As minimum wage increases are often substantial, employers struggle to maintain meaningful wage gaps between junior and senior roles. — Agencies
WILL the higher minimum wage lead to wage compression, where the pay gap between entry level and higher skilled workers narrows?
Malaysian Employers Federation (MEF) president Datuk Dr Syed Hussain Syed Husman says the matter is a valid concern for employers.
“As minimum wage increases were made once in ten years and often substantial, employers struggle to maintain meaningful wage gaps between junior and senior roles. This can demotivate experienced workers who expect their skills and tenure to be better rewarded.”
He suggests that micro, small and medium enterprises (MSMEs) are usually the worst hit when it comes to wage compression.
“Many MSMEs operate on thin margins and mandatory minimum wage increases comprised significant portion of payroll budgets.
“Employers have limited flexibility to adjust salaries for mid- and higher-level employees.”
Syed Hussain: MSMEs are usually the worst hit when it comes to wage compression.
MEF recommends that employers consider adjusting salaries for higher positions to maintain internal equity and fairness within organisations.
“Such adjustments are crucial for preserving industrial harmony and ensuring a structured compensation framework that reflects varying levels of responsibility and expertise.
“Wages should not be solely based on educational qualifications but also take into account factors such as work experience, skills, performance, and industry demands. This approach will lead to a fair and competitive compensation system that rewards employees appropriately for their contributions.”
MEF says other issues caused by wage compression include:
> Skilled employees will perceive stagnation in their wages relative to lower level roles as a lack of recognition thereby increasing higher attrition risks.
> Labour-intensive industries such as retail, manufacturing, hospitality and construction experienced tighter wage structures after minimum wage adjustments.
> Due to cost pressures, businesses prioritise compliance with minimum wage laws first, delaying adjustments for higher-tier employees.
Syed Hussain says to address such concerns, some employers have moved to implement clear grading structures with fixed increments to ensure proportional wage growth based on seniority and skills.
Some are also “shifting focus from base pay to variable incentives such as productivity bonuses and profit-sharing to reward higher-skilled employees”.
They also offer upskilling and reskilling trainings and promotions to justify higher pay differentials, he says.
At the same time, some include quality-of-life perks to retain talent, such as flexible work arrangements, healthcare and career development.
Iseas-Yusof Ishak Institute senior fellow Dr Lee Hwok Aun says people must be reminded that the minimum wage applies to the lowest- paid jobs, which are typically elementary, routine and labour-intensive, like cleaning or shopfloor assembly.
“Hiring practices and workforce management may change over time, as employers find ways to mechanise or increase worker productivity – but there will be limits. The main purpose of minimum wage remains to safeguard the worker’s well-being and dignity.”
This is part of a special report by Media in Arms.
