Rethinking pay: how to attract and keep talent in a tightening market
An Asia Pacific perspective
By Andrew Curcio and Noel Goh
27 April 2022
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Organisations across the Asia-Pacific region are fast approaching a talent cliff edge of surging demand, rising wages and an exodus of skilled workers. To compete, human relations (HR) leaders will need to totally reimagine their reward strategies. It’s time to think ‘beyond pay’ and towards consistency, transparency and fairness.
Workers are on the move. In Australia, almost 40% plan to leave their current employers in the next 12 months, according to a PwC survey in late 2021. But it’s not just about changing jobs; people are moving countries too. Hong Kong experienced a net outflow of residents for the first time in 15 years, with close to 50,000 locals and expats leaving the city in 2020 and 90,000 expected to leave by mid-2021. Singapore saw over 200,000 (4.1%1 of its total population) leave in the same period. Last year, over 40,0002 expats left Shanghai, China’s financial hub.
Yet as workers are leaving, the demand for talent keeps rising. For example, India has experienced a 50%3 spike in hiring for tech-related jobs. Likewise, demand in the pharmaceuticals and healthcare sectors has skewed hiring patterns in many countries. The Covid-19 pandemic, the ‘great resignation’ (or reshuffle) and a lack of local and expatriate talent have had an unprecedented impact on the region’s employment market.
The recent rise in business confidence and expected return to global economic growth are likely only to exacerbate these challenges. According to PwC’s 25th Annual Global CEO Survey, 50% of business leaders in Asia Pacific are ‘very confident’ or ‘extremely confident’ in 12-month revenue growth prospects. As the world gets back to work, the need for productive workers will skyrocket.
This talent cliff-edge is fast approaching for many organisations and their HR functions. Those who were already struggling to attract and retain talent before the pandemic will find the next few years extremely difficult.
The only way is up
One of the inevitable outcomes of surging demand amidst a talent shortage is wage growth. We are already seeing current salary budgets in the 3% - 4% range, which is slightly up on previous years. But what these budgets hide is the premiums required to pay to attract and retain people. In other words, this 3% - 4% is on a much higher base cost. On top of this is the ‘ratchet effect’ of higher fixed pay, which means that fixed pay tends to stay up once it goes up. Higher fixed pay also causes variable rewards, calculated as a percentage of total salary, to go up as well.
Organisations are caught in a double bind. To attract and keep talent in a tight market, they need to implement more in-year pay reviews and ad hoc increases. But doing so increases the risk of skewed internal pay relativity, unfair processes and outcomes, and pay inequality. Identifying the problem is relatively easy but finding a way to overcome it is not. While there is no quick fix, taking a holistic and fresh perspective on the pay dilemma can make a big difference.
Think ‘total reward’
Despite the enduring focus on salary, there are many non-financial ways to recognise effort, reward outcomes, attract recruits and retain talent. And increasingly, employees are driving the change. Recent PwC research4 shows that the relative importance of medical, dental, vision, life insurance, wellness, supplemental health, and childcare benefits has doubled over the last decade. Work-life balance options and training and career development have tripled. At the same time, the importance attached to financial reward has declined by 11%. Companies need to develop ‘total reward’ strategies that strike a new balance between salary and other benefits. These total rewards should also be part of the annual or bi-annual review rather than just salary.
Another type of reward that needs a rethink is variable pay. While it still has a role to play, variable pay can be problematic, particularly in high cost of living places. Organisations feel pressure to pay out bonuses with greater certainty, creating an entitlement culture. Some companies are already reconsidering the purpose and structure of their variable pay programs in favour of team-based incentives and profit-share schemes. These arrangements typically involve lower but more certain pay-outs, instead of incentives based on individual key performance indicators (KPIs) where the pay-out is higher but less certain.
Pay and reward negotiations can be tough and HR functions are under increasing pressure to ensure a positive employee experience. But too often we hear about employers managing pay in a way that tries to avoid disappointing people, rather than optimising the total reward spend and inspiring people to be more productive.
Transparency, consistency and fairness
So, what can HR leaders do? The current period of rapid change offers an opportunity to reimagine reward strategies and structures with a renewed focus on consistency, transparency and fairness.
First, employers can leverage data and insights to examine whether their existing pay decisions are fair, equitable and consistent across the organisation. Consistency breeds trust and allows leaders to be more transparent. Second, employers can better understand their employees' changing preferences and what they value most. Talking to employees about what's meaningful increases engagement and helps retention and performance.
But don't think all you need to do is another employee experience survey. While surveys help amplify employee sentiment, HR leaders must thoughtfully connect these sentiments to how employees expect the company to reward them- financially, non-financially, tangibly and intangibly. This disconnect is where employers can have the most significant gains in the talent contest.
The pandemic has not necessarily generated new trends but accelerated and amplified those already underway. Employees have suddenly and radically rethought many aspects of their lives, with work topping the list. Expectations are rising, and people are voting with their feet. HR needs to respond with an equally significant rethink. ‘Business as usual’ will no longer work.
1 www.population.gov.sg/our-population/population-trends/overview - Singapore Population Trends Overview, PM Office.
2 www.stats.gov.cn/english - Shanghai Population Census.
3 www.shrm.org/shrm-india/pages/tech-hiring-is-booming-in-india.aspx - Tech Hiring is Booming in India.
4 PwC and TrueChoice solutions analysis of employee preference data from more than 10 million employee interactions with more than 50 million data points.
