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Companies in China Continue to Chase Scarce Talent With High Salary Increases, But a New Hewitt Report Suggests It's Not a Winning Strategy
ChinaHRP.com SHANGHAI, China, Oct. 23 -- The continued application of high salary increases is not a winning strategy in China, according to the findings of a new Hewitt report entitled the Qingdao City Compensation and Benefits Study. At best, increased salaries may simply be "table stakes" or the minimum requirement to stay in the game, according to the report released today.
The newly released Hewitt Compensation and Benefits Study shows that the average annual salary increase (excluding promotion) in 2008 in Qingdao City was 10%, with professionals, middle managers, and top managers enjoying the highest increases at 10.2%, 12.6%, and 12.6%, respectively. The study also reveals that a rising consumer price index (CPI) and a shortage of talent are pushing up salaries across China.
However, at the same time, Hewitt reports that the average turnover rate for Qingdao was 11.4% in 2008 (9.6% in 2007). Engineering functions experienced the highest turnover rates as there is still a major talent gap in this area.
Michael Song, head of Hewitt's Compensation and Benefits Consulting practice in Greater China, said: "These high turnover rates show that employees are taking advantage of widespread opportunities in the market. As a result, some companies are using pay increases to acquire and retain talent, but this will not solve the problem.
"We strongly urge companies to communicate the benefits of their overall compensation package to employees, link performance to pay, and focus on leadership and management development for their key talent."
Companies in China are finding themselves managing growth in a fiercely competitive talent market and compensation professionals continue to face tough challenges in managing rising employee expectations.
Interestingly, Hewitt's data on employee engagement reveals that employees in China place a higher emphasis on pay as a driver for engagement than typically found in other countries around the world. On average, pay ranks second between career opportunities and assessment as the top drivers in China.
The study results confirm that the talent market will continue to be highly competitive, and salaries will continue to rise in 2008, but Hewitt suggests that there are other things on top of a competitive salary that companies must consider in order to gain a competitive advantage:
-- The overall pay package must be well communicated
-- Pay-for-performance schemes must be well designed and executed so that top-performing employees receive above-average increases
-- Retention bonus schemes involving deferred cash payments are proving to be effective in certain situations, and
-- A mix of short- and long-term incentives involving both cash and stock can help with attraction, retention, motivation and recognition.
At the same time, it is clear that pay alone will not help companies win the war for talent. The new Hewitt study reveals that other non-cash elements also play a vital role. For example, the study reports an increased use of non-traditional benefits and flexible schemes.
In the benefits arena, Hewitt recommends that companies should:
-- Recognize that shifting employee demographics are the key to a successful company strategy
-- Accommodate both a short-term, cash-focused culture and the long-term welfare of employees
-- Recognize non-traditional benefit opportunities; and
-- Move toward flexible benefit schemes.
Audrey Widjaja, Hewitt's Talent and Organization consulting practice leader in China, said: "We are spending a lot of time working with clients on what we call 'Lao San Pian' in China. This refers to having clearly defined roles, well defined goals, good pay, and good systems for measuring results and providing constructive feedback. Getting all that right is critical for employers in China."
At the executive and managerial levels, the introduction of long-term incentives is particularly important, and yet employers must be careful to stay abreast of constantly changing market practices and regulations in this respect.
Hewitt's work on improving employee engagement, along with its work to identify Best Employers in China, reveal that, along with pay, career opportunities and assessment are the other top two engagement drivers in China. Leading employers are working to develop rigorous approaches to assessing competencies, helping employees to develop their capabilities and better understand what their next moves can be within the organization in an effort to keep them from looking elsewhere for employment.
Jenny Li, Hewitt's Market Manager for China, added: "Of course, pulling all of this together requires a solid Human Resources practice and sound leadership. We are also very busy working with clients to improve the effectiveness of their HR functions, and we are helping them to implement programs that help develop leaders and grow talent to grow their business and achieve their bold goals."
About Hewitt Associates
For more than 65 years, Hewitt Associates (NYSE: HEW) has provided clients with best-in-class human resources consulting and outsourcing services. Hewitt consults with more than 3,000 large and mid-size companies around the globe to develop and implement HR business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent and change management. As a market leader in benefits administration, Hewitt delivers health care and retirement programs to millions of participants and retirees, on behalf of more than 300 organizations worldwide. In addition, more than 30 clients rely on Hewitt to provide a broader range of human resources business process outsourcing services to nearly a million client employees. Located in 33 countries, Hewitt employs approximately 23,000 associates. For more information, please visit http://www.hewitt.com
