HUMAN RESOURCES IN THE PHILIPPINES There is a sense of excitement and anticipation that the steady economic growth in the

Philippines holds promise for the future. Despite its recent history of natural disasters, political unrest and economic hardship, the Philippines 5-6 % growth rate in Gross National Product (GNP) for 1997 is significant and offers hope of promising change. Further, deregulation, liberalization, and privatization reforms are contributing to the countrys "Philippines 2000" campaign, aimed at achieving Newly Industrialized Country (NIC) status, modernizing its agricultural sector, and revolutionizing its infrastructure by the turn of the century. Included in these reforms is an emphasis on the role of the private sector and promotion of foreign investment. The Asian economic crisis has not hurt the Philippines as much as it has hurt its neighbors. The country is, however, in a mild recession. Its GNP growth is expected to slow to 3.7 percent this year, in contrast with the aforementioned 5 to 6 percent growth in 1997. The leadership of the country is confident, however, that their economy will be among the first in Asia to recover from the crisis. The Philippines is gradually becoming an attractive location for production centers in Asia for many international companies. For those searching to make an investment in Southeast Asia, the Philippines offers the promise of high growth, with operational advantages such as a strategic location for global exports, and a highly qualified and educated workforce. Moreover, the Philippines has recently achieved a stable political environment, something which has held the country back for decades. The Philippines labor force is well equipped to work with foreign ventures and is one of the countrys outstanding attributes. English is commonly spoken. The population and culture is a mixture of its Malay origins and Spanish and American influences. Furthermore, following independence, the country maintained many of its Western-flavored institutions, particularly in law, government, and economics. This familiarity with Western practices eases Filipino integration with Western business practices and foreign ventures. Additionally, unlike many other Southeast Asian countries which must grapple with a skilled-labor shortage, the Philippines boasts a literate population that is well equipped with computer skills, advanced technological expertise, and good Western managerial skills. In fact, in some cases there is an overabundance of skilled labor; millions of Filipinos who cant find work at home live in foreign countries utilizing their technical expertise. Filipinos are young, educated, energetic, and motivated to succeed. With the support of such superior human resources, the Philippines is in a prime position to sustain its present growth rate and to play an excellent host to foreign investment. To establish a successful presence in the Philippines, an understanding of the culture, law, and practices of the Filipino labor force is critical. Building a mutually beneficial relationship with Filipino employees requires an awareness of the Philippine disposition, the countrys labor laws, customary salary and benefits, union rights, and employment procedures. The Filipino as an Employee Filipinos are friendly and have a "laid-back" culture. They adopt an informal appearance, even in the workplace. They are at ease with walking into their superiors office simply to have a conversation. On the other hand, they are sensitive to being reprimanded. They like to be treated with patience. Because they value a solid reputation and a good public image, it is shameful for them to be reprimanded in public. They respect a manager that is fair, respectful of their dignity, and willing to compromise. In return, they are trustworthy, dedicated, responsible, and productive workers. Typical of Asian culture, Filipinos avoid conflict and confrontation. In order to avoid unsettling situations, they often rely on an intermediary or third party to convey their message. While in the United States this could be perceived as evasive, the Filipino is more comfortable avoiding conflict. They value harmony over their personal viewpoint and often remain silent in

disagreement. Thus, harmony is preserved at the expense of their own creativity or initiative. They will follow a bosss decision rather than create a stir by suggesting an alternative proposal. Business is usually undertaken at a leisurely place. Unlike the United States and Europe, the Asians executive conducts business first by establishing a friendship and then building a professional relationship. The purpose of a business meeting is sandwiched between family and small talk, which is crucial to maintaining solid connections. Recruitment Gaining Popularity There are more qualified employees in the Philippines than there are adequate employment opportunities. The high employment and underemployment that plague the country have lead citizens from all fields and education levels to seek employment abroad. This may be an obstacle to finding the best candidate in the Philippines. Under the "Philippine 2000" program, the goal is to create sufficient employment opportunities within the country by the year 2000. A foreign employer operating in the Philippines that offers higher wages, chances for promotions, and travel incentives, can persuade Filipinos to return or to stay home. Although businesses in the Philippines recruit potential candidates through newspaper and magazine advertisements and notices, word of mouth is still the most common and effective form of finding jobs. Many Filipinos secure positions through third parties with direct connections to decision-makers. Until recently, most Filipino businesses utilized executive search firms. However, with the improving economy, such searches are becoming less popular. Education is Key to Success The Philippines is known as the "human resource training institute of the Far East" because of its superb education system. After ten years of schooling in both English and Filipino, students at age eighteen may choose to attend one of the countrys fifty-five universities. To make such education as universally available as possible, the government and universities have established a broad scholarship system. The Department of Science and Technology (DOST), for example, emphasizes the importance of advanced technology and engineering. Thus, it offers 3,500 scholarships in the fields of science and mathematics. In this way, it can stimulate an increase in the number of graduates with masters degrees in engineering and science. Despite its excellent primary and university education system, continued employee education and training have not been widely developed in the Philippines. Less than one-third of all firms provide workers with on-going training to improve job skills and performance. As the economy gains momentum and foreign investment increases, improving employee skills will become increasingly important. Global competitiveness depends on the strength of employees. The government has now begun to sponsor informal education and training courses and offer incentives to private companies that develop their own programs. For example, the government offers tax deductions for the expenses of each training program. Government agencies such as the National Manpower and Youth Council (NMYC) have already provided limited training to more than 1.2 million people. Finally, regardless of the fact that the Philippines enjoys a ninety percent literacy rate and more than three times the number of college graduates each year compared to the available vacancies for employment, the Philippines still faces labor and human resources problems. Each year many highly trained and resourceful Philippines professionals migrate to other countries for better employment opportunities. The Philippines needs to retain its highly trained workers by offering them good employment opportunities if it is to continue to grow and prosper.

Philippine Labor Code Governs Employee Rights and Responsibilities The Philippine Labor Code of 1976 was designed to incorporate and coordinate all aspects of work place law. It is a comprehensive law that is amended from time to time to incorporate new issues as they arise. It established rules on everything from annual leave to minimum wage to termination to unionization. The Labor Code is designed to ensure better work conditions for employees. The law mandates, for example, that the average workweek be no more than 48 hours, with one day of rest. Health personnel work a total of 40 hours per week. The Department of Labor and Employment ensures enforcement through periodic inspections. Overtime pay is usually 125% of regular pay, however, there are exceptions for government employees and others holding certain positions. Other benefits granted under the labor law are as follows. The law entitles employees to a certain amount of paid leave. There are 12 national holidays; additionally, five days of vacation accrue for every one year of service. Each employee has 15 days of sick leave per year. For each of up to four pregnancies, women are entitled to 60 days of maternity leave. Furthermore, all businesses are required to have available a trained first-aid staff. For larger firms and those dealing with hazardous materials, a doctor, dentist, nurse, and infirmary must be readily available. Department of Labor and Employment One of the main agencies responsible for ensuring the welfare of the Filipino worker is the DOLE (Department of Labor and Employment). DOLEs responsibilities include setting the minimum wage, ensuring safe working conditions, and creating occupational safety and health ( OSH) standards. It also has a Productivity Improvement Program to increase workers productivity in select manufacturing industries through improved working and living conditions. The department is in constant dialogue with workers, employers, and their organizations with regard to social and economic concerns, including environmental issues. DOLE and its close links with the well-established NGO (Non-Governmental Organizations) network promote greater bilateral participation in enhancing safety and health in the workplace while both entrepreneurs and workers are encouraged to implement low cost improvements in work conditions which can eventually lead to improvement in productivity and the general well-being of the workers. Guidelines Regulating Contractual Workers Philippines industrialist and Federation of Philippine Industry (FPI) president Raul T. has also established a movement which prohibits hiring workers on a contractual basis. The refined implementation on rules and guidelines on subcontracting should seek to balance the needs of industry and the economy to achieve competitiveness, productivity and the generation of employment. The refined guidelines should also take into account the concerns of labor in protecting the integrity of the trade union movement as well as the rights and welfare of the individual worker. Hiring, Salaries and Benefits Hiring Policies The Philippines offers a wide latitude in recruitment and hiring policies as long as they comply with laws regarding sex discrimination and foreign and child labor. However, many collective bargaining agreements to which employers are bound, require the employer to hire union members if available and require promotion based on seniority, if possible. There are two types of screening when hiring in the Philippines. The first is formal (the potential employees must obtain and submit police clearances and certificates or diplomas) and second is informal (personal acquaintances inside the company). Labor Costs

For years, companies in the Philippines have focused on the basics of wages and salary rather than benefits. Benefits packages usually add up to no more than 30 percent of an employers monthly salary and wage expenses. While basic compensation has improved, benefits still remain conservative. The average annual labor cost to the employer (including social charges and fringe benefits) is around P45,000 (US$1,800) for a low-skill production worker and P95,000 (US$3,850) for a college graduate with four years of experience. Minimum Wage Rates Despite strikes demanding higher wages, the government of the Philippines has lobbied strongly against further wage increases. They believe that anything higher than the current rate of 165 Pesos an hour in Metro Manila (about US$5.54) would drive out small local businesses and discourage foreign investors. This wage rate is comparable to that of Malaysia and Thailand, but cheaper labor can be found in Indonesia, Vietnam and China. However, as a concession to all employees, all employers are obligated to pay a thirteenth month of salary every December. In order to systematize the minimum wage, the so-called tripartite (Government, business, and labor) has set up 15 regional commissions to determine an appropriate regional minimum wage within each region. This has helped to alleviate the traditional wage disparities throughout the archipelago. The current hourly minimum wage outside of Metro Manila is about US$4.50. Professional salaries remain relatively low in the Philippines compared to other countries, which is a disadvantage to the professional employees but an advantage to employers, who can obtain the services of educated, skilled employees at a lower cost. For native Filipino mid-level managers, the monthly salary is usually between US$1,000 and US$2,000 a month, while senior managers make about US$2,500 a month. The current daily minimum wage rates implemented in April 1994 range from a low of P71.30 (US$2.74) to P114.35 (US$4.40) to a high between P93.50 (US$3.60) and P129.00 (US$4.96), while the wage increases were smaller and the minimum daily wage rates were lower for the other regions in the country. The highest minimum wage rates are in the Metro Manila area with lower rates set for rural areas. Social Security and Insurance Benefits All employees, both nationals and expatriates, are covered by either the private sector Social Security System (SSS) of 1957 or the Government Service Insurance System (GSIS). Self-employed persons with a gross annual income of at least P1,800 (about US$69.26) must also be covered by the system. The Social Security System, incorporating Medicare and Employment Compensation, is similar to that of the United States. It provides for disability and/or retirement payments, a funeral benefit of P6,000 (US$230.88), sickness allowance, maternity leave of 45 days, maternity pay up to P6,000 (US$230.88) and miscellaneous loans up to P8,000 (US$307.85). The monthly contribution to each of the funds is divided between the employer and the employee. The employee must contribute 5.07% of his or her monthly salary, while the employer contributes 3.33%. Medicare is divided evenly and both contribute 1.25% of the employees salary monthly. Employment Compensation Fund payments are solely from the employee. Violation of the minimum wage and nonremittance of Social Security System (SSS) payments are crimes. The standard equation of compensation for the retirement, disability, or death of an employee is: P300+0.20*(Average Monthly Salary)+0.02*(Average Monthly Salary)*(Credited Years of Service-10) The duration of payment due to disability is dependent upon the degree and seriousness of the disability. The minimum monthly allowance is US$40 or 40% of the Average Monthly Salary (AMS), whichever is higher. The maximum monthly

amount is currently US$302, and will increase by US$35 each consecutive year until 1999. Additionally, for disability, a monthly US$17 stipend is provided for medical supplies. In case of death, the equation is adjusted for the number of years of service and there is a US$336 funeral allotment. If the employee contributes for less than three years, at the time of accident or death, a lump sum payment of 35 times the monthly pension plan is granted to the beneficiary. If there are no primary survivors, the extended family will receive a lump sum of 20 times the monthly pension amount. Medicare covers a percentage of an employees comprehensive hospital expenses if there have already been at least three monthly contributions. While compensation is granted, the majority of the payment is the employees responsibility. Usually one-third of the total expenses is procured by the fund. This can pose a hardship to many employees, especially those with a serious illnesses requiring prolonged hospitalization. If the employee is in the hospital for more than three but less than 120 days in any one calendar year, 90% of the Average Daily Salary is remunerated. Maternity leave is strict, granting total salary disbursement, but only for a sixty day period and in lieu of hospitalization coverage. Interestingly, however, the Philippine Medicare system allows for up to four pregnancies, whereas some other Asian countries only cover two pregnancies. Employee Compensation applies to all work-related accidents or illnesses. All emergency medical services are paid. If the incapacity is temporary but total, the employee receives 90% of his or her average daily salary for up to eight months a year. If the incapacity is only partial, the employee receives 15% of the standard monthly pension plan for the same maximum amount of time. Most multinational firms use a large insurance company or Health Maintenance Organization (HMO). The advantage of the latter is that HMOs pay the doctors, therefore, there is no need for the employee to pay and file for reimbursement. In these cases, the employer is the sole contributor to the fund, neither the government nor the employee pay. The compensation packages are generally the same as the government schedule described above, with its main coverage being hospitalization expenses. Housing While employers do not provide housing, it is seen as a basic need that should be accessible to all employees. It is mandatory for all who earn over US$135 per month to contribute 2% of their basic salary to the Home Development Mutual Fund (HDMF or Pag IBIG Fund). The employer is required to match that 2%. Those members who have not availed themselves of the lean in order to purchase a home may withdraw the total accumulated value after either the tenth or fifteenth year of continuous membership. In resemblance to a retirement plan, upon termination of membership, the employee is entitled to receive the total accumulated value of his or her account. Employers may be exempt from the fund if they offer more liberal retirement and housing plans than the HDMF. Retirement Through the HDMF, both financing for housing and a small retirement fund are readily available. Until 1993, the Philippines did not have a mandatory retirement plan. People were more concerned with the present than with planning for the future. A decent healthcare plan was a greater priority than a retirement plan. Mandatory retirement compensation after sixty years of age for having dedicated five or more years to an employer was established with the Republic Act 7641 of 1993. Retirement plans are generally given in one lump sum. Employees are more comfortable with this arrangement because of their experiences with high inflation and economic instability. They want to be assured to get the full value of their money. While the minimum is one-half months pay per year of service, the standard payment is 1-1.25 months pay per year of service.

There are few other benefits provided to regular employees. For senior executives, cars, automobile insurance, registration, repairs, fuel, and club memberships can be offered. Housing loans are made available to all employees, but housing itself is not typically included. Bonuses All employers have to pay all non-managerial employees a thirteenth month of pay no later than December 24 of every year. The minimum thirteenth month pay should be at least one-twelfth of the total basic salary earned by the employee within a calendar year. Employment of Foreigners Historic economic difficulties in the Philippines have discouraged the hiring of expatriates. Expatriates are expensive and with the caliber of the labor force in the Philippines, there is no pressing need for them. Nevertheless, some multinational companies employ expatriates in the initial stages of their operations. However, the number of expatriates in the Philippines will continue to fall, as it is more cost-effective to hire a Philippine national. As technical and managerial skills are transferred over the years, the process of Filipinization at the senior level will continue. When hiring expatriates, visa conditions should be considered. An expatriate can obtain a prearranged employment visa only if there is written evidence that no Filipino personnel can be found to perform the assigned duties. The Department of Labor and Employment must then approve the request. Because the United States has a commercial treaty with the Philippines, a U.S. expatriate can obtain a "Treaty Trades" visa that allows such an employee to work in the Philippines as long as the U.S. continues to meet its trade agreement obligations and as long as the employee continues to work for the same company. Furthermore, with special tax clearance from the Philippine Bureau of Internal Revenue, some expatriate employees and their families can receive a "Multiple Entry Special Visa" that exempts such employees and their families from immigration fees, alien registration laws and exit clearance. However, to obtain this visa, the expatriate must be an executive and be paid at least US$12,000 annually. These visas are valid for a one-year period but are renewable. Obtaining this visa requires: A letter from the company attesting that the above conditions are met. The Securities and Exchange Commission certificate of registration of the company. The original license issued by the Board of Investment and the SEC granting permission to establish company headquarters in the Philippines. The expatriates passport and that of each family member who wants a visa.

If an employing company chooses to provide housing for an expatriate employee, it is usually easily accomplished. Many elderly people lease their homes and new condominiums are constantly being built. In the Makati business District, a twobedroom apartment costs between US$179,000 and US$230,000 while a three-bedroom apartment costs between US$340,000 and US$658,000. A two-bedroom apartment rents between US$1,860 and US$2,900 per month while a threebedroom apartment rents for US $2,600 to US$4,100 per month. In the surrounding areas such as Ortegas, an apartment sells for US$730 to US$910 per square meter and condominiums can be rented for US$840 to US$1,000 per month. A house with a plot of land is even more expensive both to buy and to rent. In the Urdaneta area, the purchase price of a house on a 500 to 800 square meter plot of land ranges between US$335,700 and US$402,840. In Paranaque, a similar house costs around US$84,000. Labor Relations Improving

Labor relations have improved over the past decade because management and labor are beginning to realize the importance of cooperation. In the past 4 years, the number of labor disputes has declined as the chart below indicates. One reason for this may be the high unemployment and the underemployment rate. Another reason may be increasing emphasis on open communications between unions, employers and the government. Pilar Almira, president of Personnel Management Association of the Philippines (PMAP) believes that in order to foster a more competitive environment, labor union leaders need to learn to understand financial statements and link an increase in productivity to an increase in wages. In the Philippines, there are at least 6,831 active unions and more than 3.1 million workers are unionized. The Labor Code grants national and foreign workers the right to form or join a trade union for collective bargaining purposes. The rules regarding unions are as follows. Unions must apply to the Bureau of Labor Relations with the requirement that members must comprise 20% of all workers. Unions elect national officials to represent their concerns. Collective bargaining agreements (CBAs) apply only to a unionized workplace or its members. CBAs last for a maximum of 3 years and must be registered with DOLE within 3 days of the conclusion of the agreement. Bargaining deadlocks may lead to strikes, but 30 days advance notice must be given to the Philippines Department of Labor and Employment (DOLE) to allow for different meditation processes. A simple majority of members must vote on the strike via secret ballot. Unions can also picket a firm if they are nonviolent and do not interfere with public facilities. This is the most common form of union protest used. Another example of union protest is the walkout, recently chosen by the employees of Philippine Airlines protesting the hiring of foreign crews. Although theoretically worker rights are protected under law, there is no effective legal recourse in the rural areas that escape the attention of the central government. Termination Procedures Termination of an employee requires just cause. The employee is entitled to a one month notification with an explanation prior to dismissal. Severance pay is contingent upon the reason for dismissal. In the event that a company goes out of business, the employee receives one-half months pay per year of service. If the employee is replaced by more efficient technology or for any other reason, the individual is entitled to one months pay per year of service. As stipulated in the Labor Code, termination is justified without pay for the following reasons: inability to meet company standards during a stipulated six-month probationary period willful disobedience negligence fraud or breach of contract offense against the employers own person, representatives, or immediate family

If a conflict over termination occurs, the Philippines Department of Labor and Employment (DOLE) decides the case. If the employee prevails, he or she must return to the same position, receiving the same benefits, privileges and status as prior to the incident, as well as full back pay for any lost wages during the period in question. If reinstatement is impossible due to hostile work conditions, some form of compensation must be made.