What is the Flexible Wage System and Why Should You Care?

What is the Flexible Wage System and Why Should You Care

Table of Contents

If you are a Singaporean worker or employer, you may have heard of the Flexible Wage System (FWS). But do you know what it is and how it works?

In this article, we will explain the FWS and its benefits for both workers and employers.

What is the Flexible Wage System?

The FWS is a system that allows employers to adjust a portion of their employees’ wages based on the company’s performance and economic conditions. It consists of two main components: the Monthly Variable Component (MVC) and the Annual Variable Component (AVC).

The MVC is a portion of the basic wage that can be adjusted monthly depending on the business situation. For example, if the business is doing well, the employer can increase the MVC to reward the workers. If the business is facing difficulties, the employer can reduce the MVC to save costs and jobs.

The AVC is a lump-sum payment that is given at the end of the year or at regular intervals throughout the year. It is based on the company’s performance and profitability. For example, if the company has achieved its targets and made profits, the employer can give a higher AVC to share the fruits of success with the workers. If the company has performed poorly or made losses, the employer can give a lower AVC or none at all.

Why should you care about the Flexible Wage System?

The FWS has a number of benefits for both employers and employees.

For employers

The FWS gives employers more flexibility in managing their wage costs. This can help them to cope with economic fluctuations and enhance their business competitiveness.
The FWS can also help employers to retain their workers during downturns and motivate them during upturns.

For employees

The FWS gives employees more income stability and security as they are less likely to face wage cuts or layoffs during bad times.
It also gives them more incentive and reward as they can share in the company’s success during good times.

According to a survey by the Ministry of Manpower (MOM) in 2020, about 80% of private sector employees were under some form of FWS. However, not all employers have implemented the FWS fully or effectively. Some employers still rely on fixed wages or across-the-board wage cuts to deal with economic challenges. This can hurt their business competitiveness and employee morale.

Therefore, the MoM has urged all employers who have not yet done so to implement the FWS as soon as possible. The MoM has also provided a guidebook for employers on how to implement the FWS.

How to implement the Flexible Wage System effectively

If you are an employer who is considering implementing the FWS, there are a few things you should keep in mind:

  1. Communicate with your employees: Make sure that your employees understand how the FWS works and how it will affect their wages. You should also be prepared to answer any questions they may have.
  2. Set clear and achievable targets: The targets that you set for your employees should be clear, achievable, and relevant to their job role. You should also make sure that the targets are fair and equitable.
  3. Have a transparent performance management process: Your performance management process should be transparent and fair. Your employees should know how they are being assessed and what they need to do to improve their performance.
  4. Be flexible: The FWS is a flexible system, so you should be prepared to adjust it as needed. For example, you may need to adjust the AVC or MVC targets if the company’s performance changes.


The Flexible Wage System (FWS) is a system that can benefit both employers and workers in Singapore. By implementing the FWS, employers can enhance their business agility and resilience while providing greater income security and job stability for their workers.

The FWS is not a one-size-fits-all system. Employers can customise their FWS according to their industry, company size and culture. However, there are some key principles that employers should follow when implementing the FWS:

  • The FWS should be transparent and fair. Employers should communicate clearly with their workers on how the MVC and AVC are determined and adjusted. Employers should also consult their workers or their unions before making any changes to their wage system.
  • The FWS should be aligned with performance and productivity. Employers should link their MVC and AVC to their company’s performance indicators and productivity measures. Employers should also encourage their workers to upgrade their skills and improve their work processes.
  • The FWS should be sustainable and balanced. Employers should ensure that their wage system is able to support their long-term business goals and growth. Employers should also balance their wage adjustments with other non-wage measures such as training, welfare and career development.

If you are an employer who is considering implementing the FWS, or if you are an employee who is working under the FWS, we encourage you to learn more about this system and its benefits. The FWS can play an important role in creating a more prosperous and inclusive economy for Singapore.

Don’t miss out on the latest HR trends. 

Get insights delivered straight to your inbox.