Guidelines on bonuses better than making them compulsory

While minimum wages are becoming common in many countries, mandating a bonus is a bit out of sync (Not way for Govt to act in a market economy, by Mr Cheng Shoong Tat; Oct 5).

A bonus is considered a variable payment agreed between employees and employers according to their employment contract or a collective agreement.

Bonuses are based on a company's financial performance and should not be required by law. Depending on how well a business has done, the bonus can be low or high, or need not be paid at all.

If need be, our Government should design guidelines on bonuses, but must not force it on employers.

Cleaning firms already tender for jobs at very competitive prices. Having to factor in bonuses would be an additional problem.

Our Government should consider including a clause in its tender documents stipulating that the tender price must factor in at least a one-month bonus for cleaners. This is fair and transparent, and will put every bidder on a level playing field.

If the Government sets such an example, private firms may take it as a cue.

The labour market is notable for its complicated contracts designed to encourage high performance and effort. We should leave that alone. Introducing more controls would put sand in the wheels of the labour market by distorting relative wages and bonuses across industries.

One of the main issues in economics is the extent to which a government should intervene in a market economy.

Free-market economists agree that government intervention should be limited as it can otherwise lead to an inefficient allocation of resources. Government intervention will take away a company's freedom to decide how to manage its balance sheet. The market is best at deciding how and when to act.

Government intervention causes more problems than it solves, such as high debt if firms that are not doing well have to borrow money to pay bonuses.

Firms might also make up for this additional cost by increasing prices, decreasing quality or laying off marginal workers.

Cheng Choon Fei

A version of this article appeared in the print edition of The Straits Times on October 09, 2018, with the headline 'Guidelines on bonuses better than making them compulsory'. Print Edition | Subscribe