Is Wage Distortion Adjustment mandatory in the Philippines when there is a mandated wage increase?
The answer is NO, it is not mandatory by law to make a wage distortion adjustment specifically during a minimum wage increase in the Philippines. However, employers are strongly urged to review and adjust their wage structures to ensure that wage differentials between positions are maintained or restored. One of the most important reasons for addressing wage distortion is to allow employees with lower wages to keep up with the rising cost of living.
On June 26, 2023, the Regional Tripartite Wages and Productivity Board (RTWPB) in NCR granted a minimum wage increase for workers in private establishments through Wage Order No. NCR-24. lt provides an increase of PhP40.00, bringing the daily minimum wage in the region from P570.00 to PhP610.00 for the non-agriculture sector and from PhP533.00 to PhP573.00 for the agriculture sector, service and retail establishments employing 15 or fewer workers, and manufacturing establishments regularly employing less than 10 workers.
Wage distortion (sometimes referred to as Salary distortion) often arises when there is a mandated wage increase. It is characterized by imbalances in compensation levels across positions or professions within an organization, which is a significant issue in the Philippine employment sector. Understanding wage distortion, its implications, causes, and practical guidance for employers can aid in addressing and mitigating it in compliance with Philippine labor laws.
Implications of Wage Distortion
- Income Inequality: Wage distortion perpetuates wealth disparities within society and contributes to income inequality.
- Employee Demotivation and Dissatisfaction: Employees who perceive unfair compensation may become demotivated and dissatisfied, impacting productivity and morale.
- Recruitment and Retention Challenges: Wage disparities can hinder the attraction and retention of skilled employees.
- Workplace Harmony: Wage disparities can create social tensions and affect overall workplace cohesion.
Causes of Wage Distortion
- Market Competition: Intense competition in certain industries may lead to higher salaries for specific positions, resulting in wage discrepancies.
- Inconsistent Wage Structures: Outdated or inconsistent Wage structures within an organization can undervalue or overvalue certain positions.
- Skills and Demand Imbalance: Positions requiring specialized skills that are in high demand may offer higher compensation, creating imbalances within the Wage structure.
Addressing Wage Distortion:
- Regular Wage Structure Reviews: Conduct periodic reviews to identify and rectify any existing distortions in the compensation structure.
- Fair and Transparent Compensation Policies: Implement clear policies based on job responsibilities, qualifications, and market rates to ensure fairness and transparency.
- Market Benchmarking: Compare salaries to industry standards to ensure alignment and competitiveness, maintaining appropriate wage differentials.
- Performance-based Compensation: Introduce performance-based systems that reward employees based on their contributions and achievements.
How can wage distortion adjustments be computed?
To calculate wage distortion adjustments, employers can use the following suggested formulas by the NWPC (National Wages and Productivity Commission): Correcting Wage Distortion | National Wages Productivity Commission – NWPC
While addressing wage distortion is not mandatory according to our laws, it holds significant benefits for organizations in the Philippines. By proactively addressing wage distortion, employers can promote fairness, equity, and a harmonious work environment. Adherence to labor laws, conducting regular wage structure reviews, and implementing fair and transparent compensation policies are essential steps for achieving wage equity. Through these efforts, employers contribute to building a more inclusive society, enhancing employee satisfaction, and fostering long-term organizational success. By recognizing the importance of addressing wage distortion, organizations can create a positive impact on both their employees and the broader society.
About the Author
Jennilyn Cura is a highly accomplished and dedicated professional serving as the Finance and Admin Supervisor at ExeQserve Corporation. With an impressive background in finance and administration, she possesses extensive knowledge and expertise in managing financial operations, optimizing budgets, and ensuring compliance with regulatory requirements. Jennilyn’s keen attention to detail and exceptional organizational skills enable her to streamline processes, enhance operational efficiency, and maintain accurate financial records.
