Wage Distortion Presentation

THINGS
YOU NEED TO KNOW

ABOUT WAGE ORDER NO. NCR-23
Date of Issuance:
May 13, 2022
Date of Approval of the W.O. by NWPC:

May 17, 2022
Date of Publication:
May 19, 2022 (The Philippine Star)
Date of Effectivity:
June 4, 2022
AMOUNT OF INCREASE
SECTION 1. AMOUNT OF INCREASE. Upon effectivity of this
Wage Order, minimum wage earners in the private
sector in the Region shall receive the amount of
THIRTY-THREE PESOS (P33.00) increase in the basic
wage per day.
NEW MINIMUM
WAGE RATES
DATE OF EFFECTIVITY: JUNE 04, 2022*
*Fifteen (15) days from its publication in a newspaper of general circulation
Any entity who refuses shall be dealt with pursuant to Sec. 12 of RA No. 6727, RA No. 8188
Sectors/Industry Current Minimum New Wage New Minimum

Wage Rates Increase Wage Rates
Non-agriculture P537.00 P33.00 P570.00
• Agriculture (Plantation and Non-Plantation)

• Service/Retail Establishments employing 15
workers or less
P500.00 P33.00 P533.00
• Manufacturing regularly employing less than
10 workers
Illustration of Wage Distortion
• Employee A = 537 + 33 = 570 (WO No. NCR-23)

•Employee B = 580
•Employee C = 600
•Employee D = 650
•Employee E = 700
When is there wage distortion?
▪When the application/implementation of a

mandated wage increase, results in the elimination
or severe contraction of intentional quantitative
differences in wage or salary rates between and
among employee groups in an establishment;
▪When the distinctions embodied in such wage

structure based on skills, length of service, or other
logical bases of differentiation were effectively
obliterated (Article 124, amended Philippine Labor
Code).
4 Elements of Wage Distortion
▪ Existing hierarchy of positions with corresponding
salary rates
▪ Significant change in the salary rate of a lower pay
class without concomitant increase in the salary rate
of the higher class
▪ Elimination of distinction/contraction between the 2
levels
▪ Existence of the distortion in the same region
(Prubankers Association vs Prudential Bank and Trust Co, GR 131247, Jan. 25, 1999)
Important Concepts about
Wage Distortion
1. Intentional quantitative differences
▪ Done through job evaluation

▪ Jobs are rated based on:
Nature of task
Skills
Education and training
Length of service
Scope of responsibility and authority
Years of related experience
▪ Jobs ratings are clustered to determine hierarchy of jobs
which correspond to salary grades
2. Severe Contraction or Elimination
▪ Severe contraction - contraction by more than 50% of
the intended quantitative differences in pay between
two groups of workers in an establishment.
(Metrobank and Trust Company Employees Union-
ALU-TUCP vs. NLRC, 226 SCRA 268).
▪ Elimination means that the previous wage
differential or gap no longer exists.
Elimination or Severe Contraction
▪ For distortion to exist, the law does not require

elimination or total disappearance of
quantitative salary differentials; severe
contraction thereof is enough. (Metropolitan Bank &
Trust Co. Employees Union –ALU TUCP vs. NLRC, G.R. No. 102636, 10
Sept. 1993)
Is an employer obligated to correct a wage
distortion?
▪ Art. 124 of the Labor Code, “If unionize:

the E-U shall negotiate to correct
distortions. If no union, the E-E shall
endeavor to correct such distortions.”
In correcting wage distortion, is it necessary to
restore the original gap?
▪ There is no legal requirement.
▪ Restoring a substantial or significant gap is
acceptable. Mere appreciable differential or a
significant pay gap will suffice as correction of
the distortion.
▪ The law recognizes the validity of negotiated
wage increases to correct distortions. (MBTC EU-ALU
TUCP vs. NLRC, GR No. 102636, 10 Sept 1993)
(Apex Mining Co. vs. NLRC, GR No. 86200, 25 Feb 1992)
Can there be a strike or lockout if wage distortion
is not addressed?
▪ Dispute arising from wage distortion is non-

strikeable;
▪ Strikes, lockouts and other concerted action by

the union or management are illegal. (Ilaw at Buklod
ng Manggagawa vs NLRC, GR No 91980, 27 June 1991)
Procedures to correct wage distortion
For Organized For Unorganized

▪ Employer and union negotiate ▪ Employer & workers
▪ Through grievance procedure negotiate
in the CBA ▪ Disputes settled through
▪ If unresolved, through NCMB
voluntary arbitration ▪ If unresolved, through
compulsory arbitration at
NLRC
When Wage Distortion Exists ?
National Wages and Productivity Commission

18
Assumptions
There are MWEs paid P537/day
The next higher daily rate is P575/day
Determine the following amounts:
1. Nominal (previous)wage gap is P575-P537 = P38
2. Amt. of additional increase under latest WO (WO NCR-23) = P33
3. New MWR (WO NCR-23) = P570
4. Current wage gap (between the next higher rate and latest Wage)
(P575-P570) = P5
How do we know that there is wage
distortion?
• Compute change in wage differential:
[(Nominal gap-current gap)/nominal gap] X 100
[(38-5)/38] X 100
33/38 = 0.868
0.868 X 100 = 86.84%
How do we know that there is wage distortion?
• Contraction by more than 50%, brought

about by adjustments in MW,
constitutes wage distortion
Wage Distortion Formulas
1. Pineda
2. Pineda-Cruz-So
3. Percentile
4.Phil. Construction Supply
5. Jimenez, Ofreneo, Delas
Alas Jr. (JODa)
6. Wirerope
7. Bagtas
National Wages and Productivity Commission
Formula 1: PINEDA FORMULA :
• Authored by Mr. Marcelino Pineda, an HR Manager of

Nestle Philippines; former member of the Regional
Tripartite Wages and Productivity Board-IV (Calabarzon
area).
•Provides pay increases for higher paid employees at a
decreasing rate.
Previous minimum wage (P537)

WDA = x Mandated wage increase (P33)
Wage of employee
Formula 2: Pineda-Cruz-So Formula (1991)
▪ Variation of Pineda formula
▪ Applies arbitrary exponent to the formula which results in a faster
rate of decline in wage increases for those paid above the minimum
wage rate

n
WDA = -------------------------------------------- x Mandated wage increase (P33)
Wage of employee
Formula 3: Percentile Approach
• Utilizes the statistical concept of a percentile distribution to
arrive at the distortion adjustment. Workers are classified
into: percentile groups, in terms of actual pay or wage rate.
• Useful when there is no clear job and pay structure.
Assume:
Employee receives P550 daily
Employee belong to the 95th percentile pay group
WDA = Percentile weight pay group (.95) x Mandated wage increase (P33)
Formula 4: Philippine Construction Supply (PCS) formula
(1993)
▪ Similar to Pineda formula, but denominator is a “base rate” which may
be agreed upon by both union and management. The base rate may
be the actual wage of an employee which is above the minimum.
▪ The higher the base rate, the smaller the distortion increment and
vice-versa.
WDA = Existing Minimum Wage (P570) x Mandated wage increase (P33)

Formula base range (FBR)
*where: FBR = Actual wage rate + Agreed amount of adjustment

Formula 5: Jimenez, Ofreneo, Delas Alas Jr.
(JODA) formula (1995)
▪ Equal to half the difference between the minimum wage rate and the
rate of the affected employee.
▪ Adjusted salary rates of employees covered should not constrict by
more than 50% between employees and succeeding wage scales.
WDA = Wb (daily wage of employee) – Wa (old daily mandated minimum wage P537)
2
New daily rate = WDA + Wc (new daily min. wage P570)
Where:
Wa = old daily minimum wage
Wb = daily wage of employee (where Wb>Wa or Wb is above Wa)
Wc = new daily minimum wage (Wa + mandated wage increase)
Formula 6: Wirerope Formula (preferably for unionize
establishments)
▪ Similar to Pineda formula, but the creditable wage

increase under the CBA is subtracted from the mandated
wage increase, resulting in smaller wage adjustment.
▪ Applicable for CBA anniversary increases which are below
the mandated wage increase as agreed upon by both
parties.
Existing mandated (Mandated wage

minimum wage (P570) increase (P33) -
WDA = x creditable increase
Present wage of
employee under CBA)
Formula 7: Bagtas Approach (1998)
▪Based on percentage or proportional across-the-

board increase (in contrast to the absolute wage
increase)
▪Percent wage adjustment is equal to the percent

increase represented by the legislated or mandated
minimum wage increase.
Mandated wage increase (P33) Present wage of

WDA = x employee
Existing minimum wage (P570)
Recommended Formula
PINEDA FORMULA Computational example:
▪ Mandated wage increase – P33 Basic Pay (W.O. No. NCR–23)
▪ Previous daily minimum wage is P537.00 (W.O. No. NCR-22)
▪ Assume that an employee currently receives P575.00 daily minimum wage

WDA = x Mandated wage increase (P33)
Wage of employee (P575)
Wage distortion adjustment (WDA) = P537.00 x P33.00
P575.00
= P0.933 x P33.00
= P30.789
New daily rate = P575.00 + P30.789
= P605.789
KASAMBAHAY Wage Order No. NCR-DW-03
MINIMUM WAGE UNDER AMOUNT OF NEW MONTHLY

REGION WO-NCR-DW-No. 02 INCREASE MINIMUM WAGE
National Capital P5,000 P1,000 P6,000

Region
Date of Issuance:
June 21, 2022
Date of Approval of the W.O. by NWPC:

June 23, 2022
Date of Publication:
June 27, 2022 (The Philippine Star)
Date of Effectivity:
July 13, 2022
THANK
YOU
[email protected]
02 8527-5155
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THINGS

YOU NEED TO KNOW

Date of Approval of the W.O. by NWPC:

Sectors/Industry Current Minimum New Wage New Minimum

Non-agriculture P537.00 P33.00 P570.00

• Agriculture (Plantation and Non-Plantation)

• Employee A = 537 + 33 = 570 (WO No. NCR-23)

▪When the application/implementation of a

▪When the distinctions embodied in such wage

▪ Done through job evaluation

▪ For distortion to exist, the law does not require

▪ Art. 124 of the Labor Code, “If unionize:

▪ Dispute arising from wage distortion is non-

▪ Strikes, lockouts and other concerted action by

For Organized For Unorganized

National Wages and Productivity Commission

• Contraction by more than 50%, brought

• Authored by Mr. Marcelino Pineda, an HR Manager of

Previous minimum wage (P537)

Previous minimum wage (P537)

WDA = Existing Minimum Wage (P570) x Mandated wage increase (P33)

*where: FBR = Actual wage rate + Agreed amount of adjustment

▪ Similar to Pineda formula, but the creditable wage

Existing mandated (Mandated wage

▪Based on percentage or proportional across-the-

▪Percent wage adjustment is equal to the percent

Mandated wage increase (P33) Present wage of

Previous minimum wage (P537)

MINIMUM WAGE UNDER AMOUNT OF NEW MONTHLY

National Capital P5,000 P1,000 P6,000

Date of Approval of the W.O. by NWPC:

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