One in three organisations (33%) in Asia-Pacific (APAC) is conducting off-cycle wage reviews and adjustments to cope with slowing growth and rising inflation, finds a Mercer survey conducted this July.  

Companies are also adopting other measures such as providing a separate market or cost of living adjustment (11%) as well as providing a one-time, lump sum payment to their employees (10%) to offset market inflation.

As per the survey, salary increase percentages for 2022 are higher than prior year across all industries and markets in the  region, with some even above pre-pandemic levels.

India (9.4%) has the highest salary increase in 2022, followed by Vietnam (7.4%) and Indonesia (6.7%). Japan, New Zealand and Australia are the lowest at 2.5%, 3.1% and 3.3% respectively.

However, salary increases continue to trail inflation in 2022 in most APAC markets with the exception of  Mainland China, Hong Kong SAR, Indonesia and Vietnam. Even as inflation is expected to fall below 2022 levels next year, real wage increments are unlikely to keep up in most markets, says the survey.

“With real salary increases still negative for many markets, this has accelerated the need for employers to reassess their compensation strategies to retain talent in a tight labor market. Employers need to give special consideration to their workforce most impacted by inflation, and focus compensation efforts on the supply and demand for talent, or risk losing their people,” said Kulapalee Tobing, Mercer’s regional industry and solutions leader for Asia Pacific.

Companies pay higher premiums to attract talent

Inflation challenges aside, companies in the region are also facing a global talent shortage with higher levels of voluntary attrition. In APAC, the average voluntary turnover was 11.1% in 2021, a 1.2% increase from 9.9% in 2020, with significant changes in turnover rates for markets such as New Zealand (+3.7%), India (+3.5%), Singapore (+2.4%) and Philippines (+2.3%).

As per the survey dissatisfaction with pay and the ability to get a higher salary at another company (67%) continues to be the top driver for employee turnover. To retain talent, 42% of companies are providing a retention bonus scheme, compared to 31% in 2019.  

To attract talent, companies in APAC are also paying a premium of between 7-20% when recruiting for talent at the same level as the current role in their organisations. In some markets across the region like Australia, this premium can be as much as four times higher, when compared to average annual salary  increases given to employees.

“Besides inflation, it is also the talent war that is pushing companies to take action on employee compensation, driven by the cost of labour rather than the cost of living. However, it is important to note that salary increases are sticky and cannot be rolled back when inflation decreases. Employers must consider the broader employee experience as they cannot win the war for talent on compensation alone,” said Tobing.

Salary increments expected to stay around the same in 2023

With the exception of sectors such as life sciences and high tech, salary increments for 2023 are expected to remain at around 2022 levels, despite inflation outpacing salary gains. 46% of companies are adopting a wait-and-see approach in factoring inflation into their 2023 salary increase budgets.  

“Companies should approach these labor market challenges as a marathon and not a sprint. While addressing the supply of talent using financial fixes and enhancing benefits may work in the short term, employers must plan for the long term – by identifying skill adjacencies and reinventing work to address the demand through new work models to optimise the use of talent in the workplace,” said Puneet Swani, career business leader, Asia, Middle East, Africa and Pacific, Mercer.