The Twelfth Malaysia Plan (2021-2025) targeted 40% of compensation of employees’ share to gross domestic product (GDP) to be achieved by 2025. This study assesses the determinants of changes in the compensation of employees and recommends medium-term policy interventions to improve the share of compensation of employees. There are two inter-related issues that are addressed in this study.

The first issue examines the issue of labor displacement and shortage that may affect the level of compensation of employees with specific attention is given to Penang as a case study. The second issue addresses specifically on the measures and determinants of changes in compensation of employees.