While inflation in Singapore is gradually easing, with the core inflation rate dropping from 5.5% in January and February to 3.4% in August, the battle against rising living costs continues, especially with the government’s planned GST rate hikes. With GST having risen from 7% to 8% this year and another increase slated to 9% next year, it is heartening to observe a notable rise in the gross median monthly salaries of fresh graduates in Singapore.
According to the 2022 Joint Autonomous Graduate Employment Survey, the median monthly salaries of fresh graduates saw a 10.5% increase from $3800 in 2021 to $4200 in 2022, a substantial jump compared to the typical annual increase of $100. Nearly all graduate courses, excluding arts, media, and design, experienced boosts in their starting salaries. However, this raises an important question: are companies also addressing the compensation of other more experienced employees?
The junior employee dilemma
CNA reported that, unfortunately, the compensation of many junior employees is lagging behind that of fresh graduates, despite annual increments. This disparity is particularly striking in the case of Engineering graduates, who saw the most significant salary increase from $3900 in 2021 to $4600 last year. This means that employees who started working in 2021 at the median monthly salary of that year, would have to receive an unrealistic 18% salary hike to merely match the earnings of fresh graduates, let alone surpass them. Understandably, as more experienced employees should be receiving higher compensation, many junior employees, whose salaries are lagging behind fresh graduates, are left feeling undervalued and frustrated.
Hidden cost for companies
Pay discrepancies between fresh graduates and junior employees can have several costs for a company that extend beyond individual frustration. They can demotivate junior employees leaving them less engaged, productive, and loyal to the company. If employees feel unfairly treated, an atmosphere of frustration and inequity can also spread, negatively affecting group dynamics.
Furthermore, pay discrepancies may lead to higher rates of employee turnover. According to Capterra’s 2022 New Hire Premium Survey, 68% of hiring managers reported that at least one of their direct reporting employees has requested a pay increase or threatened to resign due to pay disparities with new employees.
Junior employees who feel undervalued by their compensation are therefore likely to resign in search of fairer compensation elsewhere. When this happens, the company loses valuable knowledge, skills, and experience that could have contributed to its success. The company also incurs expenses and time relating to recruiting and onboarding new talent, including advertising, interviewing, and training costs. An employee departure costs the average business approximately 33% of their annual salary to replace them. Moreover, in the time it takes to find replacements, there will be extended job vacancies, affecting productivity and possibly causing work overload for remaining employees.
Compensation planning challenges
Clearly, there is an urgent need for companies to adopt a more effective approach to compensation planning, ensuring that existing employees receive the pay they deserve and reducing employee turnover. However, HR departments face many challenges in their efforts to build equitable and competitive compensation packages.
Traditional approaches to determining salary raises and bonuses rely on a manager’s biassed and subjective opinion. This approach frequently lacks consistency and concrete evidence to justify why the employee deserves a raise or bonus. Developing a fair and objective system for measuring and rewarding employee performance poses a significant challenge for HR departments. Furthermore, it can be difficult for HR departments to determine the salary that can make employees feel valued and fairly compensated, thereby fostering talent retention and reducing employee turnover.
Addressing pay discrepancies by better understanding people analytics
You may find yourself wondering how to best address these compensation planning challenges of retention, pay transparency and equity. If managers were provided with comprehensive data on the performance of each employee, they would be able to make consistent, evidence-based, and equitable compensation decisions. This approach maintains accountability and avoids any exceptions that lead to pay disparities. An example of one such platform that supports managers in making unbiased, data-driven salary decisions is Visier’s Smart Compensation.
There is now a pressing need for a tool that leverages people analytics and provides a data-driven, 360-degree view of each employee to automatically optimise merit pay decisions according to the company philosophy while simplifying the manager experience. By taking into account a variety of factors to provide an unbiased, equitable baseline pay recommendation and deviation tracking that gives HR a log of rationale, this would further enhance managers’ competency and confidence for pay discussions with employees, addressing the growing need for pay transparency.
Assessing resignation risk and promoting top talent retention
As previously mentioned, a fair and competitive compensation strategy is also critical for talent retention. In fact, 2022 research from the Society for Human Resource Management, reveals that 74% of HR professionals cited inadequate compensation as the primary factor leading to employee departures from an organisation.
To address the challenge of retaining talent, Visier Smart Compensation assesses various factors, including the resignation risk of employees as part of the organisation’s compensation strategy, the cost of retaining the employee and the return on investment (ROI) relative to the cost of replacement. This proactive approach promotes the retention of top talent in critical roles and results in reductions in turnover costs for the organisation.
A future with less pay discrepancy
As more than 8 in 10 employers in Singapore acknowledge the existence of a talent shortage in the country, it is essential that firms address pay discrepancy issues to avoid disgruntled junior employees from resigning.
For businesses that seek to improve equity, pay transparency and employee retention during a talent shortage, Visier’s Smart Compensation offers a promising solution.
About the author
Terrence Yong is the GM for Asia Pacific for Visier, the recognised global leader in people analytics, providing on-demand answers to people-powered businesses. Founded in 2010, Visier reveals the fundamental questions and actionable truths capable of elevating your employees and your business to new heights.
Terrence has a unique mix of startup and enterprise experience, most recently as Chief Business Officer for Pulsifi, a HR technology company. Prior to that, he held regional and country leadership roles over a 20-year career with SAP and Microsoft.
Terrence has an MBA in Finance from the University of Manchester Business School, and an Electrical and Electronic Engineering degree from the University of Melbourne. He is a member of Singapore Institute of Directors and Young Presidents’ Organization.
