This year, the annual salary increase rate for employees in China averages 6.7%, according to Aon Hewitt’s Human Capital Intelligence (HCI) study.
The average turnover rate is 20.8%, with voluntary turnover rate at 14.9% and involuntary turnover rate at 5.9%. The HCI study covers over 3000 enterprises in first-tier cities such as Beijing, Shanghai, Guangzhou, Shenzhen and major second-tier and third-tier cities, spanning across a number of industries including hi-tech, Internet, real estate, finance, healthcare, auto, machinery and industrial manufacturing, consumer goods, retail, chemical, logistics, engineering and hotel.
Salary increases of industries vary; turnover rate remains high
Salary increase rate decreases to 6.7% (excluding promotion) this year, equal to China’s GDP growth rate posted by the National Statics Bureau. Salary is expected to grow at 6.9% (excluding promotion) in 2017. However, this year, salary increases of different industries vary.
The Internet industry tops the chart (10.3%), followed by real estate (8.0%), hi-tech (7.9%), and medical device (7.6%). Salary increases in pharmaceutical Foreign Invested Enterprises（FIE）(7.0%) and retail (6.8%) are above the national average. Salary increases in engineering (5.3%) and hotel (4.5%) remain low.
This year, the employee turnover rate in China remains high at 20.8%.
Zhang Zhuolei, head of Rewards and Performance Consulting in Eastern China, Aon Hewitt, says: “This highlights the long-standing lack of talent and the imbalanced talent supply.”
Industry-wide, turnover rate in the hotel industry (43.4%) is the highest, followed by the Internet (36%). Turnover rates in real estate, retail, logistics and consumer goods are also higher than the national average.
Zhang notes that enterprises in the Internet industry, especially Internet start-ups, are still appealing to talents (millennials in particular) because of a flatter organizational structure, faster career progression path, as well as an open and innovative corporate culture.
"However, Internet startups feature immature management and business models, which pose risks of uncertainty, so the employee turnover rate is relatively high,” adds Zhang.
Labor costs keep rising, and employee productivity is yet to improve
According to the Aon Hewitt HCI study, the proportion of compensation and benefits (C&B) costs to revenue keeps rising year on year. For example, C&B costs in the engineering industry accounted for 32.1% in 2015, up 1.2 percentage points from 30.9% in 2014. C&B costs in the logistics industry accounted for 16.1%, up 1.1 percentage points compared with 2014 (15.0%).
“Although enterprises tend to tighten or even freeze headcount, the number of employees still rises slowly in general. Also, this year’s national salary increase rate falls to 6.7%, though it is still relatively high compared with other countries.
"Apparently, the increase of employees and the minimum wage, as well as salary increases, constitute the major factors to rising labour costs. Labour costs would be higher if we take into account costs incurred by employee turnover, training, and other invisible costs, which squeezes corporate profit margins,” says Zhang.
Urgent need to improve productivity
To address the ever-increasing labour costs, enterprises are in urgent need to improve productivity of employees. The Aon Hewitt HCI study reveals that this year, the per capita C&B cost of full time employees (FTEs) in foreign pharmaceutical in China is around 313,620 RMB, rising by 12 percent compared with the previous year; while executive compensation for senior management in China approximates to that of their counterparts in the US.
In leading foreign pharmaceutical enterprises, per capita revenue of FTEs in China is around 1,568,000 RMB, while the per capita revenue of global workforce of these enterprises reaches about 3,216,000 RMB, almost twice the productivity of Chinese employees.
Radford, a business unit of Aon Hewitt, shows in recent research that in the Internet industry, the per capita C&B cost of FTEs (around 536,000 RMB) in developed countries is 1.5 times that of Chinese employees (around 348,400 RMB), while the per capita revenue of FTEs (around 5,762,000 RMB) in developed countries is almost 1.9 times that of Chinese employees (around 3,015,000 RMB).
Zhang concludes, “It is no doubt that enterprises in China desperately need to improve employee productivity.”