Memorandum Circular No. 126




MALACAÑAN PALACE MANILA BY THE PRESIDENT OF THE PHILIPPINES [ Memorandum Circular No. 126, July 11, 1995 ] GUIDELINES TO IMPLEMENT MEMORANDUM ORDER NO. 252 (1995) Pursuant to Memorandum Order No. 252 dated 13 January 1995 entitled “Establishing Criteria and Administrative Procedure for Compensation Adjustments for Government-Owned and -Controlled Corporations (GOCCs) and Government Financial Institutions (GFIs)”, the following guidelines are hereby promulgated: Section 1. Statement of Principles. The Government corporate sector constitutes a major part of the entire Government bureaucracy. As such, GOCCs/GFIs are relied upon to assist Government in the overall task of governance, particularly in the pursuit of its economic and social development goals. Towards this end, GOCCs/GFIs are envisioned to, among others: 1.1 Undertake activities in support of socio-economic goals without unduly competing with the private sector or prejudicing private initiatives; 1.2 Be financially self-sustaining so as not to impose a burden on scarce public resources, as well as generate investment returns/profits to provide additional revenues for priority Government expenditures; and, 1.3 Be competitive with its private sector counterparts without gaining undue advantage or preferential treatment from Government in line with present thrusts on levelling the economic playing field. It is in this context that the compensation of GOCC/GFI personnel is proposed to be increased. This is expected to result in more effective and efficient GOCC/GFI services that are attuned to the priority needs of Government. Section 2. Definition of Terms 2.1 GOCCs/GFIs. As used in this guidelines, a GOCC is a corporation created by special law or incorporated and organized under the Corporation Code and in which Government, directly or indirectly, has ownership of the majority of the capital or voting stock. Any subsidiary of a GOCC shall also be deemed a GOCC. A GFI is also deemed as a GOCC whose primary functions are financial in nature. The following agencies are not covered by MO. 252 and as such, their compensation structures shall continue to be governed by applicable compensation laws and regulations: a. Acquired asset corporations. An acquired asset corporation is a corporation (1) which is under private ownership, the voting or outstanding shares of which (i) were conveyed to the Government or to a Government agency, instrumentality or corporation in satisfaction of debts whether by foreclosure or otherwise, or (ii) were duly acquired by the Government through final judgment in a sequestration proceeding, or (2) which is a subsidiary of a Government corporation organized exclusively to own and manage, or lease, or operate specific physical assets acquired by a GFI in satisfaction of debts incurred therewith, and which in any case by law or by enunciated policy is required to be disposed of to private ownership within a specified period of time. b. Public corporations (e.g., Local Government Units) and quasi-corporations (e.g., Overseas Workers Welfare Administration) as defined under the Corporation Code of the Philippines Annotated. c. Entities performing corporate functions but are not corporations per se (e.g., Duty Free Philippines). d. GOCCs and GFIs which are exempted from the coverage of Republic Act No. 6758 dated 21 August 1989 (Salary Standardization Law), as amended, and whose compensation rates have already been approved by the President (e.g., Bangko Sentral ng Pilipinas, National Power Corporation). Those GOCCs/GFIs which are exempted from the coverage of RA 6758 and allowed to have their own compensation schemes which, however, have yet to be approved by their governing boards and/or the President (e.g., Land Bank of the Philippines, Philippine Deposit Insurance Corporation, Bases Conversion and Development Authority), shall be covered by MO 252, but only insofar as determining their appropriate compensation rates is concerned (i.e., they need not go through the evaluation process prescribed under MO 252 and its implementing guidelines as provided herein). As such, their compensation rates shall be subject to the salary and benefit limitations and restrictions prescribed under MO 252, as further defined in the proceeding section (Section 2.2). 2.2 Compensation Adjustments. Pursuant to MO 252., compensation adjustments shall mean increases in salary and benefits. a. Salary. The upward adjustment of salaries shall not exceed Salary Grade 32 nor be lower than Salary Grade 5, as provided under the revised Compensation and Position Classification System (CPCS) adopted under Executive Order No. 164 dated 8 March 1994, pursuant to Joint Resolution No. 1 of Congress (series of 1994). The Government Corporate Monitoring and Coordinating Committee (GCMCC) shall formulate the salary or salary ranges for the various positions in the GOCCs/GFIs, subject to the above salary grade limits and taking into account the factors normally considered in job evaluation as well as the salary levels normally adopted in the various industries or sectors, v Such salary ranges shall be standard for all GOCCs within the same industry or sector, but may differ across industries/sectors. b. Benefits. New benefits, in cash or in kind, may be given to GOCC/GFI personnel over and above those they are already receiving, provided that these benefits are not already included in the standardized salary rates or approved productivity incentive benefits, and provided further that the budget for Personnel Services (PS) shall not exceed 40% of the total GOCC/GFI budget for any fiscal year (Employee Stock Ownership Plans or ESOPs are not covered by this restriction). Those benefits already being received by GOCC/GFI personnel may also be increased subject to the above restrictions. The GCMCC shall review GOCC/GFI proposals thereto and recommend which benefits are to be given or increased for the GOCC/GFI personnel, subject to the aforesaid restrictions and taking into consideration the usual benefits accorded to both Government and private employees.1aшphi1 Section 3. Coverage. Only those GOCCs/GFIs which meet all the qualification criteria prescribed under MO 252, as qualified under Section 4 herein, shall be recommended to the President for compensation adjustments. Section 4. Criteria. The qualification criteria prescribed under MO 252 are hereby further qualified to set clear and definite standards for evaluating the grant of compensation adjustments to GOCCs/GFIs: 4.1 Strategic Position. The GOCC/GFI must be operating in a strategic industry with strong and extensive backward and forward linkages with other industries (Item 1a of MO 252). The GCMCC shall decide on whether an industry to which a GOCC/GFI belongs is strategic or not. In deciding, the GCMCC shall consider whether (1) the GOCC/GFI is in a sector that affects national security or provides basic services (e.g., food, housing), (2) the GOCC/GFI is involved in an area where the private sector is unwilling or unable to explore or enter into, or (3) the GOCC/GFI creates a bias in favor of disadvantaged sectors of society. In addition, the GCMCC may refer to the definition of strategic industries as contained in Republic Act No. 7042 dated 13 June 1991 (Foreign Investments Act of 1991). Specifically, RA 7042 defines strategic industries as those characterized by the following (in addition to having strong backward and forward linkages with other industries): a. Crucial to the accelerated industrialization of the country; b. Require massive capital investments to achieve economies of scale for efficient operations; c. Require highly specialized or advanced technology which necessitates technology transfer and proven production techniques in operations; and, d. Generate substantial foreign exchange savings through import substitution and collateral foreign exchange earnings through export of part of the output that will result in the establishment, expansion or development of the industry. 4.2 Proprietary Functions. The GOCC/GFI must be performing proprietary functions and activities more in the nature of a private character or enterprise, rather than governmental or political in character (Item 1b of MO 252). Proprietary here means that the GOCC/GFI must be providing goods and/or services that are traded commercially, or that the GOCC/GFI must be performing commercial (i.e., income-generating) functions and activities. To qualify for compensation adjustments under this criterion, the GOCC/GFI must be performing at least one (1) proprietary or commercial/income-generating function (e.g., selling a product or service), regardless of whether the GOCC/GFI is also performing governmental or regulatory functions. Income derived from functions/activities that are regulatory in nature (e.g., collection of registration fees) does not make such functions/activities proprietary. 4.3 Stability and Self-Reliance. The GOCC/GFI must not be a recipient of any operational subsidy or guarantee from the National Government, except for those required in the ordinary conduct of its business or activities, e.g., required by lending institutions pursuant to their charters (Item 1c of MO 252). This criterion is hereby qualified as follows: “The GOCC/GFI must not be a recipient, for the past two (2) years prior to the year of evaluation by the GCMCC, of either of the following: a. Any form or kind of subsidy given by the National Government to the GOCC/GFI (e.g., subsidy for operational expenses, tax subsidy), including net lending; or, b. Guarantee from the National Government, except for those required in the ordinary conduct of the GOCC’s/GFI’s business or activities (e.g., required by lending institutions pursuant to their charters).” 4.4 Performance Rating. The economic performance of the GOCC/GFI for the preceding fiscal year should at least be at par with its high-performing private counterparts, evaluated by the applicable industry standards as determined by the GCMCC {Item 1d of MO 252). The fiscal year here pertains to the year prior to the year of evaluation by the GCMCC. With regard to the performance of the GOCC/GFI, this shall at least be at par with its private sector counterparts and shall be defined in terms of operational accomplishments (e.g., goods and services produced, beneficiaries served/satisfied) and financial accomplishments (e.g., net income, return on equity, return on assets). Such performance shall be evaluated vis-a-vis the following: a. Corporate goals and targets; b. Performance Commitments submitted to the Office of the President (OP); and, c. Industry standards and accomplishments of other industry players. 4.5 Financial Capacity. The GOCC/GFI must be financially capable of sourcing the compensation adjustments solely from its corporate funds without prejudicing corporate operations or sacrificing agreed corporate goals and objectives as well as commitments made to the Office of the President (Item 1e of MO 252). This means that the compensation adjustments for GOCC/GFI personnel must: a. Be sourced solely from the corporate funds of the GOCC/GFI and that the National Government shall not provide any funding to cover such adjustments; and, b. Not prejudice GOCC/GFI corporate operations and must not be made at the expense of corporate goals, objectives and commitments made to oversight Government agencies including, among others, the Office of the President (OP), the GCMCC and the oversight departments. Such goals, objectives and commitments include, but are not limited to, profit targets and dividend remittances. 4.6 Privatization Plans. The GOCC/GFI must demonstrate that it is formulating concrete plans for, or is already undergoing, privatization (Item 1f of MO 252). This means that to qualify for compensation adjustments under this criterion, the GOCC/GFI must satisfy either of the following conditions: a. The GOCC/GFI is presently being privatized either by itself or by another Government entity. As such, it must be in the list of GOCCs/GFIs under privatization maintained by the Committee on Privatization (COP). b. The GOCC/GFI demonstrates clear intent to be privatized. For this purpose, its governing board must pass a resolution expressing such intent to privatize within a specified period of time. Section 5. Process 5.1 The grant of compensation adjustments shall be undertaken on a continuing basis and shall be governed by the following procedures and timetable: a. The GCMCC, through the DBM, shall formulate, not later than end-August 1995, the appropriate salary or salary ranges for the various positions in the GOCCs/GFIs, pursuant to the provisions under item 2.2 (a) herein (such salary/salary ranges shall be the basis for salary adjustments of qualified GOCCs/GFIs) . For this purpose, the DBM may consult and coordinate with the GOCCs/GFIs. b. Applications for compensation adjustments for 1995 shall then be submitted to the GCMCC Secretariat, not later than end-September 1995, with corresponding proposals particularly on adjustments in GOCC/GFI benefits. The GCMCC shall then evaluate these proposals based on the implementing guidelines to MO 252 as provided herein and recommend appropriate action to the President. All GOCC/GFI proposals approved by the President for 1995 shall be implemented retroactively starting 1 January 1995. c. Subsequent GOCC/GFI proposals shall be reviewed by the GCMCC on a yearly basis. For this purpose, such proposals must be submitted to the GCMCC Secretariat not later than end-March of every year. All approved proposals shall be effective 1 January of the succeeding year. 5.2 With regard to those GOCCs/GFIs which are exempted from the coverage of RA 6758 and allowed to have their own compensation schemes which, however, have yet to be approved by their governing boards and/or the President, their proposals shall be endorsed by the GCMCC for approval of the President. a. Relative to this, all GOCC/GFI proposals shall be submitted to the GCMCC Secretariat, not later than end-September 1995. b. All proposals approved by the President shall be implemented retroactively starting 1 January 1995. Section 6. Repealing Clause. All executive issuances, rules and regulations or parts thereof inconsistent with these guidelines are hereby repealed, superseded, amended or modified accordingly. Section 7. Effectivity. This Memorandum Circular shall take effect immediately upon approval. DONE in the City of Manila, this 11th day of J u l y in the year of Our Lord, Nineteen Hundred and Ninety-Five. By Authority of the President: (Sgd.) RUBEN D. TORRES Executive Secretary The Lawphil Project - Arellano Law Foundation