Productivity and Philippine Productivity Incentives Act of 1990

Definition of 'Productivity'

An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other GDP components such as business inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labor growth, wage levels and technological improvement.

Investopedia explains 'Productivity'

Productivity gains are vital to the economy because they allow us to accomplish more with less. Capital and labor are both scarce resources, so maximizing their impact is always a core concern of modern business. Productivity enhancements come from technology advances, such as computers and the internet, supply chain and logistics improvements, and increased skill levels within the workforce.

Productivity is measured and tracked by many economists as a clue for predicting future levels of GDP growth. The productivity measure commonly reported through the media is based on the ratio of GDP to total hours worked in the economy during a measuring period; this productivity measure is produced by the Bureau of Labor Statistics four times per year.  

(Source: www.investopedia.com/terms/p/productivity.asp)

How do you measure productivity in the workplace? Hours worked or results?

37.5 hours – the standard working week. Show up at your place of work for the stipulated hours and you will receive a tick in the box for attendance. At present this is a popular method that organisations use for measuring productivity. However, it can be questioned whether this is the most efficient method for measuring employee productivity.

Rachel Krys, a campaigner for inclusion at work told The Guardian that “When Yahoo’s Marissa Mayer announced she was banning home working, she was admitting she didn’t really know how to measure productivity, so she counts bums on seats instead”.

Rachel Krys reasoned that we need to switch from an ‘hours worked’ culture to a results model shifting the emphasis from hours worked to what is achieved. This approach allows employees to work the hours that suit their own personal circumstances in a location that may not necessarily be the workplace providing their productivity remains unaltered. Such arrangements are particularly beneficial to working parents and Krys argued that “empowering parents to design working arrangements that fit their family life is vital”.

However, within some organisations flexible working in this sense is not possible due to the nature of the business. Employees may not be able to complete their work outside of the workplace and some businesses may operate a 24-7 operation in which working night shifts and weekend shifts is inevitable. However, a shift worker may enjoy the benefits of being at home during the day to drop off and collect their children from school for example.

 The issue of measuring productivity can also be explored in a wider sense outside of flexible working. As Krys commented it seemed that Yahoo’s Marissa Mayer did not know how to measure productivity. In fact many organisations seemingly reward low productivity levels through offering overtime. 

(Source: http://workingtime-solutions.com/how-do-you-measure-productivity-in-the-workplace-hours-worked-or-results/)

There are thousands of ways to measure productivity. Determining the best method is the dilemma many companies face. Time is money. The single greatest impact on productivity is how time is spent on the manufacturing floor. In the precision-turned parts industry, most machine cycle times are in seconds, which makes “minutes” a highly prized commodity.

Benjamin Franklin famously quoted: “Lost time is never found again.” Lost opportunities are prevalent in manufacturing. For example, a machine that starts up on the morning shift half an hour late lost 30 minutes of production, and a poorly maintained machine that constantly breaks down loses hours of potential production time. Managers frequently sift through the maze of data, searching for the tidbits that really mean something. They try to piece together a spreadsheet that may or may not end up being helpful in measuring and improving productivity. Another option is measuring how effective time is spent on the shop floor, for both people and machines. That calculation is called “Minutes.”

Minutes: A Simple Measure of Productivity (and Profitability Direction)

By now you may be wondering how to do the minutes calculation. You have one question to answer before you do your calculation and that is: What operation(s) generate the greatest percentage of value-added sales in your plant? In most cases, it is primarily production equipment.

The calculation:

1. Accumulate all shopfloor labor hours for the work week (including all shop floor production, support and part-time labor).

2. Add all of the selected production equipment machines’ hours for the work week. (You will need hour meter readings [HMR] for the machines.)

3. Divide the machine hours (HMR) by the labor hours and convert the answer to minutes.

What do Minutes Mean?

Minutes are the measure of minutes of machine productivity for each employee labor hour. It is easy to determine and can be monitored weekly. Minutes tend to increase when business is strong and conversely decrease when business slows. The weekly chart coupled with a 3-week and/or 12-week moving average smooths the weekly chop and provides a great trend analysis tool for your labor component.

All Minutes Aren’t Equal

Each company’s minutes are unique to their operation. This tool is for internal use and should not be used for benchmarking other companies. Below are descriptions of two different companies. For purposes of demonstration, both companies are very profitable and leaders in the industries they serve.

Company A is a screw machine company with mostly long production runs and few secondary operations. The company has 22 shopfloor employees and runs a 40-hour shift.

22 employees × 40 hours = 880 hours

24 machines with 624 HMR/880 hours × 60 = 42.5 minutes

Company B is a precision machine company serving the aerospace and medical industries. This company runs complex parts on CNC multiple spindle screw machines, Hydromats and other primary equipment. Secondary equipment, cleaning and inspection processes are also important value-added operations. The company runs a 40-hour shift with 130 shopfloor employees.

130 employees × 40 hours = 5,200 hours for the week

60 machines with 2,040 HMR / 5,200 × 60 = 23.5 minutes 

The minutes for each company differ greatly, even among highly profitable companies. The minutes calculation is best used as an internal labor and machine productivity tool. It is a useful weekly benchmark to share with all employees. Once you have established a baseline for your operation, the next step is improving the number.

Minutes are best used as an internal labor and machine utilization tool.

Minutes: A Measure to Improve Productivity and Profitability

The two components of minutes—machine hours and labor hours—are key measures for productivity and profitability. Each of these components has unique drivers. Machine hours are primarily driven by customer demand, and labor hours are controlled by company management. Maintaining a balance between the two can have a significant impact on profitability.

Adjusting labor, especially reducing the number of employees when demand decreases, is a more difficult task than adjusting machine hours. Without a system to show the necessity and impact of too much labor, reducing hours and layoffs are usually a painful process.

Sharing and discussing the minutes chart with employees provides management a simple, all-encompassing tool.

Increasing minutes is the goal.

-   Nonproduction labor helping in production departments improves productivity while reducing nonproductive labor hours.

-   Having flexible hours when demand decreases reduces nonproductive labor while improving minutes.

-   Increase machine-to-operator ratio when machines run well. Increased machine hours while maintaining labor hours equals more  minutes.

Continuous improvement projects help improve productive/nonproductive labor ratio.

Static minutes are okay when no significant changes occur with product mix and/or continuous improvement projects.

Declining minutes require analysis and adjustments to labor hours.

- Reductions in machine hours reduces demand for labor, both production and nonproduction.

- Poor machine maintenance increases machine downtime and nonproductive maintenance labor while reducing machine production hours. Fewer support and secondary production employees are needed to meet demand.

- Unusually high numbers of setups increase setup labor while producing zero production hours.

- Low production equals low hour meter hours. which equals less minutes, if labor isn’t reduced in step with machine hour reductions.

Production labor and producing equipment create demand for other labor departments. Without production, these departments aren’t needed. 

(Source: http://www.productionmachining.com/articles/measuring-productivity-in-the-workplace)

Philippine Productivity Incentives Program

Concept

Productivity Incentives Program is a formal agreement established by the Labor-Management Committee (LMC) containing a process that will promote gainful employment, improve working conditions and result in increased productivity, including cost savings.

Under this agreement, the employees are granted salary bonuses proportionate to increases in current productivity over the average for the preceding three consecutive years.

The agreement shall be ratified by at least a majority of the employees who have rendered at least six months of continuous service.

The agreement reached by the parties act as a supplement to existing collective bargaining agreement. If there is yet no CBA, and should there be one in the future, the terms of the agreement may be incorporated therein.

Labor Management Committee (LMC)

Labor-management Committee is a negotiating body in a business enterprise composed of the representatives of labor and management created to establish a productivity incentives program, and to settle disputes arising therefrom.

Composition of LMC

LMC shall be composed of an equal number of representatives from the management and from the rank-and-file employees, with both management and labor having equal voting rights.

In business enterprises with duly recognized or certified labor organizations, the representatives of labor shall be those designated by the collective bargaining agent(s) of the bargaining unit(s).

In business enterprises without duly recognized or certified labor organizations, the representatives of labor shall be elected by at least a majority of all rank-and-file employees who have rendered at least six months of continuous service.

Productivity Bonus

The productivity incentives program shall contain provisions for the manner of sharing and the factors in determining productivity bonuses. However, productivity bonuses granted to labor under the program shall not be less than half of the percentage increase in the productivity of the business enterprise.

The payment of productivity bonus shall be over and above existing bonuses granted by the business enterprise and by law.

Productivity bonus shall not be deemed as salary increases due the employees and workers.

Time of Payment of Productivity Bonus

Bonuses provided for under the productivity incentives program shall be given to the employees not later than every six months from the start of such program.

Benefits and Tax Incentives

A business enterprise which adopts a productivity incentives program shall be granted a special deduction from gross income equivalent to 50% of the total productivity bonuses given to employees under the program.

Disputes and Grievances

Disputes, grievances, or other matters arising from the interpretation or implementation of the productivity incentives program, shall be resolved by the LMC. They may seek assistance of the NCMB for such purpose.

Any dispute which remains unresolved within 20 days from the time of its submission to LMC shall be submitted for voluntary arbitration. The productivity incentives program shall include the name(s) of the voluntary arbitrator or panel of voluntary arbitrators previously chosen and agreed upon by the labor-management committee.

(Source: http://www.laborlaw.usc-law.org/2010/02/26/productivity-incentives/)

REPUBLIC ACT NO. 6971

 AN ACT TO ENCOURAGE PRODUCTIVITY AND MAINTAIN INDUSTRIAL PEACE BY PROVIDING INCENTIVES TO BOTH LABOR AND CAPITAL.

Section 1. Short Title. — This Act shall be known as the "Productivity Incentives Act of 1990."

Sec. 2. Declaration of Policy. — It is the declared policy of the State to encourage higher levels of productivity, maintain industrial peace and harmony and promote the principle of shared responsibility in the relations between workers and employers, recognizing the right of labor to its just share in the fruits of production and the right of business enterprises to reasonable returns on investments and to expansion and growth, and accordingly to provide corresponding incentives to both labor and capital for undertaking voluntary programs to ensure greater sharing by the workers in the fruits of their labor.

Sec.  3. Coverage. — This Act shall apply to all business enterprises with or without existing and duly recognized or certified labor organizations, including government-owned and controlled corporations performing proprietary functions. It shall cover all employees and workers including casual, regular, supervisory and managerial employees.

Sec.  4. Definition of Terms. — As used in this Act:

(a) "Business Enterprise" refers to industrial, agricultural, or agro-industrial establishments engaged in the production manufacturing, processing, repacking, or assembly of goods, including service-oriented enterprises, duly certified as such by appropriate government agencies.

(b) "Labor-Management Committee" refers to a negotiating body in a business enterprise composed of the representatives of labor and management created to establish a productivity incentives program, and to settle disputes arising therefrom in accordance with Section 9 hereof. 

(c) "Productivity Incentives Program" refers to a formal agreement established by the labor-management committee containing a process that will promote gainful employment, improve working conditions and result in increased productivity, including cost savings, whereby the employees are granted salary bonuses proportionate to increases in current productivity over the average for the preceding three (3) consecutive years. The agreement shall be ratified by at least a majority of the employees who have rendered at least six (6) months of continuous service.

Sec.  5. Labor-Management Committee. — (a) A business enterprise or its employees, through their authorized representatives, may initiate the formation of a labor-management committee that shall be composed of an equal number of representatives from the management and from the rank-and-file employees: Provided, That both management and labor shall have equal voting rights: Provided, further, That at the request of any party to the negotiation, the National Wages and Productivity Commission of the Department of Labor and Employment shall provide the necessary studies, technical information and assistance, and expert advice to enable the parties to conclude productivity agreements.

(b) In business enterprises with duly recognized or certified labor organizations, the representatives of labor shall be those designated by the collective bargaining agent(s) of the bargaining unit(s).

(c) In business enterprises without duly recognized or certified labor organizations, the representatives of labor shall be elected by at least a majority of all rank-and-file employees who have rendered at least six (6) months of continuous service.

Sec.  6. Productivity Incentives Program.

(a) The productivity incentives program shall contain provisions for the manner of sharing and the factors in determining productivity bonuses: Provided, That the productivity bonuses granted to labor under this program shall not be less than half of the percentage increase in the productivity of the business enterprise.

(b) Productivity agreements reached by the parties as provided in this Act supplement existing collective bargaining agreements.

(c) If, during the existence of the productivity incentives program or agreement, the employees will join or form a union, such program or agreement may, in addition to the terms and conditions agreed upon by labor and management, be integrated in the collective bargaining agreement that may be entered into between them.

Sec.  7. Benefits and Tax Incentives. — (a) Subject to the provisions of Section 6 hereof, a business enterprise which adopts a productivity incentives program, duly and mutually agreed upon by parties to the labor-management committee, shall be granted a special deduction from gross income equivalent to fifty percent (50%) of the total productivity bonuses given to employees under the program over and above the total allowable ordinary and necessary business deductions for said bonuses under the National Internal Revenue Code, as amended.

(b) Grants for manpower training and special studies given to rank-and-file employees pursuant to a program prepared by the labor-management committee for the development of skills identified as necessary by the appropriate government agencies shall also entitle the business enterprise to a special deduction from gross income equivalent to fifty per cent (50%) of the total grants over and above the allowable ordinary and necessary business deductions for said grants under the National Internal Revenue Code, as amended.

(c) Any strike or lockout arising from any violation of the productivity incentives program shall suspend the effectivity thereof pending settlement of such strike or lockout: Provided, That the business enterprise shall not be deemed to have forfeited any tax incentives accrued prior to the date of occurrence of such strike or lockout, and the workers shall not be required to reimburse the productivity bonuses already granted to them under the productivity incentives program. Likewise, bonuses which have already accrued before the strike or lockout shall be paid the workers within six (6) months from their accrual.

(d) Bonuses provided for under the productivity incentives program shall be given to the employees not later than every six (6) months from the start of such program over and above existing bonuses granted by the business enterprise and by law: Provided, That the said bonuses shall not be deemed as salary increases due the employees and workers.

(e) The special deductions from gross income provided for herein shall be allowed starting the next taxable year after the effectivity of this Act.

Sec.  8. Notification. — A business enterprise which adopts a productivity incentives program shall submit copies of the same to the National Wages and Productivity Commission and to the Bureau of Internal Revenue for their information and record.

Sec.  9. Disputes and Grievances. — Whenever disputes, grievances, or other matters arise from the interpretation or implementation of the productivity incentives program, the labor-management committee shall meet to resolve the dispute, and may seek the assistance of the National Conciliation and Mediation Board of the Department of Labor and Employment for such purpose. Any dispute which remains unresolved within twenty (20) days from the time of its submission to the labor-management committee shall be submitted for voluntary arbitration in line with the pertinent of the Labor Code, as amended.

The productivity incentives program shall include the name(s) of the voluntary arbitrator or panel of voluntary arbitrators previously chosen and agreed upon by the labor-management committee.

Sec.  10. Rule Making Power. — The Secretary of Labor and Employment and the Secretary of Finance, after due notice and hearing, shall jointly promulgate and issue within six (6) months from the effectivity of this Act such rules and regulations as are necessary to carry out the provisions hereof.

Sec.  11. Penalty. — Any person who shall make any fraudulent claim under this Act, regardless of whether or not a tax benefit has been granted, shall upon conviction be punished with imprisonment of not less than six (6) months but not more than one (1) year or a fine of not less than two thousand pesos (P2,000.00) but not more than six thousand pesos (P6,000.00), or both, at the discretion of the Court, without prejudice to prosecution for any other acts punishable under existing laws.

In case of partnerships or corporations, the penalty shall be imposed upon the officer(s) or employee(s) who knowingly approved, authorized or ratified the filing of the fraudulent claim, and other persons responsible therefor.

Sec.  12. Non-Diminution of Benefits. — Nothing in this Act shall be construed to diminish or reduced any benefits and other privileges enjoyed by the workers under existing laws, decrees, executive orders, company policy or practice, or any agreement or contract between the employer and employees.

Sec.  13. Separability Clause. — If any provision of this Act is held invalid, any other provision not so affected shall continue to be valid and effective.

Sec.  14. Repealing Clause. — Any law, presidential decree, executive order, and letter of instruction, or any part thereof, which is inconsistent with any of the provisions of this Act is hereby repealed or amended accordingly.

Sec.  15. Effectivity Clause. — This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in at least two (2) national newspapers of general circulation.

Approved: November 22, 1990

(Source: http://www.chanrobles.com/republicactno6971.htm#.U_5o5vmSyAU)