A tight labour market continued to raise workers' salaries last year, although the growth rate was lower compared to 2011 due to weaker economic conditions, says a new Ministry of Manpower (MOM) report.

Total wages, including employer Central Provident Fund (CPF) contributions, in the private sector went up 4.2 per cent last year - lower than the growth of 6.1 per cent in 2011.

But after factoring in high inflation rates, real total wages actually dipped 0.4 per cent, compared to the 0.9 per cent increase seen in 2011.

The Report on Wage Practices, released yesterday, was put together by the ministry's Manpower Research and Statistics Department and consolidates previously released figures on wages and productivity.

Over the long term, the report noted that real wage increases have been supported by productivity growth.

Labour productivity grew on average 1.6 per cent per year, exceeding the growth in real total wages (including employer CPF contributions) of 1.2 per cent per year over the 10- year period from 2002 to 2012.

The report also found that, in the years following the 2003 Sars epidemic, labour productivity grew strongly on the back of robust GDP growth.

However, in the last five years, labour productivity shrank 0.4 per cent per year as economic growth was driven primarily by employment.

Another key finding was that the vast majority of employees in the private sector were under some form of flexible wage system.

Last December, 87 per cent of private sector employees were working in companies that had at least one of the flexible wage components as recommended by the tripartite partners - employers, workers and government - in 2004.

This was comparable to 86 per cent in December 2011 and markedly higher than the 76 per cent in June 2004.

Sixty-five per cent of private sector employees were working in establishments that had adopted a narrow maximum-minimum salary ratio.

This was followed by linking variable bonus to Key Performance Indicators (49 per cent) and having the Monthly Variable Component in the wage structure (34 per cent).

Commenting on the report, George McFerran, managing director of APAC eFinancialCareers, said many financial services organisations include performance-linked variable bonuses in their compensation packages.

"One of the reasons for this is that it means they can manage costs while retaining key staff. A number (of them) are also revising the way they structure salaries by increasing the proportion of the total compensation made up by a variable bonus component. While this can increase total earning potential, in most cases companies are choosing only to reward their top performers with significant bonuses," he said.

MOM's latest report, said Adecco Singapore country manager Femke Hellemons, "reaffirms Singapore's strong position" despite the economic crises with companies increasing wages amid the tight labour market and low unemployment.

"The implementation of the flexible wage measures is a clear indication that employers are now willing to provide alternative options to cater to the needs of the current workforce," she said.

The full report is available at www.mom.gov.sg/mrsd/publication