Salary increases, hiring intentions signal caution among multinationals

KUCHING: 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 the annual research by global consultant Mercer, in 2017, the highest salary increases are forecasted for India (10.8 per cent) and Vietnam (9.2 per cent) while financial hubs Hong Kong and Singapore are forecast to see a 4.2 and 4.1 per cent increase, respectively.

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

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

“The salary increase forecast for Malaysia is around 5.5 per cent which had been fairly consistent for a while but in the past couple of years it has been moving downwards,” said Harrison Tan, Talent Information Solutions Leader for Mercer Malaysia yesterday.

“Employers here face the challenge of managing short-term salary expectations of employees against the backdrop of a slowing economy. Whilst as major oil and gas and commodities linked producer, the long-term economic indicators for Malaysia are positive with difficult headwinds expected in 2017.

“In certain sectors, especially Oil and Gas, and theFinance function, the constricted ability to give increments is necessitating adjustments around how organizations engage with their employees with instruments other than salary increases.

Tan added, “Malaysia is also trying to move its economy up the value chain by improving the share of services in overall mix. This is putting pressure on organizations to design attractive rewards packages to be able to attract the right talent from a limited pool of talent available.”

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$30,000 per annum, and rise steeply as employees reach senior levels, often reaching US$250,000 to US$350,000.

Starting salaries are much lower (often just US$5,000) 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.

Puneet Swani, Partner and Growth Markets Talent Leader at Mercer said that 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.

“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.”

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 per cent, with some markets as high as seven to eight per cent, while African GDP projections are similarly bullish at 3.9 per cent, compared with 2.8 per cent 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 per cent, 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 three per cent 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.

Meanwhile, 48 per cent of companies in Asia report having difficulty filling-in vacant positions, as compared with 38 per cent of the companies globally struggling to find the right talent to fuel their business expansion.

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