Early 2018 projections put the average salary increases at 6.1%, according to our 2017 Salary Budget Planning Survey Q3 Report – Asia Pacific. This would bring levels back to that of 2013 (6.1%) and also pull the region back above the 6.0% zone. Salary increases are expected to go up in nine markets, remain stable in 11 and drop in only one.
Mild rebound expected for salary increase in 2018
Figure 1: Asia Pacific average salary increase (eight-year analysis)
We should note that in Q3 2016, the projected salary increase for 2017 also averaged at 6.1%. The actual increases ended up being 0.2% lower than expected, dropping to an average of 5.9%. Salary budgets reduced in eight markets and remained unchanged in 13 others.1 The last time increases fell below 6% was in 2012 (5.6%). However, considering that over 60% of organisations generally underspent their overall salary budget or kept true to their projected salary plan this year2, it is actually heartening to see a lower average for 2017. The positive outlook towards 2018 suggests that many companies have achieved or are on track to achieving a good yield this year.
Amidst the region-wide trend of cautious spending this year, challenges with talent acquisition intensified even further. Q1 2017 saw the voluntary attrition average in Asia Pacific rise to 15%, the highest since Q1 2015. In practical terms, this means that 1 in 3 employees are leaving every two years.
Spotlight on the digital talent pool
In Asia Pacific, four major sectors – Banking, Financial Services, Insurance and High Tech – compete over essentially the same, limited digital talent pool. These qualified few have an opportunity to command higher premiums for their critical skills. Organisations in the High Tech, Financial Services and Insurance sectors – especially in larger markets including China, Hong Kong, India and Indonesia – are most prepared to spend more to secure these skills.
The salary forecasts for 2018 will continue to be favourable for those three sectors – particularly High Tech and Insurance, which have the most number of organisations planning to add new headcount within the next 12 to 24 months. Banking may continue to have difficulty securing key digital talent for Fintech initiatives, as the sector’s salary outlook is 12% lower than the average market increase.
Overall, compared with 2017 – which saw only five major sectors increase their salary budgets – 2018 could see 10 industries raise their salary increase rates. Pharmaceutical and Health Sciences, Media, and Consumer Products and Retail are expected to afford some of the highest salary increases in the region for 2018.
Banking salary increases continue to lag
Figure 2: Salary increase budgets for 2018 – Banking vs Insurance, overall Financial Services and High Tech (%)
Tips for maximising salary budgets
Companies need to also carefully evaluate where to spend their limited funds. Differentiating between your crucial skill talent, high potentials and average performers is becoming more essential than ever to ensure the best use of your budget.
Here are some lessons learned from tackling budget dilemmas in 2017 that can help you prepare for salary management challenges in 2018:
Projected vs. actual budgets
Actual budgets will most likely be less than projected. When finalising your salary budget plan, it is essential to keep business performance in mind and not rely solely on market data.
Separate budget for promotions
Set aside a percentage of the budget for promotions. Neglecting to do so could dilute the pot and create compensation risks. Our survey found that only 47% of organisations included promotions in their salary budget projections.
Automate pay review cycles
The pay review cycle demands a lot of time, largely due to the enormous effort and variety of individuals involved in verifying numbers and relevant information. Not to mention the different tools and applications used to manage the entire process. Larger organisations often have to deal with numerous Excel sheets, which are becoming increasingly complicated to use.
In this age of digitalisation, businesses need to upgrade and integrate their processes into automated, intelligent solutions. These systems can make the pay review cycle more efficient as salary benchmarking and calculations, market pricing, and running salary cycles, are offloaded to AI technologies. Compensation and Benefit professionals can be freed from labouring over various spreadsheets and paperwork, and divert their time and attention to more valuable work – such as analysing organisational data and driving human capital strategies.
Pay for performance
While this concept is no longer new for most, all too often the matrices created to measure performance can lose their meaning and become a source of stress for employees.
Organisations need to ensure that these metrics can actually inspire the desired behaviours and drive high performance.
Segmentation is the key. Businesses need to look at rewards from the employee perspective, and consider a design for how talents should be rewarded. Many businesses continue to use an across-the-board reward policy based on performance levels – for example, 1x for minimal contributors, 4x for average workers, 7x for outstanding employees. This is prone to causing confusion and dissatisfaction within the workforce.
Pay for potential
Organisations traversing a transitional or innovation phase will benefit greatly from paying for potential. This programme hinges pay increases and rewards on milestones to be achieved and talent potential.
Employees involved in such endeavours may not necessarily be ‘high performers’ during the journey, but they have the potential to be. It is important to ensure that there is budget for recognising, motivating and promoting these individuals. Such rewards are an investment that can be made to ensure continued growth in the future.
In Asia Pacific, only 50% of employees consider their pay to be fair. This finding reflects a persisting lack of pay transparency policies in the region. Certainly, the increased prevalence of public access to free sources of pay information online can exacerbate this issue, as many employees are often demoralised by what they learn from these sites.
Generally, companies that remain tight-lipped about communicating salary benchmarking and pay philosophies could find themselves dealing with widespread employee dissatisfaction, and attraction and retention issues.
A pay transparency plan can help employees understand their value in the organisation. Ultimately, this policy should be able to answer two fundamental questions that employees have about compensation:
- Am I paid fairly for the work that I do?
- How can I earn more if I perform better?
Successfully implementing a transparent pay policy is not just the responsibility of HR but also of managers. Their direct line of contact with employees gives them an important role in the communication plan. Managers should be able to clearly and honestly explain the organisation’s pay criteria and decisions, and that there is a scientific method for determining salaries and calculating budgets.
2017 Salary Budget Planning Survey Report (Q3) – Asia Pacific
Beyond Data: 2018 Pay Review Planning Webinar – Asia Pacific
Sambhav Rakyan is the Data Services Practice Leader in Asia Pacific. Shai Ganu is Managing Director of Talent & Rewards in ASEAN and South Asia. To connect with Sam or Shai, please email