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Hewitt Quarterly
Asia Pacific
is made possible through the combined skills and experience
of Hewitt consultants from across the Asia-Pacific region.
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For further information please
contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com
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Asia's markets have maintained steady growth in the last year, driven by a healthy business climate and the ongoing effects of globalization. However, with this growth comes a stark increase in the demand for good people. As the region continues to tackle the ongoing leadership shortage and the need to access new talent pools, it comes as little surprise that Hewitt's Asia-Pacific Salary Increase Survey 2006 revealed further salary increases in the region. While the study also shows that salary increases are starting to stabilize in comparison to previous years, they still remain among the highest in the world.
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According to figures from the study, salary increase trends are highest in India at 13.8 percent, followed by China at 8.3 percent, and the Philippines at 8.2 percent. Nishchae Suri, Head of Hewitt's Talent and Organization Consulting Analytics practice in Asia, comments, "In markets such as India and China where we are seeing rapid growth, globalization and expansion, attraction and retention pressures have become a scary reality. The combination of too few qualified people for key positions and an increasing number of people moving into global roles is transforming Asia's talent pool into a seller's market, forcing organizations to offer substantial salary hikes in order to compete. However, we are starting to see some leading organizations changing the playing field in order to overcome these challenges."
As such, companies in Asia are starting to reassess their HR strategies and broader business goals in order to ensure they are getting the most out of their talent and increasing productivity, without necessarily having to implement drastic salary increases.
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Increasing Market Orientation
With the growing pressures on retaining talent, an increasing number of organizations are studying competitive practices by keeping a closer eye on market movements. Over 80 percent of organizations that participated in Hewitt's Asia-Pacific Salary Increase Survey 2006 say they conduct an annual review of the market using multiple information sources such as published surveys, sponsored surveys, industry surveys and information gathered through personal contacts to benchmark compensation. This is a clear indication that more and more organizations are benchmarking and are willing to share pay data in order to attract and retain talent as well as manage costs. Suri explains, "As compensation continues to climb, organizations must now maintain a keen eye on both market practice and affordability. As such, many companies spend a significant amount of time aligning compensation to business
performance."
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But organizations aren't simply benchmarking within their industry. The study revealed that while 81.6 percent of study participants continue to practice industry benchmarking, a record 20.2 percent are now benchmarking against best-in-class companies.
Increasing Performance Consciousness
According to the study, last year also saw an increasing number of companies focusing on aligning pay with performance, with an overwhelming 98.5 percent of participants citing performance as the most prevalent factor influencing salary packages. Suri comments, "We are seeing a growing alignment between performance and compensation in Asia. With companies constantly looking at meaningful ways to reward their employees, variable pay plans have grown in popularity all over the world. They've helped improve competitive positioning and productivity, and adjust organization and business priorities to suit the changing business environment."
This explains why the survey also highlighted an increasing divide between the salaries of outstanding and average performers. In 2006, outstanding performers received approximately double the salary increase awarded to average performers in Asia.
Suri says, "While money isn't the only motivator, the best and brightest people are driven by larger salaries. Perceived as a statement of worth, compensation sets outstanding performers apart from their average counterparts."
He continues, "In order to improve performance consciousness, companies should ensure they have the right performance goals and measures in place, and align them with their overarching business strategies and goals. This should then be cascaded across management and clearly communicated to employees." |
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Achieving Business Objectives Through Rewards
Though most organizations that participated in Hewitt's Asia-Pacific Salary Increase Survey 2006-7 have the right intent when it comes to fostering a healthy performance and rewards culture, most said they are only partly achieving their objectives of attracting, engaging and retaining talent, as well as achieving business results. At 60.1 percent, more than half of participating organizations said their rewards programs do not achieve the desired outcome because of budgetary constraints, while 33.3 percent cited lack of communication as the primary reason.
Rising Variable Payouts
The study also indicates that the use of variable pay as a strategic lever continues to be an important means of attracting and retaining talent, with 78 percent of responding organizations having a variable pay plan in place. Suri says, "Variable pay plans have multiple benefits for employers, employees and shareholders, and in a competitive environment like today's it's a competitive necessity. Employers benefit from variable pay plans because they drive desired behaviors and help in better management of expenses like fixed costs. Employees like variable pay plans because their earning potential is increased according to the amount of effort they expend, while shareholders like them because they lead to high-result orientation and minimize entitlement mentality."
Out of the many types of variable pay plans available, individual performance awards continue to be most popular with 56.2 percent of responding organizations citing them as their preferred variable pay plan. Individual performance awards are perceived to have the highest impact on business results, followed by business incentive plans and team awards.
According to the study, variable payout has increased in 2006 and is currently at 14.9 percent of payroll. Target variable payout is highest at the senior/top management level at 21.8 percent in 2006 and is projected to increase to 22.3 percent in 2007. According to the study, the prime challenge faced by organizations in implementing variable pay plans is poor communication of the objectives and measures of the plans to employees.
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Communication
While pay is obviously an issue, much depends on communicating pay plans correctly. Communication is the key to the success of any program, be it a sales incentive plan, a bonus plan or an organizational development intervention. Similarly, communication plays a critical role in the success of compensation programs.
Commenting on this, Suri says, "Rewards are an emotive issue with employees, and it is of paramount importance that companies not only house a fair, transparent reward system, but also properly communicate guidelines to employees. Despite this, an alarming number of organizations still fall short when it comes to communicating pay decisions to employees. There is clearly a huge gap between what employees want to know and what organizations are sharing."
An effective salary strategy needs to be strongly supported by executives or senior managers. It should have clear links between performance and rewards; performance goals or targets need to be realistic; and it should have strong performance measures in place. It should also have a clear and concise communication plan attached.
The largest gaps between current practice and HR expectation are in communicating benchmark positioning, explaining total benefits packages and disclosing the total number of bands or levels. A significant gap is also evident between HR's desire and employee expectation in communicating salary range.
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Suri comments, "According to Hewitt's Salary Transparency Study 2005, there is a 50/50 split between employers who are comfortable with the level of transparency that currently exists and those who are not. However, there is room for more transparency in communication. Factors that inhibit more transparent communication include lack of maturity on the part of employees, their lack of understanding and a lack of understanding among managers, which leads to an inability to help employees understand the total package or difficulty in communicating career progression and movement to employees."
Looking Ahead
With healthy economic growth predicted in Asia Pacific in the year to come, we will continue to see attractive business and talent opportunities. The economy has seen sustained high growth over the past few years and the future looks bright backed by healthy investments, positive internal growth and strong consumer demand. This positive economic climate has opened up a host of fresh opportunities for organizations in Asia and awakened them to a performance driven culture, which is also good news for employees.
By Nishchae Suri
About Hewitt's Asia-Pacific Salary Increase Survey
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An invaluable resource for HR professionals, CFOs and CEOs alike, Hewitt's Asia-Pacific Salary Increase Survey provides a unique insight into salary increase trends across the region. The most comprehensive study of its kind in Asia, the survey covers more than 1,400 foreign, locally-owned, and joint-venture companies each year in Australia, China, Hong Kong, India, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. The study measures actual and projected salary increases, and compensation practices for five specific job categories, namely senior/top management, managers, professional /supervisor / technical, clerical / support, and manual workers. For more information please visit www.totalcompensationcenter.com |
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