It’s the largest and most obvious component of an employee’s salary package, but there is still a lot of work that goes into setting salaries and bonus levels for staff. It’s also where employees are likely to experience the most discomfort in today’s inflation-driven economy.
As the global economy continues to recover from the pandemic, companies are expected to increase salaries to help employees cope with rising inflation and prepare for a potential recession. Employers are also rushing to fill vacant or previously-terminated positions as the global economy gets back on track after Covid-19.
The labour force currently holds the upper hand, which is pushing employers to up their game to land the best talent and keep their current workforce satisfied, productive, and engaged. Financial compensation plays a crucial role in this process.
According to Payscale’s 2023 Compensation Best Practices Report, fewer organisations globally plan to give base pay increases in 2023 compared with the previous year. Specifically, only 80% of organisations plan to do so, while a significant 15% remain uncertain about their decision. The firm notes that the current situation indicates a decrease in the job market’s competitiveness compared with the previous year, and a higher likelihood of a recession. Organisations are now realising that they may have overspent on compensation in the past two years.
However, pay raises will be more substantial in 2023, with 56% of organisations planning to offer base pay increases of more than 3%. The top factors employers consider in raising base pay are performance (72%), market adjustment/talent competition (67%), and inflation/cost of living (54%).
A report by global professional services firm Aon has found that salaries in Southeast Asia will likely increase slightly for 2023, compared with last year, based on a survey of more than 700 companies across six countries in the region.
The salary fluctuations across Southeast Asia are influenced by both inflation and the supply and demand of talent in the job market. As a result of high attrition rates in 2022, companies in the region are under pressure to implement compensation strategies to address the challenges of hiring and retaining employees. Across Southeast Asia, attrition rates for employers were: 15.9% in Indonesia, 14.9% in Malaysia, 18% in the Philippines, 19.6% in Singapore, 15.4% in Thailand, and 15.2% for Vietnam.
Employers are aware of the importance of offering competitive compensation packages to keep their employees happy, but they must also consider the business costs of these plans, given the ongoing economic risks. This is why it is more critical than ever to get compensation plans right.
“Organisations must stay agile as they rethink their pay principles. Businesses need to shape their strategies towards long-term drivers of pay and performance by making changes in a phased manner to optimise pay effectiveness,” says Rahul Chawla, Partner and Head of Human Capital Solutions for Southeast Asia at Aon.
“In addition, companies must define their 2023 salary increase approach in the context of the competitiveness of their current salary levels and employee value proposition. Companies that adopt a skill-based compensation programme will help ensure they can continue to build future skills for their organisation’s resilient workforce,” he says.
Read the full The Innovation Rules: How Compensation and Benefits Strategies are Evolving in 2023 report here.
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