Mercer unveiled the results of the ‘Compensation Planning for 2018’ for the region including predictions for hiring intentions and pay increases across Asia, Middle East and Africa. Figures and forecasts are based on Mercer’s Global Compensation Planning Report.
Asia has been leading the growth revival in the global economy in the last three years, and for the first time in decades OECD expects all the 45 countries it tracks to grow in 2018 signaling a strong overall recovery. However, a rise in inflation in some parts of APAC such as India, Philippines, Myanmar and Vietnam may be a cause for concern. In 2018, the highest salary increases are forecasted for Bangladesh (10%), India (9.8%) and Vietnam (9.1%) while financial hubs Hong Kong and Singapore are both forecast to see 3.9% increases. Japan is forecasted to have the lowest increase at 2% followed by New Zealand (3%) and Australia (3%). 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. And, while forecasts vary quite widely across specific industries, the strongest push is likely to come from the chemical and life sciences industries.
Hiring in India, Vietnam and the Philippines is happening at a greater pace compared with other countries in the region, whereas hiring intentions are lower in Singapore, Malaysia and Hong Kong. The overall hiring outlook is positive, however, with five out of 10 companies looking to maintain headcount, including replacements for turnover. Hiring sentiment is often therefore a reflection of trends in staff turnover in certain countries and industries. The flipside of higher GDP growth and base pay increases though is that the staff turnover is higher for those countries. Attrition is higher for industries that have continued to outpace the slowdown we observed in the preceding year. Consumer and retail industries are faced with the highest levels of attrition, whereas the manufacturing industry has some of the lowest levels of attrition in the region.
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. 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. 48% 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.
Puneet Swani, Partner and Growth Markets Career business leader at Mercer said, “Companies in Asia Pacific are beginning to take a more holistic view of their Total Rewards philosophy across the contractual, experiential and emotional aspects of the employee value proposition. Our perspective is that getting the contractual pieces or base pay and benefits right is the foundation for an effective rewards program, but differentiating on these elements alone can be quite costly. Where differentiation can be more engaging and cost effective is in the Career opportunities and focus on Well-being programs for employees. Employers are increasingly focusing on these experiential components of rewards – programs to deliver meaningful career experiences and flexible arrangements, as well as programs to help manage the physical, financial and emotional well-being of their employees.”
The 2018 GDP growth forecast for Taiwan is approximately 2.2%, showing a continuous recovery since 2015. Taiwan’s stock market (TAIEX index) has risen above 10,000 points for the first time since year 1990. Hiring intention among companies is also a good indicator of the economy outlook. According to Mercer’s survey, 30% of the companies expect to add headcount in 2018 and merely 5% expect to reduce headcount, which is one of the lowest across Asian countries. Particularly, no high tech companies expect to reduce headcount in 2018, thanks to the emergence of new technologies and applications.
Like many other advanced economy, Taiwan is seeing an aging population, as a result of longevity and super-low birth rate. This has created a severe deficit in the labor market. In fact, Taiwan’s “talent deficit” will be the worst in the world by 2021, according to a study by Oxford Economics. To exacerbate the problem, other countries surrounding Taiwan are facing talent shortages too, thus the local employers are facing fierce talent competition from foreign markets. It is a reality that this “pull” factor has caused talent outflow to emerging economies such as China and ASEAN countries. On the other hand, the “push” factor contributing to the talent outflow is the stagnating salary in the market, which is especially worse for the younger generation. According to Mercer’s Total Remuneration Survey findings, the salary for non-management role have not increased over the past 5 years.
Jeannie Liu, Career Business Leader at Mercer Taiwan said, “An effective total reward strategy for talent retention should be a top priority for local employers. Differentiating compensation, creating career maps and establishing succession plans should all be looked into for a holistic view. Meanwhile, younger generation expects more flexibility between work and life, therefore, non-monetary strategies such as creating a flexible working environment could help attract and retain talent.”
Mercer delivers advice and technology-driven solutions that help organisations meet the health, wealth and career needs of a changing workforce. Mercer’s more than 22,000 employees are based in 43 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With more than 60,000 colleagues and annual revenue over $13 billion, through its market-leading companies including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com.au.