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Progressive Wage Model (PWM) Policy: My Perspective As An MSME Business Owner in Malaysia

Updated: Jun 5

The recent announcement of the pilot test for the Progressive Wage Model (PWM) Policy by Economy Minister Rafizi Ramli is a significant development, particularly for businesses like mine in the micro, small, and medium-sized enterprise (MSME) sector.

In this article, I’ll reveal what I think of it, some reservations I have and also compare Malaysia’s proposed Progressive Wage Model Policy to Singapore’s – which our government has taken inspiration from.

progressive wage mode policy malaysia: my perspective as an msme business owner

Rafizi Ramli’s tabling of the Progressive Wage Model Policy

Just last week, Economy Minister Rafizi Ramli tabled the Progressive Wage Model (PWM) Policy in parliament which marks a significant step in addressing wage disparities and enhancing the Malaysian workforce's skillset.

Scheduled to begin with a dry run from June to September 2024, this voluntary pilot program will involve 1,000 micro, small, and medium-sized enterprises (MSMEs) companies, with a focus on those having workers earning between RM1,500 and RM4,999 to resolve any teething or operational issues before the official roll-out.

Participating employers will receive financial incentives from the government for up to 12 months, amounting to RM200 monthly for each entry-level employee and RM300 for non-entry-level workers. The incentives are contingent upon employers submitting documentation for their staff’s participation in government-certified training programs, enhancing skills and productivity.`

However, it’s noteworthy that workers from multinational and government-linked companies are exempt from this scheme.

Rafizi also announced an allocation of RM30 million for the program, targeting entry-level graduates, semi-skilled Malaysians, and companies disadvantaged in the current labour market​​. He emphasized that it was the government's responsibility to ensure that each ringgit allocated effectively improves the labour market, pay structure, and, crucially, the skilled talent in the economy​​.

What is the Progressive Wage Model Policy and how does it work in Malaysia?

According to CNA, Malaysia’s PWM takes inspiration from Singapore’s Progressive Wage Model. It is implemented and identified in specified sectors, where a multi-year salary increment schedule is set out for workers in tandem with skills acquisition on their part. Essentially what this means is that as workers develop and acquire new skills, their wages are scheduled to rise accordingly.

How exactly it will work in Malaysia is unsure yet as more fine-tuning will be required once the pilot test commences. However, if we were to reference Singapore, here are a few things we can expect. According to the Ministry of Manpower in Singapore:

The Purpose of PWM

To increase the wages of workers in Singapore by enhancing workers’ skills and improving their productivity.

Similarly in Malaysia, the PWM would serve the same purpose. Additionally, Rafizi mentioned that the policy will not only upskill workers and provide them with higher salaries, but it will also increase their purchasing power (something crucial during these times of higher cost of living) which gives a multiplier effect on the broader consumption and private investments landscape in Malaysia.

Tripartite Development

The model in Singapore is developed collaboratively by unions, employers, and the government to uplift lower-wage workers.

I think we can expect the same to be done in Malaysia. According to Human Resources Online, it’s said that the government will work closely with employers' associations to encourage the participation of employers from all sectors by expanding access to digital platforms to obtain information related to the Progressive Wage Policy, including the participation procedure and its advantages.

The government will also look to engage in face-to-face and online information sessions to raise awareness among employers and employees about the importance and advantages of the Progressive Wage Policy.

Employer Compliance and Beneficiaries

In Singapore, the PWM is mandatory for employers, including those hiring foreign workers, to meet PWM requirements for local employees. It targets Singapore citizens and permanent residents employed full-time or part-time under a contract of service.

According to the proposed Progressive Wage Policy in Malaysia, the implementation of the Progressive Wage Policy is not mandatory and will not be part of any new Act. Companies interested in adopting the Policy can be voluntarily registered through the online application system. Only 'Progressive Wage Employers' will be considered for incentives and must meet the specified conditions.

Multinational companies are not included in the category of eligible companies to receive incentives since the company can afford to pay wages on a competitive level and can attract and retain talent compared to MSMEs. Government-related companies are also not covered since most of the employees are paid a more competitive salary and some companies accept allocations from the government.

Sector Expansion

PWM in Singapore covers sectors like cleaning, security, retail, in-house cleaning, landscape maintenance, food services, administrators, drivers, and waste management.

So far, the plan in Malaysia is to only include entry-level and non-entry-level employee groups of companies who volunteer to be a part of the Policy.

What are the benefits of the Progressive Wage Model for Malaysian employees, employers and MSMEs?

The potential impact of the Progressive Wage Model on Malaysians is multifaceted.

1. Enhanced Living Standards for Low-Wage Workers

By increasing wages in tandem with skill development and productivity, the PWM has the potential to significantly improve the living standards of low-wage workers. This uplift in income can lead to a better quality of life, enhanced financial security, and reduced poverty levels.

2. Skill Development and Career Progression

The PWM encourages workers to engage in skill development programs, which could lead to better career opportunities and job security. This emphasis on skills training can make the workforce more adaptable and resilient in the face of changing economic landscapes.

3. Boost in Overall Productivity

With a more skilled workforce, companies can expect to see a rise in productivity. This increase in efficiency can contribute to the overall growth of the economy, potentially leading to more job opportunities and higher wages across various sectors.

4. Economic Inclusivity

The PWM aims to narrow the income gap, promoting a more inclusive economy where growth benefits a wider segment of the population. By targeting MSMEs, which comprise a significant portion of the Malaysian economy, the policy has the potential to enact broad-based economic improvements.

5. Unlock Business Growth Potential

The PWM offers a robust avenue for business growth by fostering a skilled and productive workforce. By attracting and retaining top talent, businesses can benefit from increased loyalty and market performance. This aids in long-term strategic positioning and sustainability for businesses.

PWM Policy: My Perspective As A Malaysian MSME Business Owner

Personally, as someone who runs an MSME business, the Progressive Wage Model (PWM) strikes a chord with me.

I like how this initiative links wages to the skills and productivity of employees, and it’s not just about ensuring higher pay; it's about cultivating a workforce that's more skilled and thus more productive. In my experience, a team with better skills not only works more efficiently but also contributes significantly to the growth of the business – something good for me and other business owners out there.

Recently, I found that to ensure an employee stays driven and loyal, there are two great motivators: higher wages and career progression – both of which are being addressed by the PWM. Yet, in the current minimum wage system, finding a balance between fair compensation, maintaining the company's financial health, and investing in the skill development of my team presents a complex puzzle.

My company is somewhat still in its infancy, it is a start-up after all, so it’s difficult for me to offer highly competitive wages (like GLCs and MNCs) to attract the top talents. Of course, this is not to say that my team isn’t getting fair wages, in fact, I do try to pay them higher than the market rates but I still find it hard to strike a balance between sustaining the financial stability of my business while also investing in upskilling my team.

While I wholeheartedly support the spirit of the PWM, I do have some reservations. For instance, the financial incentives offered (between RM200 and RM300 per employee) are a step in the right direction, but I wonder if they are sufficient to make a meaningful impact. Furthermore, the success of such a program in the ever-evolving landscape of micro, small, and medium enterprises (MSMEs) hinges on its flexibility and adaptability to diverse business needs and environments.

So, as we anticipate the outcomes of the pilot phase, I remain cautiously optimistic. If implemented effectively, the PWM has the potential to herald a new era of workforce development and economic sustainability, which is incredibly exciting.

However, we must remember that this is a collective endeavour. The feedback from both businesses and workers will be indispensable in sculpting a model that genuinely resonates with and addresses the intricacies of our economic landscape. In the end, the PWM isn’t just a policy change; it’s a potential turning point in how we value and invest in our workforce for the betterment of our economy and society.

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