As 2024 approaches, early forecasts for salaries in specific regions have surfaced. According to new data, salary increases are anticipated in Southeast Asia for the upcoming year.

Aon plc has unveiled its 2023 Salary Increase and Turnover Report for Southeast Asia. The report indicates anticipated salary stability at 4.0 per cent for Singapore and 5.0 per cent for Malaysia. Conversely, the survey forecasts an expected median salary surge of 6.5 per cent for Indonesia, 5.5 percent for the Philippines, 4.9 per cent for Thailand, and 8.0 per cent for Vietnam in 2024.

Despite concerns about economic slowdown, the projected salary increase in Southeast Asia remains slightly higher, defying expectations. Moreover, attrition rates in the region have decreased in 2023 compared to 2022 but persist in the double digits, reflecting ongoing challenges in talent strategy and the persistent talent supply-demand gap. The attrition rates range from the highest at 17.5 per cent in the Philippines to the lowest at 13.8 per cent in Vietnam.

Rahul Chawla, partner and head of talent solutions for Southeast Asia at Aon said, “As companies navigate new forms of volatility including focusing on costs and investments, salary-increase planning has become challenging across the region. A reassessment of compensation strategies based on advanced analytics is crucial for firms to stay competitive. By leveraging data from within their own organisations as well as the market, companies can make more informed decisions enabling them to not only weather the challenges of an uncertain economic climate but to thrive in an evolving workforce landscape.”

The report also highlights a cautious optimism among businesses in Southeast Asia regarding hiring practices. About 40 per cent of companies report maintaining stable recruitment numbers, while an equal 40 per cent indicate having hiring restrictions. Despite earlier layoffs in the year, Aon's data indicates that headcount numbers across industries still surpass pre-pandemic levels. Layoffs predominantly affected non-core or expansion areas of businesses, while recruitment continued for other business lines.

Firms are exercising more caution in compensation spends, with new hire premiums ranging from 5.6 per cent to 13.3 per cent. This shift reflects a strategic focus on budget streamlining, cost efficiency improvements, and compensation strategy reassessment. In contrast, 2022 witnessed a hiring surge in Southeast Asia, with new hire premiums averaging between 14.7 per cent and 23.6 per cent.

"Firms need to recognize and proactively address pay compression that is the gap in pay between employees regardless of their experience and talent to maintain an engaged, competitive and resilient workforce. When new hires receive higher compensation than long-term employees, firms start to see pay compression issues develop. The unintended consequences of pay compression can lead to higher attrition and a decline in employee morale. By focusing and nurturing talent from within, firms can subsequently decrease the need for new hire premiums while enhancing their organisation’s employee value proposition,” Alina Cheng, head of Data Solutions, southeast Asia for Talent Solutions at Aon said. 

Looking forward to 2024, salary discrepancies persist across industries and countries in Southeast Asia. The retail sector leads with the highest budgeted salary increase at 6.1 per cent, followed closely by technology at 6.0 per cent, life sciences and medical devices at 5.9 per cent, manufacturing at 5.8 per cent, and financial services at 4.8 per cent.

In terms of specific countries, the technology sector is poised for the most significant increase in salaries in Singapore (4.5 per cent), Indonesia (10.2 per cent), and Vietnam (10.9 per cent). Conversely, the manufacturing industry showed the highest year-on-year salary increase in Thailand (8.0 per cent), Malaysia (13.7 per cent), and the Philippines (14.5 per cent).

Across Malaysia, the Philippines, and Singapore, over half of the roles experienced salary increases surpassing inflation rates. Singapore and the Philippines led with 71.7 per cent of salary increases outrunning inflation, while Malaysia stood at 56.4 per cent. However, in Indonesia, Vietnam, and Thailand, an average of 70 per cent of salary increases fell behind inflation. Notably, 67 per cent of firms in Southeast Asia factor inflationary pressures into their pay policy considerations when reviewing salary increments.

“Southeast Asia has long been a hotbed of economic growth, attracting talent from across the globe. As it confronts the prospect of a looming recession, the dynamics of salary increases, turnover, and workforce stability take on greater significance. In these challenging times, simply increasing salaries is unsustainable for firms as they look to manage profitability and people cost amongst other factors. Having a holistic total rewards strategy based on data and analytics will therefore ensure organisations will attract and retain the right talent and continue to build a resilient workforce,” Cheng added.