Rejigging the C&B puzzle

As always, compensation and benefits will dominate the thoughts of HR professionals as they move into 2016. HRM highlights some of these trends for 2016.

According to ECA’s Salary Trends Survey 2015/2016, employees in Singapore will witness their salaries rising by an average of four per cent again in 2016.

But with inflation rates increasing to 1.8% next year, real wages (with price rises factored in) are set to rise by only 2.2%, down from 4.0% this year. This expected real wage increase is lower than the expected average wage increase in Asia, which is 3.1%.

David Litteken, Asia-Pacific Managing Director of Bi Worldwide, says wages in Asia are climbing steadily, especially in China.

“As a result, companies in the region have lost some of their competitive edge with the rest of the world, as salaries normalise globally,” he explains.

“Even with the growth in wages, employee retention has not improved significantly, thus begging the question as to why employees are always on the move.”

Mark Whatley, Director of Benefits, for Towers Watson in Southeast Asia, says his organisation’s 2015 Asia Pacific Benefits Trends Survey revealed that 71% of Singapore companies planned to review their benefits plans and strategy over the coming year.

In addition, 60% of companies also planned to increase communication around benefits in 2016.

“Eighty two per cent of Singapore companies cited rising benefit costs as a key challenge they face,” Whatley elaborates.

“Compared to the Asia-Pacific region as a whole, Singapore companies spend a larger proportion of their benefits on health benefits – more than half of Singapore companies said that more than 25% of their total benefits spend was on health.”

Paternity leave provisions are also likely to be utilised in 2016. Enhancements to Singapore’s arrangements were announced during the 2015 National Day Rally, and will see such leave increased from one to two weeks.

Whatley says employers may adopt the increase on a voluntary basis, but the Towers Watson’s 2015 Pulse Survey on Paternity Leave showed that 61% of Singapore companies had or planned to adopt the new provisions into their benefits schemes.

Keeping tabs

Litteken makes a telling observation of the compensation and benefits (C&B) landscape during 2015.

He explains that for the last few years, the HR community has been talking a great deal about employee engagement.

“We are seeing a trend towards looking at employee happiness, because in the end, employees cannot be truly productive and engaged at work if they are not happy with their position, management, and the company’s direction,” says Litteken.

“It is really going back to the basics.”

Meanwhile, Whatley says benefits are increasingly being used as part of an all-round employee value proposition to attract and to retain employees.

He points to the Towers Watson’s 2015 Asia Pacific Benefit Trends Survey which highlighted that 62% of Singapore companies saw improving attraction and retention as the top objective of their benefits strategy.

“Simple, regular and engaging communication is key, as there is often a gap between the amount employers spend on benefits and the perceived value of those benefits with employees,” he says.

Another 2015 trend Whatley cites is that health costs continued to rise through the year. In Singapore, this was exacerbated by the ageing local workforce.

“Companies need to monitor their employee medical claims experience carefully and consider benefit designs that can better help manage those costs,” he elaborates.

“They should continue to invest in well-being programmes because, besides helping manage longer term health costs, successful well-being schemes are usually also correlated with higher employee engagement and productivity.”

Whatley stresses that when tackling flexible benefits, employers should not simply plug-and-play what the company next door is doing.

“It is important that the scheme aligns with employees’ preferences and organisational objectives,” he states.

Plotting the C&B course in 2016

It is often the case that structural issues involving C&B are ongoing affairs.

It should therefore come as no surprise when Litteken says many of the anticipated C&B challenges of next year will be similar to those faced in 2015.

“With five generations in the workplace, companies continue to search for ways to recognise and to reward the talents of each of these multifaceted and varied generations,” he explains.

“One great way is to develop a culture of recognition by using social media and technology to make work purposeful and rewarding.”

Sambhav Rakyan, Data Services Practice Leader at Towers Watson Asia-Pacific, says employers may be bearish in thinking there is a weak business outlook at the moment. But the case is the opposite for employees.

“This mismatch tells us there isn’t always a positive correlation between economic sentiment and staff expectations,” he says. “Employers will need to proactively manage employees’ longer-term expectations if they are to achieve a harmonious and contented workforce.

“In light of this, and with high turnover rates and strong hiring trends across the region’s workforce, there will be an increasing need for emerging countries to recruit and to retain top talent.”

More specifically in Singapore, Whatley notes that there will be increases to Central Provident Fund (CPF) contribution rates from January 1. The CPF salary ceiling will also rise from $5,000 to $6,000 per month next year, while the re-employment age will be increased from 65 to 67 from 2017.

“Given the ageing workforce, forward-looking companies are considering their retirement propositions – which is largely a missing link in the typical Singapore reward package,” Whatley says.

“This could encompass exploring a supplementary savings plan or could be something as simple as a communication session around planning for retirement, and to help employees understand and to make the most of CPF, for example.”

In addition, Whatley surmises that companies will also need to continue to monitor their health programmes carefully.

“For example, in Singapore, they may look at ways of integrating MediShield Life into their health benefit proposition,” he adds.

Given that the talent shortage is projected to become even more acute, Rakyan says companies need to be more careful when evaluating their spending.

“While this is good news to employees as they can see the results of economic pick-up after the financial crisis, for employers, it poses a challenge,” he says. “They now need to seek the right balance of cost control with attraction and retention programmes.”

He says driving a strong linkage between pay and performance is critical if employers want to retain their best people.

“Differentiating between your crucial skilled talents, high potentials and average performers has become absolutely essential to ensure the best use of salary budget. The greatest rewards go to the top performers, who are seeing salary increases of approximately 1.5 times those of average performers,” Rakyan elaborates.

He stresses that in order to retain valuable talents, company managers need to keep an eye out on the market and keep up with changing pay rates.

“What companies pay for a job today might be different tomorrow, and determining current pay rates for jobs in Asia-Pacific’s highly competitive talent market is akin to shooting at a moving target,” says Rakyan.

“To reward employees based on their performance offers them a greater incentive and also reflects growing market maturity. To help employees understand their value within the business, organisations need to have a good evaluation system and a transparent communication plan about pay and the rationale behind pay decisions.”

Whatley says that in Singapore specifically, employers need to be prepared for the new retirement and CPF landscape.

“A Towers Watson study showed that for the average company in Singapore, the 2016 changes to CPF might cost around one percent of payroll. Companies should therefore study the cost implications given their own demographic profile and factor those costs into their budgets for the new year,” he says.

“Companies here should consider the guidance around re-employment to aged 67 by giving more thought to encouraging part-time roles and therefore better enabling a more phased retirement.”

Litteken says compensation is not the only answer to retaining top talent, as witnessed by the high employee turnover throughout the Asia-Pacific region.

“Managers need to think in terms of total rewards and career planning so that their employees see a path to a fulfilling career,” he adds.

What’s in it for staff?

Looking ahead, Rakyan says employees can expect greater segmentation and personalised delivery for compensation, with a corresponding increase in different forms of reward options, especially for high performers.

His counterpart Whatley says employees should be pushing their employers for better communication around benefits – and for the chance to provide feedback on what benefits are working well and what areas might need focus and development.

Wages: An Asian outlook

  • The real wage increase in Asia is expected to be lower than in 2015, with a decrease from 3.7% in 2015, to 3.1% in 2016
  • Nominal salaries will increase by 5.4% in Malaysia in 2016
  • In mainland China, companies are planning to award salary increases of an average eight per cent next year. Even after inflation, employees in China will be the second-best off globally in 2016: they can expect to see increases of 6.2% in real terms
  • Employees in Japan will see the region’s lowest wage rises next year

Source: ECA’s Salary Trends Survey 2015/2016

 

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