Retrenchment trend

The economy is expected to slow down this year, perhaps even heading towards a recession. How will workers be affected? Will we see another massive retrenchment similar to that of year 2009?

Below are the quarterly retrenchment figures in Malaysia as reported by the Ministry of HR for the past 3 years.

	Q1-2009	Q2-2009	Q3-2009	Q4-2009	Q1-2010	Q2-2010	Q3-2010	Q4-2010
No of workers retrenched	12,590	7,470	3,526	2,125	1,714	1,859	1,751	1,761

	Q1-2011	Q2-2011	Q3-2011	Q4-2011	Q1-2012	Q2-2012	Q3-2012	Q4-2012
No of workers retrenched	2,621	1,105	3,605	n/a	?	?	?	?

Retrenchment Fund - will it ever be a reality?

It was reported in the local papers a few days ago that the Government is prepared to set up a retrenchment fund. This “big” news did not trigger much reaction nor raised many/any eyebrows.

This is because the Government has been talking about setting up such a fund since 2007 but there has been little progress thus far - see table below.

Date	What the Government Said…..	Source
Oct-11	Government is prepared to provide a retrenchment fund but needs to first devise a mechanism to sustain it. “We have always wanted to start the fund. It’s just that we do not know how long (the fund should support its receivers)” “(There are) people who are forced into unemployment when some enterprises suddenly closed and are unable to take care of the needs of the workers, including the payment for retrenchment” “We cannot keep using public money to help the workers out. Maybe in the initial period it is ok but subsequently, we need a sustainable system”	News article quoting Human Resource Minister
Mar-10	“We are already in the process of introducing the Retrenchment Fund for private sector workers”	News article quoting Human Resource Minister @ certificate presentation ceremony for training course conducted by the ministry
May-09	The setting up of the Retrenched Workers Fund will be likely realised after the International Labour Organisation (ILO) completes its risk assessment report on it by the end of this year "We are open on this, if what the ILO suggests meets our needs and can be implemented, the government is willing to go ahead with it".	News article quoting Human Resource Minister @ Titiwangsa MIC delegates meeting
May-09	The government, through the Human Resources Ministry and the minister concerned, was continuing discussions with all parties involved. "And when the ministry is ready, (they) will come up with a proposal to the cabinet (for further action)"	News article quoting PM
Oct-08	The Government is in the midst of studying the implications of setting up a retrenchment fund for workers before going ahead with it “ The ministry has held discussions at various stages and we have now asked actuarial and International Labour Organisation experts to help us” “The study will take six months after which we will make a decision and implement the fund based on its findings”	MOHR website article - Human Resource Minister, Parliament reply
Jan-07	The government would go ahead with its plan to set up a retrenchment fund for workers despite objections from the Malaysian Employers Federation (MEF),	News article quoting Human Resources Minister @ ground-breaking ceremony of Socso HQ

At this rate, I very much doubt that Malaysia would see the implementation of such fund any time soon.

Why is the proposed Fund all about? How would it help retrenched workers?

· Retrenchment Fund is also known as “Unemployment Benefit Scheme” or “Unemployment Insurance”

· Fund was first proposed by Malaysian Trade Union Congress (MTUC) in 1998 following the Asian financial crisis which saw some thousands of workers losing their job

· How workers will benefit (based on MTUC’s proposal)

o Payments of retrenchment benefits to workers where companies fail to do so – e.g. company A closed down and did not have sufficient funds to pay workers, Fund could be used to pay workers their retrenchment benefits as provided by law

o Fixed monthly allowance to retrenched workers (who are continuously unemployed for more than 3 months) till they secure a new job

· MTUC further suggested the Government provide a dees capital of RM 500mil to Fund and employers and workers each contribute RM 1 (yes, only one ringgit) to Fund per worker per month

· Similar funds/schemes have been implemented in China, Thailand, Korea, Japan, Vietnam , India

More economists are getting gloomy on the global economic outlook. Malaysia is also at risk, and may see more workers (especially in the vulnerable export-led sectors) being retrenched in the near future. Let’s hope the proposed Retrenchment Fund is put in place soon

Retrenchment / VSS compensation packages in Malaysia: A Comparison (part 2)

More data...

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Malaysia Airports (airport, 2002, Source: news article)
Employees accepting the VSS offer will be paid between 0.75 and 1.75 times their last drawn salary multiplied by their years of service.

Intel Malaysia (2006, source: Intel sources)
VSS: Offered 1.5 months salary for each year of service and three months pay for leaving on short notice

Hualon (2008, receivership, news article)Note : This is a unique case. Co was bankrupt, put under receivership and then sold to a new owner. Local law does not provide for retrenchment benefits if company is bankrupt. However, Hualon employees campaigned and got something at the end : "Hualon Corporation textile workers received compensation ranging from RM1,000 to RM17,000 based on years of service"

A good article below for more details on case
http://www.socialistworld.net/doc/3254


Hong Leong Bank, MIMB (post-takeover of EON Bank), Nov-2011

VSS payment formula is based on a VSS multiple that ranges from 1.4 (for executives) to 1.6 (for non-executives) multiplied by the length of service (capped at a maximum of 22 years) multiplied by the basic salary or 50% of total monthly salary until retirement, whichever is lower.

In addition, the Bank is also offering medical relief of up to RM1,000 reimbursable for a period of 6-months from the date of separation, continuation of housing and motor vehicle loans at staff preferential rates for a period of 12 months from the date of separation. 

Retrenchment / VSS compensation packages in Malaysia: A Comparison

Usually companies do not make public the severance packages (retrenchment, voluntary separation scheme) paid to the affected employees. You will find that you are most likely to get such data only if the company has an in-house union and/or belongs to an industry with a strong union (e.g. banks)

It is always good to arm yourself with some form of market data (who paid how much to whom) especially if you want to negotiate with your employer for a better severance package. Note however, that no circumstances are exactly the same -- Compensation package typically depends on the type of organization e.g. MNC/GLC/local, industry, job position, circumstances under which you've been made redundant, company's financial position, company's moral and CSR standing etc.

Hence, the compensation data below (or which you've gathered) should only be used for general comparison purposes only. That said, as you can see below, most companies pay above statutory rates (i.e. min. required as per Malaysian Employment Act) which is ---

For service up to 2 years: 10 days wages per year of service
Service between 2-5 years: 15 days wages per year of service
Service of more than 5 years: 20 days per year of service

I also hope that more retrenched employees would share the compensation data that their ex-employer have paid out in the past. This will help the other soon-to-retrenched workers

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Maybank (bank, VSS in 2001, source: news article)
paid 1.35 to 1.85 months per year of service or 65% of one's last drawn salary X no of months to retirement (whichever lower, subject to a maximum of 36 months)
also gave RM 1,000 cash as medical assistance and continuation of certain staff benefits for 2 years

Intel Penang (electronics, 2001, source: news article)
Report indicated that those who opt for the scheme will receive 4 months' base salary as well as a 1.5-month salary for each year of service.

Malaysia Airline (airline, 2006, source: press release)
Payment based on current monthly salary ranging from 1-3 months for every year of service. Apart from that, MAS will give a one-off medical benefit, buy back all unutilised leave, give a free air ticket to be used by the end of the year and give laid-off staff hospitalisation coverage for a year

Timedotcom (telecommunications, 2006, source: news article)
Package of between 1.8 -2 months' salary for each completed year of service with the company

EON (car distributor, VSS in 2006, source: news article)
paid 1.5 times their last drawn salary per year of service subject to a maximum of 24 years, or last drawn salary X remaining months to retirement subject to a maximum of 36 months, which ever is lower. Medical assistance of RM 1,000 per employee. Outplacement training and workshops, and employment placement assistance

NST/MalayMail (newspaper publisher, 2006, source: thestar quoting sources)
voluntary separation scheme (VSS) of between 1.1- 1.75 months' salary per year of service based of the last-drawn basic salary.

Spansion Penang (electronics, VSS in 2009, source: news article)
Employees who have served < than 2 years offered 10 days’ pay and a month’s salary in lieu of notice, those who have clocked 5 years or more were offered 20 days’ pay and two months’ salary in lieu of notice. The offer for employees in between the two categories was 15 days’ pay and 1.5 months’ salary.

More cases (especially for involuntary separation or dismissals)
One good website to check is www.mp.gov.my which is the official website for the Industrial Court of Malaysia for past cases. Or simply google using keywords such as "malaysia industrial court case RM" and one can get a list of past court cases and the judgement passed by the court (e.g. how much was awarded).

I will update compensation database as I get more data