Study: Salary Increases Decline in Asia Pacific

As a result of the economic turmoil, employers throughout Asia Pacific continue to keep a tight rein on the purse strings in 2009, as salary increases remain at low levels, according to an Asia Pacific Salary Increase Survey conducted by Hewitt Associates, a global human resources consulting and outsourcing firm. This trend looks likely to continue in 2010 as base salaries are projected to rise only slightly in most Asia Pacific markets.


The Hewitt 2009/2010 salary increase survey sees a dramatic decline in salary increase in the two prominent markets of China & India for the first time over the last five years. The 2009 actual salary increase rate went down by 4% and 8% respectively, which is also the lowest salary increases recorded since 2005.


This year, there is no Asian market which experienced a double digit salary increase. India had the highest percentage pay rise in the region with the average overall salary increase at 6.3%. Indonesia ranks second, with the average overall salary increase at 6%, followed by China (4.5%) and the Philippines (4.3%).


At the other end of the scale, Singapore and Hong Kong saw lower salary increases, ranging from 1.8% to 1.4% respectively, just ahead of Japan at 1.2%, the lowest in the region. These are also the markets which are experiencing the most widespread salary freezes in the region, with over 60% of responding companies keeping wages constant, compared with only 26.1% in India and 30.8% in China.  


“The recent uptick in the economy has not yet made its significant impact on pay increase,” says Stella Hou, regional leader of the broad-based compensation practice. “We expect that companies will continue to fight for better margins through effective cost management, including management of pay.”


According to Hou, although employees still received reasonable pay increases, they were lower than previous years. In the next few years, emerging growth markets in Asia as compared with mature markets are expected to provide slightly higher salary increases, as they continue to struggle with the hiring and retention of top quality talents. “China and India’s role as the future growth engines of the global economy will continue to add fuel to the ongoing war for quality talent in these two markets,” notes Hou. “Therefore, it is not surprising to see the overall increases experienced by these markets, while they continue to lead against most other markets.” 


Hewitt’s data shows that most Asian companies continue to experience double-digit voluntary turnover rate, while Singapore, Korea and Thailand are on high single digits from 8.8% to 9.3%. The top four markets reporting the highest turnover rate are India (13.8%), Australia (11%), New Zealand and China (10.3%). “While many would believe the economic uncertainty should help ease the pain on high employee voluntary turnover, the Hewitt 2009/2010 Annual Asia Pacific Salary Increase Survey does not reveal the same. The comparatively high turnover rate under the looming economy raises an alarm to the world,” say Hou.


Hewitt’s survey also revealed that ‘Better External Opportunity’ is consistently cited as the top reason for employees voluntarily leaving their organizations across all markets. This means companies continue to search for talented people even under a tough economic situation. Organizations will continue to face a tight talent market. 


“An organization’s ability to retain talent is a challenge facing all companies. This provides challenges to be more innovative in retaining the top people in their organizations with a tighter budget. Companies need to focus on pursuing different talent management strategies suitable for its own workforce,” explains Hou. Most notably, ‘Variable Pay Program’ is the most popular incentive adopted by most companies.


Majority of the organizations (over 75% of the surveyed companies) are not reducing year-end Variable Payout. Individual Performance Awards are the most prevalent variable pay program in the region with nearly 70% of the responding organizations reported using it as an incentive. 

“Companies realize that they cannot afford to lose talent. They know ‘high performers’ will help them lead the organization out of the storm into the winning field.  Even for those companies experiencing unprecedented levels of uncertainty and cost reduction pressures, they tend to reward and retain their best talent with special incentives,” Hou adds.


The challenging talent market also compelled companies to reward talent differently. Top performers receive 50% higher rewards than the average performers.


“It is a good sign to show that many companies continue to invest and reward top talent. Though the economic crisis has led to a smaller salary budget, it in fact provides organizations with a great opportunity to enhance rewards differentiation based on performance,” says Hou. 


“Meanwhile, in today’s environment, it is essential that companies design these plans in a way that motivates employee behaviour through a much longer term, by aligning day to day work with the company’s overall goals and its sustaining values. After all, people would want to join and stay with a company where they are valued and where the organization consistently lives its values in good times or bad times.”


2010 Outlook


In 2010, employers appear to have much more confidence in the economy. Overall, projections for salary increase for 2010 have improved compared to 2009.


Hewitt's survey reveals that employees in the fastest growing markets may see higher salary increases in 2010 than the others. These markets include India (9.2%) and China (6.7%). Coincidently, companies in these markets also project a low percentage of pay freezes in 2010 with 6% in India and 8.3% in China. The markets projected to have the lowest salary increases next year are Japan (2.1%, the lowest in the region), Singapore (2.6%), Hong Kong (2.9%) and Australia (3.4%). They are also the markets reported to have higher salary freezes ranging from 12.8% to 14.6%. These percentages, however, are significantly lower than in 2009.


What will this mean for the employers and employees?


“Asian companies are likely to continue to face a very dynamic business environment in the coming year. Organizations who know how to align their human capital strategy and use smart and innovative ways of rewards and recognition to drive business performance will be the winners in the long term.” suggests Hou.


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