On the 19 November 2009 HR Magazine attended a press conference hosted by Hewitt Associates to announce the major findings of the Asia Pacific Benefits and Compensation Survey 2009-2010. Hewitt revealed cautious optimism for 2010 and anticipates that companies will shift their focus towards growth, ‘reshaping’ rewards with special emphasis on variable pay plans highlighted by changes to their compensation, rewards and hiring policies.
The press conference revealed:
- What job functions / industries are hot and what the new pay and benefits strategies are under the current economic situation
- Year on year comparisons of salary increases, market turnover, benefits practices and other subjects in Hong Kong and Greater China
- Pay trend for top performers vs. general performers
- Hot issues on executive pay and compensation: Pre and Post financial crisis
“The consensus among employers in Hong Kong seems to be that the worst of the economic crisis is over,” according to Hewitt. The study shows that the average annual salary increase for 2009 in Hong Kong was 1.4% and the corresponding projection for 2010 is it will rise further to an average of 2.9%. The corresponding figure for 2008 was 5.2%
In keeping with the worsening employment market, Hewitt reported that the average turnover rate for Hong Kong dropped significantly from 17.7% in 2008 to 14.0% in 2009. Somewhat surprisingly, an overwhelming 81% of the respondents cited “Better External Opportunities” as a key reason for voluntary attrition, showing that the market continued to offer opportunities to deserving candidates, despite the economic crisis.
“It is important to note that even through the economic crisis, companies maintained their focus on top performers, giving them almost twice the salary increase as average performers. Though this category formed less than 10% of the total employee population, companies recognized that they were critical to the short and long term success of the organisation.” said Tzeitel Fernandes, head of Hewitt’s Compensation and Benefits Consulting practice in Hong Kong.
90% of responding companies said that they were introducing special initiatives to retain key talent and boost employee engagement. The most popular initiatives were providing accelerated career development opportunities, 65% and better communication with managers, 46%.
The study also highlighted that high performers were being granted additional cash incentives, including; additional merit increases, 43%, special discretionary bonuses, 24% and stock awards, 22%.
Mary Yu, Senior Consultant, Hewitt Associates, adds “While the balance of power is still heavily in favour of the employer, it is important to remember that the key talent is always under threat. Organisations are recognizing the value of these key employees and are taking steps to ensure that they are appropriately catered for.”
The market outlook for 2010 is far more positive. While over 60% of the organisations reported a salary freeze in Hong Kong for 2009, only 15% are anticipating using a pay freeze in 2010. Similarly, discussions of pay reductions have dissipated whereas almost 10% of companies were forced into this action in 2009.
Variable pay awards were badly hit in 2009 with around half the respondents, 48%, reporting a decrease in plan funding versus 2008. On average, variable pay awards were down by 15% as compared with the budgets made at the start of the year. Most employers, 73.6% were able to reduce payouts by excluding low performers from the programmes. As a result, the “target” payouts for high performers were maintained. “This was a groundbreaking year for pay for performance within many organisations. For the first time many companies were forced to truly differentiate variable pay awards by employee performance” commented Tzeitel Fernandes.
“Going into 2010, the sentiment is still cautious”, adds Fernandes. “A substantial number of respondents were unsure about their planned bonus figures in 2010 as well as their salary increase figures. In addition, there is a lot of uncertainty around other people initiatives. Market feedback suggests that the picture will become clearer as we get into Q1 of 2010.”
“This year, we have seen a definite shift away from a focus on pay to a focus on non-monetary rewards like learning and development and career management. Employers are beginning to recognize that these not only have a positive impact on employee engagement but also help increasing productivity and employee performance. Similarly, employees are more keen to join and stay with a company that provides clear growth opportunities and a visible career path.” Said Fernandes
Salary increases across Asia fell across all countries in 2009. They are likely to pick up in 2010, but will still be significantly lower than in 2007-’08. Hong Kong and Japan pay the highest salaries in the Asia Pacific region and while Senior management in Hong Kong is expensive it is commensurate with the high cost of living.
The survey looked at measures used to control salary costs. The five most popular measures of cost control were:
- Salary Freezes.
- Hiring Freezes.
- Reduction in Overtime Pay and Benefits.
- Lengthening of Salary Cycles.
- Reductions in promotions.
Hong Kong and Singapore led the region in freezing pay in 2009 as it was one of the most prevalent ways of controlling costs, however, most organisations are likely to lift the hiring freeze in 2010 and have already begun hiring strategically. Salary cuts have not been as prevalent as pay freezes and far fewer organisations project pay cuts in 2010 and very few cut salaries in 2009 compared to expected cuts.
The overall salary increases in Hong Kong averaged at 1.4% in 2009. The average salary increase for 2010 is expected to be 2.9%. The highest salary increases are expected in Middle Management and Junior Managers.
In 2010 the highest projected salary increase is in the Pharmaceutical/ Medical divisions. This is due to continuing health consciousness, because of H1N1. Additionally, the Pharmaceutical is resilient anyway as when we are ill we have to buy medicine, other industries are driven by market sentiment, pharmaceuticals are driven by necessity.
The lowest salary increases are expected in Transport and Logistic Industry. Transport suffered the most because it is highly impacted by the global economic recession.
The overall turnover rate was 17.7% for 2008 and 14.0% for 2009. The low rate in 2009 was due to the global economic crisis. Two things, the company and the market, drive the turnover rate and because of the market there were hiring freezes.
Hong Kong: Executive Pay
The dip in Variable Pay was visible at the senior management level. Top Management showed an increase in both Fixed as well as Variable. There was an increase in variable pay for top management because discretionary bonuses were used to retain the top people. Bonuses were used as a retention strategy.
Hong Kong’s economy in the second quarter of 2009 was better than expected and the third quarter also showed growth, albeit at less than 1%. A pick-up in growth in the Mainland and the relative stability in the rest of Asia should positively impact the economy.
With hiring freezes being lifted and a salary increase of 2.9% projected in 2010 the employer sentiment is one of optimism. Organisations anticipate that in the coming year they’ll do better generally and employer prospective are better.
2010 will see employers ‘rethinking’ their pay practices, with a specific focus on pay for performance plans, both short-term and long-term. Similarly, the focus on non-monetary rewards, especially learning and development, is also expected to increase.
In China, Salary increase by performance rating was lower than in other developed markets. A decrease in the leverage between top performers and average performers in 2009 showed a tendency to ‘manage to the middle’ in China. Salaries are projected to grow at a healthy 6.7% in 2010 in China, which is a good indicator of positive employer sentiment. Performance differentiation is getting more and more important as employers seek to identify and reward employee performance.
Paul Arkwright
Publisher
