Avoid retrenchment

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22 December 2008

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Straits Times

There are discussions about the best way for companies to cope with decreased demand in a recession. The following options were considered:

> retrench foreign workers
> retrench local workers
> reduce pay across the board, to avoid retrenchments

I prefer the method used by the Governor of California State. He asked the state employees to take 2 days of no-pay leave, to reduce the state budget deficit.

Here is my reason. If there is reduced demand, there is reduced work. The company can ask all employees to take a few days of no-pay leave to reduce the wage cost and avoid retrenchment. In return, the employees extra days of leave (in proportion to the reduction in wages). They can spend the time with their family and friends or attend classes to upgrade their knowledge and skills.

To cope with the reduced wages, the employees can draw down on past savings or cut down on the discretionary expenses. For employee with fixed commitments that cannot be reduced, I suggest that they be provided with a low-interest rate loan for the reduction in their wages. This loan can be provided by the employer or the state at an interest rate of 2.5% p.a. (same as CPF interest rate).

I hope that this suggestion can be considered.

Tan Kin Lian