How the concept of salary is distorted

SALARY comes from the Latin word “salarium,” from the root word sal or salt. It was believed that soldiers in Ancient Rome were sometimes paid with salt instead of money. During the time of Augustus, Roman soldiers were allegedly paid 900 sestertii (225 denarii) per year and given salt, an expensive and essential commodity at that time. (Wikipedia)

The absence of concrete evidence in Roman texts raises questions about the origins of the salt salary story. (Medium. com, Jan. 2, 2024)

Salary

Since the time when work and wages were “invented,” the concept and practice of salaries, the employers, and their responsibilities have changed or been distorted.

According to Philippine laws, “Wage paid to any employee shall mean the remuneration or earnings, however, designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other methods of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered …” (Laborlaw.ph)

From the perspective of the employer, a salary is a payment to the employee for services rendered and for contributing or creating value that customers are willing to pay for. Human resources (HR) practitioners generally pay for the position, for the employee’s performance, or for the person (stature in his/her career).

Pay for the position is the hiring rate, based on the range that serves as a reference pay and allows employees to progress their salary over a period of time within a particular job grade. The midpoint of the range usually equates to the average (median or mean) of what the job market pays for particular positions in a given job grade. The pay for the position approximates the real value of the jobs in the market and is generally called the basic pay. The basic pay is given in exchange for an acceptable level of performance.

According to the Supreme Court, “the employer’s obligation to give his workers just compensation and treatment carries with it the corollary right to expect from the workers’ adequate work, diligence and good conduct.” (CCBPI v. NLRC, GR 82580, April 25, 1989)

Pay for performance beyond expectation is generally granted on a selective basis, not across the board, to recognize and compensate employees with outstanding performance. This pay is usually in the form of a performance bonus or incentive. Often, this could be in the form of a merit pay increase. The former (bonus or incentive) are more preferred than the latter.

Companies have the right to set wages and other terms of employment. An employee has the freedom to choose which company to join, and he/she often considers salary and benefits in making a choice. The Supreme Court also ruled that “[e]quality of rights exists between the employer and the employee. The right of a laborer to sell his labor to such persons as he may choose is, in its essence, the same as the right of an employer to purchase labor from any person whom it chooses. The employer and the employee have an equality of rights guaranteed by the Constitution.” (International Catholic Migration Commission v. NLRC, GR 72222, Jan. 30, 1989)

Minimum wage

A minimum wage is “the minimum amount of remuneration that an employer is required to pay wage earners for the work performed during a given period, which cannot be reduced by collective agreement or an individual contract.” (International Labor Organization)

The ILO further said that the purpose of a minimum wage is to protect workers against unduly low pay and can also be an element of a policy to overcome poverty. It also believed that minimum wage systems should not be used in isolation. “Several types of measures can be used to tackle income and labor market inequality, including pro-employment policies, social transfers, and creating an enabling environment for sustainable enterprises.” (ILO)

Therefore, the minimum wage is only a safeguard or safety net against extremely low wages. It is not meant to equal the amount a family of five must earn in a day to meet their basic needs for food, commute, clothing, shelter, education, entertainment, etc.

In a study by the Philippine Institute of Developmental Studies (PIDS), Drs. Vicente Paqueo, Aniceto Orbeta, and Leonardo Lanzona said, “It finds that in the Philippines, higher LMWs (i) are likely to reduce the work hours of average workers; (ii) can be disadvantageous against the very groups that LMWs are intended to protect; (iii) decrease the employment probability of the young, inexperienced, less educated and women laborers; and (iv) tend to ironically reduce average income and raise household poverty rate. These results illustrate how rapid rises in LMWs can be counter-productive and can go against the spirit of equal protection principle of the Constitution. If the goal is to help the poor and protect the weak, then these findings warrant the need to think more deeply and prudently about the use of LMWs and to consider other tools for achieving decent wages.”

PIDS also reported: “Using various econometric methods, the study finds that the minimum wage policy reduces employment in small firms. It causes small firms to reduce their production workers. The negative impact of minimum wages emanates from scale effects. Because of greater marginal costs, it is difficult for small firms to mature into larger-scale firms.”

The phenomenon described by PIDS often results in a) massive job losses among unskilled workers and b) micro and small enterprises closing shop or going into the informal sector of the economy.

Employer

Often, when labor policies or bills are proposed, the identity of the employers is often distorted. You will hear grandstanding parties in Congressional hearings refer to employers as large and highly profitable. The Philippine Statistics Authority (PSA) recorded in its 2022 List of Establishments (LE) “a total of 1,109,684 business enterprises operating in the country. Of these, 1,105,143 (99.59 percent) are MSMEs, and 4,541 (0.41 percent) are large enterprises.”

Every time there are adjustments in minimum wages, 99.59 percent of employers find it difficult to cope with the additional burden and retain their workers. Only roughly 4 million of the more than 52 million workers are minimum wagers. The 48 million employed workers, the millions unemployed, those in the informal economy, the unpaid family workers, the students, and those who depend on employed workers for subsistence will suffer the unintended consequences of inflation that follow every round of wage adjustments.

There are viable solutions other than legislated wage increases, including reducing the workers’ burden for food, commute, housing, clothing, and raising their family, which are the employees’ primary responsibility — and not of the employer.

Ernie Cecilia is the chairman of the Human Capital Committee and the Publication Committee of the American Chamber of Commerce of the Philippines (AmCham); chairman of the Employers Confederation of the Philippines’ (ECOP’s) TWG on Labor and Social Policy Issues; and past president of the People Management Association of the Philippines (PMAP). He can be reached at erniececilia@gmail.com.