Posted by: lrrp | November 23, 2007

Hewitt study reveals key trends in salary increases across the region

Pay becomes increasingly important to employees; Sri Lanka reports highest salary increase, followed by India, Vietnam and China

According to the 8th annual Asia-Pacific Salary Increase Survey conducted by Hewitt Associates, a global human resources services company, external inequity of pay was cited as the top reason for employees leaving jobs.

The Asia Pacific region witnessed the highest salary increase in the world with Sri Lanka reporting the highest release within the region. Asia was followed by Latin America with Venezuela leading with 18.8 percent. Europe reported the third highest salary increase globally with Hungary leading the region with an increase of 7.5 percent.

Nishchae Suri, head of Hewitt’s Talent and Organization Consulting Analytics practice in Asia, says: “The pull is on the side of the people today. With more opportunities and avenues, organizations are increasingly at the mercy of employees making a choice. A salary increase is the most perceptible way of enhancing the employment deal but, of course, not the complete deal itself.”

Organizations are becoming dealers in talent, using pay and benefits as a strategic lever to attract, motivate and retain talent. More and more organizations are showcasing themselves as dealers in talent, with aggressive pay positioning and increased benefits, hence having a heavy skew towards being transactional.

Suri adds: “Despite all the high salary hikes in Asia, compensation doesn’t seem to be having the desired impact. The overall employee satisfaction with current compensation stands at 46 percent. This means that, apart from the absolute, there are aspects which need serious attention. Focus needs to be on making pay more transparent by making it competitive and aligning it to performance.”

Hewitt’s study indicates that variable pay continues to be an important means of attracting and retaining talent, with 91.8 percent of responding organizations using this practice. Within variable pay choices, individual performance awards continue to be the most popular, with nearly 68 percent of responding organizations saying that this is their preferred type of variable pay plan, followed by special recognition awards and business incentives.

The study reveals trends in across the region. In the 2007 study, Sri Lanka ousted India from the top spot by reporting the highest average salary increase at 15.3 percent. This was largely due to continued growth despite high energy prices, civil conflict and high inflationary pressures in Sri Lanka.

India reported an increase of 14.8 percent, up marginally from 14.4 percent in 2006. Vietnam’s booming economy reported an unprecedented increase of 10.3 percent, ousting China from its traditional spot as the second highest salary increase provider in the region. Salaries in China rose by 8.6 percent, up from 8.3 percent last year. For the third year in a row, the Philippines recorded an average overall salary increase of 8.2 percent.

As Singapore’s economy continued to strengthen, employees experienced average salary increases of 4.7 percent, up from 4.6 percent in 2006. Meanwhile, Thailand and Malaysia saw raises of 6.3 percent and 6.5 percent respectively. Salaries also rose in Hong Kong, Japan and Taiwan.

Maintaining the competitive edge in the market

An increasing number of organizations are ensuring their pay is competitive by closely monitoring market movements. Over 78.2 percent of participating organizations review their markets annually, using multiple sources of information to benchmark compensation, such as industry surveys and information through personal contacts. 80.5 percent of participating organizations continues to practice industry benchmarking, a record 28.2 percent are now benchmarking across multiple industries.

Rising Variable Payouts

Ever increasing pay hikes are posing a clear problem to most organizations. In an environment of strict competition, increase in employee cost can lead to fast erosion of margins “Pay –for- Performance is clearly the next generation mantra for companies in Asia. Increasingly, more companies are trying to further reinforce the pay and performance relationship through variable pay plans.

Variable pay focuses on key messages/imperatives, drives desired behaviours and helps better manage expenses. They also translate into increased earning potential for employees that give them greater control over total compensation,” says Suri.

According to the study, companies reported variable payouts of 14.5 percent of their payroll in 2007. This year, actual variable payout was highest for top executive at 22.1 percent, and is expected to rise to 23 percent in 2008.

Hewitt’s study also highlights that the prime challenge faced by organizations in Asia in implementing variable pay plans is poor communication of their objectives and measures to employees.
About Hewitt’s Salary Increase Survey

Hewitt surveyed nearly than 1,800 foreign, locally owned, and joint-venture companies this year, making this the most comprehensive salary study in Asia Pacific to date. The survey covered 14 markets including Australia, China, Hong Kong, India, Japan, Korea, Macau,
Malaysia, the Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam. It measured actual and projected salary increases, and compensation practices for six specific job categories, namely top executive, senior management, middle management, junior manager/supervisor/professional/, general staff, and manual workforce.

Asia-Pacific Salary Increase Survey 2007-2008 India Highlights

* Information was collected from 262 organizations.

* None of the participating companies reported a salary
freeze for 2007, and none expect a salary freeze for 2008.

* The average overall salary increase budget ranged from 11.7% to 16.0% for the six employee groups surveyed for 2007, and from 11.7% to 15.6% for 2008.

* Employees at ‘Junior Manager/Supervisor/Professional’ level received the highest average increase of 16.0%, and are expected to do so again next year with 15.6%.

* 86.2% of organizations benchmark ‘Within Industry’ and 36.0% benchmark across ‘“Best in Class”/Premium companies’.

* At 21.1%, the Spending on Variable Pay Plans as a percent of total payroll is seen to be highest for ‘Top Executive’.

* 24.4% of participating companies offered fixed bonuses to their employees in 2007.

* Stock options are the most popular form of long-term incentive among participating companies.

* The Annual India Salary Increase Survey is conducted in two phases. These results represent findings of Phase I. The total report including findings of Phase I and II will be released in February 2008 and will cover a wider range of participants across industries.


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