Why is the 5% Pay Increase for Singaporean Managers Important?

In 2017, Singaporean managers can expect a 5% pay increase, which ensures that wages rise with inflation.

In the news this week, we read that Singaporean managers can expect a 5% pay increase at most in 2017. This has led some people to ask why it’s such a big fuss. After all, what’s the big deal with missing a 5% raise on occasion?

Well it isn’t the end of the world, but it’s a good opportunity to talk about increments, and what it means for the general economy:

What Does the 5% Pay Increase Mean for the General Economy?

Looking at the pay increments of managers can be reflective of bigger trends. In general, pay increments go up significantly when companies are desperate for manpower. They tend to stay the same (or rise by just small amounts) when the situation is reversed.

When there is high demand for labour but few workers, pay tends to go up. Companies will offer higher pay to poach workers from other companies, while raising their own workers’ salaries to incentivise them to stay.

When the demand for labour is low, the opposite is true. Companies don’t care if workers leave, because the workers are either easily replaced, or the company is consolidating (shrinking) and doesn’t need more of them anyway.

Now the comparatively small pay increase of just 5% this year also reflects an economic reality: our unemployment rate is at a 6-year high of 2.2%, and in 2015 we saw the biggest layoff of Professionals, Managers, Executives, and Technicians (PMETs) since 2008/9 (the years of the Global Financial Crisis).

This is why there is so much ruckus about the small pay increment of managers: many take it as a reflection that the overall economy - and that a class of supposedly better-qualified Singaporeans - are facing strong headwinds.

How Does the Pay Increment Affect Your Wallet?

With regard to your own wallet, you should not think of pay increments as being the same as year-end bonuses, or the kind of raise given out as a reward.

The point of regular pay increments is not a reward (although it sometimes can be, and is often described as such). The point of pay increments is to ensure your wages rise with inflation.

The cost of living rises by around 3% per annum in Singapore. This means that your pay of S$4,000, while typical in the current environment, could be grossly inadequate by the year 2025.

The pay increment should, ideally, be sufficient to cope with the rate of inflation. In this case, 5% is still enough of course, but it’s still closely watched. When pay increments (as a whole) no longer match inflation, it is a sign of future trouble. If workers cannot build up sufficient savings, they cannot retire well.

On a personal basis, you should take note of this yourself. If you are not receiving regular pay increments - not as rewards but just to cope with inflation - you may need to raise the point with your employer.

Failing that, you should ensure your money is parked in something that does grow with inflation; this could be anything from an endowment plan to Exchange Traded Funds. Speak to a financial advisor for more details.

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