What is Monthly Variable Component (MVC) on my Payslip?

There is an item of Monthly Variable Component (MVC) on my payslip, what is this?

MVC is a “standby” component to be used by employers to bring down wage costs in sudden
and severe business downturns to survive and save jobs. Monthly Variable Component ((MVC) forms part of monthly basic salary. It is to be included in computing overtime payment and CPF contribution.

With the reduction of CPF contribution rate, there is little room to adjust wage cost through CPF
cut in the future. Employers therefore should get ready MVC as an “emergency lever” to be
used in bad times.

For MVC to be an effective mechanism for wage adjustment, the Tripartite partners recommend that MVC should form 10% of monthly basic salary. The percentage of MVC should preferably be the same for all levels of employees.

Monthly Basic Salary = Monthly Fixed Component + Monthly Variable Component
E.g. $1,000 = $900 (90%) + $100 (10%)

For administrative convenience, it is recommended that MVC be denoted as a percentage of monthly basic salary so that the ratio between MVC and monthly basic salary can remain constant despite salary changes in subsequent years. A constant ratio would make the administration of MVC much easier.