For business owners or HR professionals aiming to strengthen their wage structure and recognition system, the Monthly Variable Component (MVC) presents an intriguing concept to integrate into their organisation's compensation strategy.

Within this guide, we will explore the definition of MVC and its correlation with the Basic Monthly Wage and the Gross Monthly Wage. Additionally, we will examine the advantages it brings, provide insights on establishing impactful Key Performance Indicators (KPIs) for MVC calculation, and suggest an optimal MVC level. Join us as we delve deeper into the realm of MVC and expand our understanding of its potential benefits!

What is the Monthly Variable Component?

In Singapore, the Monthly Variable Component (MVC) serves as a versatile element within an employee's wage structure. It provides employers with the flexibility to adjust a portion of an employee's salary contingent upon predefined Key Performance Indicators (KPIs) that are in line with the company's goals and objectives. As a result, the MVC amount an employee receives can vary on a monthly basis, reflecting their performance relative to the established KPIs.

Is the Monthly Variable Component part of the Basic Monthly Wage?

Certainly! The Basic Monthly Wage represents the combined total of the Monthly Fixed Component (MFC) and the Monthly Variable Component (MVC) prior to deducting the employee's Central Provident Fund (CPF) contribution. It's important to note that the Basic Monthly Wage does not include the employer's CPF contribution.

Is the Monthly Variable Component part of the Gross Monthly Wage?

The Gross Monthly Wage represents the complete sum received by an employee prior to any deductions in Singapore, such as taxes and the employee's CPF contribution. It includes all components of the wage structure, including the Basic Monthly Wage as well as additional wage elements such as commissions, allowances, overtime payments, and other regular cash payments.

Therefore, the MVC contributes to the overall Gross Monthly Wage as it is part of the Basic Monthly Wage.

Do note that the Gross Monthly Wage excludes bonuses, stock options, other lump sum payments, and payments-in-kind. 

For more information on the different types of bonuses that you can offer to your employees, check out our “Bonus Guide for Employers in Singapore”!

As an employer, what are the benefits of including the Monthly Variable Component in the wage structure?

Including the Monthly Variable Component (MVC) in your wage structure brings several benefits to employers. Let's take a look at some of them:

• Performance-driven culture: The MVC helps foster a performance-driven culture within your organisation. By linking a portion of an employee's salary to their performance against the predetermined KPIs, you incentivize them to strive for excellence and achieve their targets. This motivates employees to consistently enhance their performance and make meaningful contributions to the overall success of the company.
• Flexibility in rewarding employees: The MVC provides employers with the flexibility to reward employees based on their individual contributions. With the MVC amount being contingent on performance, it allows employers to recognise and remunerate high achievers more generously while ensuring fairness across the entire workforce. This flexibility can serve as an effective tool for attracting and retaining top talent within the organisation.
• Alignment with organisational goals: By setting KPIs that align with your company's goals and objectives, the MVC ensures that employees' efforts are focused on achieving these targets. It strengthens the connection between individual performance and the overall success of the company, promoting a shared sense of purpose among employees.
• Cost control: Including MVC in the wage structure allows employers to manage their costs effectively. During periods of economic uncertainty or when company performance falls below expectations, employers can flexibly adjust the MVC component accordingly. This enables them to exercise cost control measures while still acknowledging and incentivizing exceptional performance. 

How do I set Key Performance Indicators for the MVC computation?

Setting Key Performance Indicators (KPIs) for MVC computation requires careful consideration. Here are some steps to help you establish effective KPIs:

• Align with organisational goals: Ensure that the KPIs you choose are directly aligned with your company's goals and objectives. Identify key areas that drive success and focus on metrics that measure individual contributions towards those goals. Some suggested KPIs include:
  • Gross Operating Profit
  • Revenue
  • Cash Flow
  • Return on Equity
  • Productivity Indicators
  • Market Share
• Be specific and measurable: Make sure your KPIs are specific and measurable. Clearly define the desired outcome and establish quantifiable targets. This enables employees to understand what is expected of them and allows for objective assessment of performance.
• Consider individual roles and responsibilities: Tailor the KPIs to each employee's role and responsibilities within the organisation. Recognise that different positions may have varying priorities and metrics for success. Customising KPIs helps ensure fairness and accuracy in evaluating performance.
• Set realistic and attainable targets: While it's essential to challenge employees, setting realistic and attainable targets is equally important. Unrealistic goals can demotivate employees and hinder productivity. Strike a balance by setting targets that push employees to excel without overwhelming them.
• Provide regular feedback: Regularly provide feedback and guidance to employees regarding their performance relative to the established KPIs. This helps them understand their progress, make necessary adjustments, and stay motivated. Timely feedback also allows for corrective actions to be taken if performance falls short of expectations.

Need more tips on managing your employees’ performance? Check out our guide on “How to design an effective performance appraisal system”!

What is the recommended level of the Monthly Variable Component?

The National Wage Council (NWC) has recommended the following wage ratios be applied to the basic annual wage:

• General employees: 70% Fixed, 10% MVC, 20% Annual Variable Component (AVC)
• Middle management: 60% Fixed and 40% Variable (MVC & AVC)
• Senior management: 50% Fixed and 50% Variable (MVC & AVC)

The actual level of MVC and AVC that you choose should consider factors such as industry norms, company profitability, and the potential impact on employee motivation. It's crucial to strike a balance between rewarding performance and ensuring financial sustainability for the organisation. Conducting market research and benchmarking against similar companies can help you determine an appropriate proportion of MVC and AVC for your employees.

Create a performance-driven culture with the implementation of the Monthly Variable Component!

By including MVC in your wage structure, you can create a performance-driven culture, provide flexibility in rewarding employees, align individual efforts with organisational goals, and effectively manage costs. 

Remember to set meaningful KPIs, regularly communicate feedback, and find the right balance when determining the level of MVC for your employees. Implementing MVC can contribute to a motivated workforce and the success of your organisation. Good luck!

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Using HR software to manage performance appraisals can help organisations effectively and efficiently manage employee evaluations, feedback, and reviews. This allows managers to spend less time on administrative tasks and more time focusing on important strategic initiatives. With Payboy's appraisal system module, you can:

• Customise unique performance appraisal forms for each employee based on their function and role
• Set up 360-degree feedback to gather fair and all-round assessment for each employee
• Store all appraisals in the cloud to gain valuable insights into employee productivity and performance over time

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