Salary increases & hiring intentions signal increased caution

Salary increases & hiring intentions signal increased caution

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Salary increases & hiring intentions signal increased caution amongst MNCs in APAC - Mercer's Total Remuneration Survey

  • 12 December 2016
  • Singapore, Singapore
  • Salary increases forecasted in 2017 higher than 2016 for most countries in APAC
  • Life sciences and chemical sectors project highest salary increases across the region
  • Declining workforce participation and rising voluntary turnover a reason for  worry
  • Sales jobs most difficult to recruit and retain

Singapore, 12 December 2016

According to the latest issue of the annual research by Mercer, a global consulting leader, 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.  

Mercer unveiled the results of the ‘Compensation Planning for 2017’ 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 Annual Total Remuneration Survey (TRS), and its bi-annual Market Pulse Surveys.

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. (Figure 1 and 2 in notes).  

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.

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

“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.

INDONESIA

In 2017, the third highest salary increase after India and Vietnam is forecasted for Indonesia with 8.8% increase. Astrid Suryapranata, Talent Information Solutions Business Leader for Mercer Indonesia said, “However, in hiring, retaining and engaging skilled talent, companies cannot be dependent on compensation just as a hygiene factor. They should instead adopt a total rewards approach creating a holistic value proposition that wins employees’ heart”.

MALAYSIA

“The salary increase forecast for Malaysia is around 5.5% which is a slight downward movement compared with past few years. 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 the Finance function, the constricted ability to give increments is necessitating adjustments around how organizations engage with their employees with instruments other than salary increases,” said Harrison Tan, Talent Information Solutions Business Leader for Mercer Malaysia.

Mr. 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.”

PHILIPPINES

In Philippines, salaries are expected to move in 2017 by 6.5% in the general market.  Companies in the FMCG and Energy sectors are more aggressive with 7% salary movement forecast.    

Floriza I. Molon, Philippines Business Leader for Mercer’s Talent Information Solutions said, “The Philippines has very young demographics - with an average age of 23 we have become exporters of talent particularly in the Asia Pacific region. As a result, organizations in the Philippines compete for talent regardless of the industry and location. Sales and Finance are the two most difficult roles to recruit and retain.  The sales role cuts across different industries hence it has become an in-demand job, and the influx of shared services operation in the Philippines has opened up a lot of opportunities for the Finance roles.   

She adds, “The diverse mix of employees in the Philippines have different needs and aspirations thus a different approach to managing rewards is required.  Based on my conversation with Management and HR Heads, the top HR challenges faced by organizations in the Philippines are – keeping employees engaged at work, develop & upgrade skills and a lack of talent pool. From local employees’ perspective - leadership style, career development opportunities, and work culture are the major considerations for them to join and stay in a company.”  

THAILAND

Nichanant Dulsari, Talent Information Solutions Business Leader for Mercer Thailand agreed with Puneet on the top 3 priorities in the region and added, “Based on insights gathered from Mercer’s Thailand Pulse Survey the priority focus areas for HR Practitioners in 2016 and beyond are, how to engage their employee particularly in terms of understanding and optimizing the findings from employee  engagement surveys, followed by career development and building internal capability, and finally enhancing leadership capabilities.”

Ms. Dulsari said, “Regarding compensation, we observed that all the industries that participated in the Mercer survey have a more positive outlook for next year. The salary increase forecast for Thailand for 2017 is 0.1-0.8% higher than actual increase in 2016. The 2017 median forecasted figure for All industries is 5.5% vs 5.1% in 2016.”

-Ends-

Notes to Editors:

Figure 1: Forecasted GDP, inflation and salary increase; Source: Total Remuneration Surveys

Figure 2: Projected Salary forecast for 2017 and increase for 2016 (x), by industry; Source: Asia Pacific Pulse Survey Q3 2016; Some forecasts in the press release have been revised based on latest data

Figure 3: Hiring intentions and Voluntary attrition compared by industry; Source – Total Remuneration Surveys

Figure 4: Rewards 2020, what is changing?

About Mercer

Mercer is a global consulting leader in health, wealth and careers. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerAMEA

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