Inflation to drive up talent turnover risk in Asia

Asian professionals can expect salary increases in 2015 that are equal to or higher than in the previous year. But rising inflation is projected to take a bite out of the bigger paychecks, according to research by global professional services company Towers Watson.

In other words, due to inflation, next year’s increases won’t be as big as they might seem in about a dozen Asian economies. That could make talent management more difficult for businesses in the region as they try to manage costs while offering competitive salaries to new employees and pay increases to existing ones.

“Salary is the number one driver for attracting and retaining highly skilled staff,” Sambhav Rakyan, Towers Watson’s Asia Pacific data services practice leader, said in a statement. “The challenge for companies is to keep employees engaged and turnover down, while not getting caught up in a pay-inflation spiral,” Rakyan said.

Fierce competition for talent has already driven up salaries, eroding some of Asia’s low-cost advantage that attracted manufacturing companies to move production to the region in the past decade. A year ago, companies looking for low-cost manufacturing sources in the region were focusing on Indonesia, Malaysia, and Vietnam rather than China, where labour costs have been rising for several years.

In 2015, salaries across Asia-Pacific are projected to rise an average 7%, up slightly from this year. The biggest increases are expected in Vietnam (11%), India (10.8%), and Myanmar (10%), according to a survey Towers Watson conducted. Inflation, however, is projected to erode the pay increases to 4.1% in Vietnam, 3.5% in India, and 3.3% in Myanmar.

In China, salaries are forecast to increase by 8.3%, according to Towers Watson. Inflation is projected to be relatively low at 3.1%.

In Hong Kong and Singapore, the region’s key financial centres, employees are projected to receive 4.5% salary increases next year. With inflation factored in, real salary increases are likely to be 0.9% in Hong Kong and 2.2% in Singapore.

Towers Watson also reported the following pay increase projections – not including inflation – by industry in Asia:

• At an average 6.7%, the pharmaceutical sector will have the highest salary increases in the region.
• Salaries in China’s financial sector are projected to rise 8.5% in 2015, compared with 7.9% this year.
• Asia’s high-tech sector is forecast to see average salaries rise 6.6% next year, a slight uptick from this year’s 6.3% increase.

Related CGMA Magazine content:

“Around the World, Pay Raises in 2014 Are Projected to Shrink”: Pay raises around the world were projected to decline in 2014 in most countries. Hay Group research showed a drop in raises in both emerging and developing markets.

“Pay Raises Rampant in Emerging Markets”: A year ago, raises for workers in emerging economies were projected to far outpace those of workers in developed areas such as Western Europe and North America. A study by Hay Group showed that pay in some emerging markets was expected to increase 10% in 2013.

“How to Drive Engagement as Turnover Concerns Mount”: As the global economy showed signs of growth, a 2013 survey predicted a significant increase in employee turnover. Amidst rising retention concerns, it is essential for employers to understand what motivates workers’ commitment and loyalty.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.