2018 Compensation Trends

Newsroom

Salary increases in the Philippines signal positive outlook amidst stable economic growth

  • 29 November 2017
  • Philippines, Manila

  

  • Overall salary increase in the Philippines across industries is projected to be 6.3%
  • Consumer Goods, Energy and Life Sciences are the industries with the highest salary increases
  • 47% companies planning to add headcount in the next 12 months across industries
  • Sales, finance and IT positions are jobs that are difficult to recruit and retain 

 

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 and Total Remuneration Survey (TRS).  

Asia has been leading the growth revival in the global economy in the last three years, and for the first time in decades Organization for Economic Cooperation and Development (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 Partner at Mercer said, “Hiring, retaining and engaging skilled talent in Asia Pacific will continue to be a top priority for companies looking to leverage the strong macroeconomic outlook for 2018. We continue to see a high level of pay increases used as a retention tool for high-performing talent. This has become even more critical, especially with the cross-industry movement of talent in specialist roles such as sales and engineering. We also find companies deleveraging pay in the wake of increased regulatory scrutiny of bonus pay outs, thereby reducing year-end bonuses and increasing base pay instead to reduce excessive risk-taking and discretion.”

“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 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,” Mr. Swani added.

THE PHILIPPINES

The Philippines continues to be one of the best performing economies in Asia Pacific as its GDP grew by 6.5% in the second quarter of 2017. This performance is well on track on meeting the full-year target growth rate of 6.5% to 7.5%. The main drivers for this growth are increase in household consumption, high consumer confidence, overseas remittances, and improving labor market conditions. The government spending through infrastructure also expanded in the first quarter of 2017, contributing to this growth.

On the other hand, the Philippines needs to enhance its business environment to be more conducive to investors and to maintain its competitiveness amongst ASEAN countries.  The country also has a lot of catching up to do in providing adequate infrastructure, particularly for transportation and road system in the metropolis which affects the business and employee productivity.

The overall salary increase in 2018 in the Philippines is expected to be 6.3%. Companies in the Fast Moving Consumer Goods, Energy and Life sciences sectors are slightly more aggressive forecasting 6.5% - 6.7% salary increase. Mature industries such as energy, consumer, and pharmaceutical tend to pay more compared to emerging industries such as the shared services and Business Process Outsourcing (BPO). 

Critical HR challenges

  • Skills shortage – There is a mismatch between skills employees possess, and skills demanded by the employers. The current educational and technical infrastructure is not producing enough “ready for work” employees.

  • War for talent – The Philippines market is bullish on hiring with 47% the companies planning to add headcount in the next 12 months across industries while skills shortage continues to be acute across all levels of career. Jobs that are difficult to recruit and retain are sales, finance and IT positions at both professional and management levels.

Floriza Molon, Philippines Career Business Leader at Mercer says. “The diversity of employees in the workplace in the Philippines is increasing rapidly and resulting in multi-generational workforce in organizations. We are also noticing year-over-year increase in the number of employees on local plus packages especially in the IT and BPO industries. Given the different needs and aspirations of all these employee groups, organizations should be changing their approach to creating employee value proposition”. 

  • Keeping employees engaged – According to Mercer’s Employee Engagement survey, Filipino employees have a high level of satisfaction when it comes to their work. However, this doesn’t translate into commitment to stay longer in their jobs.  Filipino workers want to be recognized and rewarded for a wide range of contributions. They leave because of pay, opportunity for promotion and flexible work options.

Floriza added, “Overall, apart from compensation and benefits, it is also important take a more holistically view from a total rewards perspective and to have a successful employee value proposition that not just addresses immediate retention needs but also the future talent attraction and retention plans.  Innovative employee benefits are also key in helping employers differentiate and brand themselves as employees feel valued when employers take care of them and their families.”

 

 

About Mercer

Mercer delivers advice and technology-driven solutions that help organizations 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, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.

CONTACT INFORMATION