low compensation local firms and less decent working environment
3. Macro-economic stabilityPositive Results Negative Results moderate growth consumption-led performance but laid growth, not back in investment-led industrialization compared to the South East Asian standards strategies are short to wanting in long-term medium term only strategies
4. Proper allocation of labor in thelabor marketPositive Results Negative Results advances in the no long-term administration of interventions in overseas employment transforming OFW earnings to investment- led development strategies moderate weakening investments in accomplishments in education and skills national HRD compared training with other South East Asian countries
Recommendations1. Trade unions, NGOs, organizations of consumers, farmers and other small producers in partnership with the academe should set up a professional Social Compliance Academy to train and accredit certified assessors for social and labor standards compliance, and to give compliance awards to establishments and organizations. The Academy should also develop and maintain professional teams of inspectors, trainers and remediation consultants to assist workers and employers in labor standards assessment and remediation.
RecommendationsThe immediate target for capability building are trade union members, labor- management cooperation practitioners, occupational health and safety inspectors, environmental inspectors and assessors, and other labor standards inspectors to be accredited from among the employers, trade unions, local government units, NGOs, consumerists, small producers, etc.
Recommendations2. Expand tripartite mechanisms and social accords at the level of local government units (provinces, cities and barangays) preferably through LGU ordinances / legislations. Involve other social partners (NGOs, organizations among informal sector workers, academe, church, civic organizations, etc.) in the tripartite bodies aside from government, employers and trade unions. Conduct more researches and documentation of successful tripartite practices in LGUs like Marikina City, Naga City, etc. and promote these good practices to others LGUs for replication.
Recommendations3. Strengthen the advocacy campaign for good practices of labor and social standards in the informal sector small and micro-enterprises with focus on good organizational safety, cleanliness and health practices by cooperative efforts of government, NGOs, trade unions, cooperatives, associations of small producers and service providers, etc. Target specifically labor-only contractors and other service providers including those that are not complying with present labor laws and standards.
Recommendations4. Actively support the various programs of employers for good practices of CSR especially those that directly uplift the poor segments of workers and their communities. Specific projects that need active support are the “big-brother, small brother” technology transfer and business linkaging, education and skills upgrading program in partnership with the government and private educational and training institutions, patronize and improve the quality of local products campaign (“tangkilikan”), anti-smuggling and anti- dumping campaign, etc.
Recommendations5. Pressure government to minimize direct deductions from workers salaries and wages in form of taxes and other mandatory deductions/contributions. Support government programs that uplift the workers’ living standards like price monitoring of basic goods and services like transportation, rent, basic food items, education, skills training, health, etc. These measures will help increase incomes of the poor workers and reduce poverty and undernourishment in the country.
Recommendations6. Support the campaigns of multi-sectoral organizations like the Fair Trade Alliance for the calibration of the country’s tariff rates based on specific industry’s level of preparedness and competitiveness. Government negotiators should actively consult and involve industry players in their negotiations on multi-lateral and bilateral trade agreements.
Recommendations7. Uphold the rights of trade union to organize workers and bargain collectively. Trade unions should adjust their programs and activities towards social movement unionism and international cooperation among trade unions and other civil society organizations. Support new legislative actions that will uplift the plight of informal sector workers like the domestic helpers, market and sidewalk vendors, public utility drivers including tricycle drivers and operators, women workers, farmers and agricultural workers, cooperatives, etc.
Recommendations8. Actively support the campaign of all social partners- government, employers, workers, etc. to preserve and expand jobs in the country through various programs and interventions like entrepreneurship development, government pump-priming infrastructure projects through labor intensive construction methods, maximum usage of indigenous materials, and others that have already been mentioned.