Salary Increases Forecasted in 2017 Higher than 2016 for Most APAC Economies

A majority of the Asia Pacific’s emerging economies are forecasting higher salary increase percentages for 2017 than 2016 with projected rises particularly bullish in countries such as India and Vietnam, according to the latest issue of an annual research by Mercer.

The “Compensation Planning for 2017’ study for the region highlights that in 2017, the highest salary increases are forecasted for India (10.8%) and Vietnam (9.2%) while financial hubs Hong Kong and Singapore are forecast to see a 4.2% and 4.1% increase, respectively.

Japan is forecasted to receive the lowest increase of 2.2%, followed by New Zealand (2.8%) and Australia (2.9%).

Notably though, real wage growth (salary increase minus inflation rate) has also been steadily rising in the region, often reaching double digits in emerging markets despite inflation at its lowest for most countries.

And, while forecasts vary quite widely across specific industries, the strongest push is likely to come from the life science and chemical sectors.

Pay parity

A closer look at pay parity (in terms of annual total cash) reveals that there are now several ‘tiers’ of countries across the region. For example, in Australia, Japan and Korea, starting salaries begin at US$30k p.a., and rise steeply as employees reach senior levels, often reaching US$250–350k.

Starting salaries are much lower (often just US$5k) in low-cost manufacturing bases, but again increase significantly at top management levels.

In some countries – China, most notably – the highest-ranking executives out-earn their peers in the US and UK, Although it is important to note that this picture changes once long-term incentives (LTIs) and European social security benefits are factored in.

Talent scarcity plays a major role here, and there are extremely high premiums to be gained by those people with the right skills, in addition to local language expertise.

“Hiring, retaining and engaging skilled talent will continue to be a top priority, especially for consumption-driven industries such as life sciences and consumer goods,” says Puneet Swani, Partner and Growth Markets Talent Leader at Mercer.

“Changing business models and restructuring in the financial services has meant that the sector may not be hiring at rates seen in the last three years, but we continue to see highest level of pay increases as retaining high-performing talent has become even more critical.

“We also find companies deleveraging pay in the wake of increased regulatory scrutiny of bonus payouts, thereby reducing year-end bonuses and significantly increasing base pay instead to reduce excessive risk-taking and discretion,” says Swani.

Companies focusing more on employee benefits

Results show that companies in Asia Pacific are focusing more on benefits for their employees, developing differentiated employee value propositions to appeal to the different employee segments, such as an increased focus on long-term incentives coupled with retirement benefits in Japan and Korea where the average age of employees is 45.

There is also an increased focus on flexibility in benefits and more learning and development opportunities for the younger workforce in markets like India, Indonesia and the Philippines.

Amidst increasing volatility and uncertainty in the economy, the Asia Pacific region stands out as an outlier to the developed world.

Emerging markets continue to lead world growth, driven by domestic demand: Asian GDP in 2017 is forecast to be an average of 4.2%, with some markets as high as 7-8%, while African GDP projections are similarly bullish at 3.9%, compared with 2.8% globally.

While growth in China is likely to fall in 2017, India is forecast to see the highest growth rate in the whole region next year with 7.8%, while the Philippines, Malaysia, Thailand and Indonesia are all expected to see their economies double by 2020. Prevalent inflation rates are projected to be just over 3% in 2017, marginally ahead of the global average.

Similar to last year, continued worrying news for employers as research again reveals doubt-digit turnover rates in almost all Asia Pacific countries, with the exception of Japan and New Zealand. Voluntary turnover rates have continued to increase year-on-year.

The rising numbers represent a challenge in terms of replacement costs in the form of higher salaries for new joiners, recruitment costs and lost production, all of which adversely impacts overall cost of operations and margins that are already under close scrutiny.

A little less than a half (48%) of companies in Asia report having difficulty filling-in vacant positions, as compared with 38% of the companies globally struggling to find the right talent to fuel their business expansion.

“While there may be growing concerns regarding growth in global trade, companies remain cautious yet resilient in the Asia Pacific region. Domestic consumption and investment for most emerging countries in the region has been on the rise.

“This has meant brighter growth prospects especially for both global multinationals when compared with say Europe or North America. With the vast improvements in the employer brands and employee experience at large local organizations in countries across Asia Pacific, multinationals are facing increased competition in finding and retaining the right talent,” Swani concluded.

 

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