Singapore - Business consultants says companies looking to increase wages to help employees cope with rising food and fuel prices should heed Finance Minister Tharman Shanmugaratnam's warning that this would cause a further spike in inflation.

Speaking at the Singapore Industrial and Services Employees' Union's Delegates Conference Dinner, the Finance Minister said employers should do all they can to prevent wage inflation that would hurt Singapore's growth in the long run.

With wage costing between 10% to 15% for companies in the industrial sector and 30% to 50% for those in the service industry, Christine Kho, managing consultant for Hay Group Singapore notes inflation is not only taking its toll on employees, but is adding a heavy burden on operating costs as well.

Derek Berry, business leader of human capital in ASEAN for Mercer, says it is important to understand the difference between cost inflation and salary increases. Furthermore, because cost inflation has lagged behind salary increases in the last few years, there is no reason for companies to match inflation rates with salary increases now.

However, Berry does admit that for workers who are grappling with higher costs, the gap can be hard to digest. In that instance, Berry says the government's one-off bonus is a "way of addressing the higher cost measures" by assisting workers in the low income bracket.

So what should be the basis for salary increases? In Kho's opinion, companies should not deviate from their basis for increasing wages from "key factors like performance, ability to maintain a sustainable level of results and ability to do a larger job."

Berry also states that if companies want to increase wages in a tougher economic environment, they should be more selective. That means giving a salary bump not just to top performers, but to those in critical roles as well - roles which add value to the business such as front-line or product development staff.

Consultants say this downturn is also a good opportunity for companies to examine its overall employee value proposition as employee brand, career opportunities, range of benefits can all affect what companies do with salaries, Berry says.

Kho also advises companies to continue to invest in high performers and build leadership capabilities from within and outside the company. "Engaging employees at all levels would be critical to the success of organisations riding this tough time."

Both consultants also advise companies to focus on the long-term through training and learning opportunities, or redesigning and expanding roles. "The reality is there isn't an employment for life in today's environment. What is more beneficial to both the employee and employer is making people more skilled - through skill development and opportunities in the workplace," Berry said.

But it looks like bad news for employees who were looking for a pay increase to cope with inflation, as both consultants unanimously agreed that it would make any business model unsustainable and uncompetitive. "In the long run, simply increasing wages without a clear link to business objectives would make any operating model unsustainable in the long run," Kho says.