Companies throughout Asia responded to the global economic crisis by freezing salary increments but the trend looks set to gradually change. According to Hewitt Associates’ 2009/2010 Asia-Pacific Salary Increase Survey, salary increments for this year were the lowest in the last four years, but are expected to increase slightly next year.

The human resource consulting firm surveyed more than 2,000 companies in its client database across the Asia-Pacific region between August and September this year, including 180 from Malaysia.

This year, all Asia-Pacific markets saw only single-digit growth in terms of average base salary increment. India had the highest average overall salary increase in the region at 6.3%, followed by Indonesia (6%), China (4.5%), the Philippines (4.3%), and Malaysia (4.1%).

Singapore and Hong Kong saw smaller salary increases at 1.8% and 1.4% respectively. Japan had the lowest salary increase in the region at 1.2%.

Salary freeze was also the most widespread in Japan, with over 60% of companies implementing a freeze, compared with 30.8% in China, 26.1% in India, and 40.2% in Malaysia.

On a brighter note, only 16.2% of Malaysian companies said they intend to implement a salary freeze next year. India and Indonesia had the lowest percentage of companies planning to freeze salaries next year at 6% and 7.7% respectively.

Madhvi Pande, Hewitt’s SEA compensation solution leader, said in a press release that despite the recent upturn in the economy, the impact on pay increase would remain as companies are expected to continue to fight for better margins through effective cost management, including pay management. “Although employees can expect to see higher pay increase than in 2009, it is still comparably lower than those in previous years,” she says. 

The Hewitt study also looked at the rewards and compensation offered by companies. Variable pay or performance-based pay programmes continued to be a key compensation scheme, practised by 82.7%of respondents.

Reflecting the economic situation and business performance this year, almost a quarter (24.6%) of survey participants indicated that they plan to reduce their end-2009 variable payouts, albeit by less than 10% of their original targeted levels.
Madhvi says companies could adjust their pay-mix by emphasising the variable pay component in order to adapt to challenging times.

More than half (55.5%) of respondents rewarded their employees with long-term incentives, which Hewitt says is an appropriate compensation scheme for leaders in the organisation.

In Malaysia, the most common type of long-term incentives is Employee Stock Options or ESOS, with 67.7% of companies offering this. The three main reasons for offering ESOS were: to ensure targeted employee retention (84.8%); driving organisational performance (65.2%); and creating employee ownership (57.6%). 

Although many companies have ESOS plans in place, with the market having dipped significantly in the last year, many stock options are now under water so companies are making the necessary adjustments to ensure that these schemes are working to their expected purpose, says Madhvi.

Adjustments currently being considered include adding performance criteria to the awarding of stocks and the introduction of long-term incentives.

According to Hewitt, retaining employees would increasingly prove challenging as the economic recovery encourages employees to move. The turnover rate in Malaysia increased to 10.1% this year from 9.3% last year, says the HR consultancy. 

The highest turnover rate in the country continues to be in financial services (18.3%) and high-tech/IT industry (20%). The lowest turnover rate was seen in the chemicals industry at 6.3%.  

Employees’ top three reasons for leaving a company were better external opportunity (67.3%); limited growth opportunities (46%); and further studies (38%).

Hewitt says that companies currently face a paradigm shift characterised by the need of the new generation of employees to obtain higher levels of education. This, in turn, has compelled companies to adjust their hiring strategy and reward components. More than 66.4% of companies responding to the survey say they have chosen to provide “additional learning and development opportunities”.

“In the wake of better projected 2010 GDP growth rates and government stimulus initiatives, the most recent RM60 billion packages including loan guarantees for businesses and project promotions, Malaysia may be on the path to a better tomorrow,” says Madhvi. 

“However, companies have to focus their time and resources in ensuring that they capture all the right opportunities during the upturn and be prepared and wary for any unexpected changes that may arise in the revival process.”

In anticipation of the economic upturn, the study shows that 56.9% of companies are moving towards “strategic hiring” as opposed to laying off their employees, which Hewitt says was prevalent last year. More than half (51.3%) the respondents say they plan to continue hiring while maintaining head count while 36.8% indicated they would freeze hiring.




This article appeared in Manager@work page of The Edge Malaysia, Issue 786, Dec 21 – 27, 2009.