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HR Leaders Grapple with APAC's Pay vs. Performance Equation

​The Asia Pacific region is seeing dramatic salary inflation especially in some of the fastest growth markets: China, India, Indonesia, Malaysia, Vietnam and the Philippines.

Global HR and Business Leaders are struggling to cope with rapid growth rates and the pressures of an acute talent shortage alongside spiralling costs. On a regional basis, companies are finding it increasingly difficult to make the numbers stack up from a ‘pay for performance’ point of view. In general, the increased costs have not been matched by increased performance and delivery. The article below examines some of these trends and provides some points on measures being taken by global HR leadership to address these issues.

No Longer Low Cost

Overall, executive pay in Asia has already surpassed European levels and is predicted by Mercer to overtake the United States within three years. For key HR roles and very hard to find skill sets, we have already observed many instances where Asia pay packets (base and bonus — excluding expat perks) are higher than the United States equivalent. In Mainland China and India, remuneration packages often eclipse those in the key regional hubs of Singapore and Hong Kong.

Over the past year, nowhere has the pace of change been more dramatic than India. India has the highest wage inflation of any Asian economy — both government and private estimates are in the 13% to 15% range for this year. Double digit growth is expected to continue, at least for the next few years. At the professional level in India, salary inflation is considerably higher among talent with the capability to work in a multinational environment. Interestingly, recent research by Aon Hewitt found that some of the fastest growth in salaries was at the entry level of skilled jobs.

China, by comparison is widely forecast to be in the high single digits for 2011 – at approximately 9%. The Philippines is tracking at approximately 7%. The notable exception to the spiralling salary trend in Asia Pacific is Japan, where the struggling economy is keeping salary increases at or below Western levels.

New Competition : The Talent Pool Spreads Even Thinner

Historically, the prestigious employers in the key Asia Pacific economies have been Western multinationals. Leading U.S. and European employers have long been seen as offering the best training and career growth opportunities for Asia’s future global business leaders.

As local Asian companies within key Asia Pacific growth markets begin to compete (both locally and globally) with Western multinationals, the pay gap is rapidly closing. Asian multinationals are starting to attract the same bi or tri-lingual, internationally educated professional Asian talent— once solely the focus of top American and European organizations. Chinese and Korean multinationals have been talked about over the past few years; and now we are seeing the top Indian companies such as Tata, Infosys and Wipro snatching up some of the best talent the region has to offer. The emergence of the Asian multinational as a viable employment option for Asia’s professionals has exacerbated an already acute shortage of professional talent in the region.

Balancing Act for Western Multinationals

In the West, leading organizations are trying to achieve a more sustainable balance between salaries and longer term incentive plans (including LTI’s, deferrals, and career development opportunities). In addition, the need to stand up to external scrutiny is weighing on the minds of global HR and Business Leaders who are looking for a stronger link between business performance and value creation. Given recent economic woes and related public outcry, the notion of ‘pay for performance’ is taking on a new importance among global HR and Business Leaders.

In contrast, the expanding pay packets of elite Asian professionals continue to be driven more by a scarcity of talent than by superior levels of performance versus counterparts in other regions. For this group, there is a growing supply of local and multinational employer options to choose from, and this situation shows no signs of changing in the short or medium-term.

In a recent article, we noted that patience has not been a strength of the up-and-coming Asian professional regarding his or her career. It seems that everyone wants to climb the ladder as quickly as possible — in terms of both position and dollars. Within the Human Resources profession, HR Leaders continue to find it difficult to fill specialist positions and junior and middle level HR staff continue to gravitate towards generalist roles. Due to a chronic shortage of talent, salaries are rising very fast across the board, but particularly for specialists — especially for Talent Acquisition and Compensation & Benefits roles.

The fact that rampant salary inflation has not been matched by increased performance or delivery is not a new problem for Asia Pacific HR Leaders. However, the magnitude of this problem is accelerating, given economic imbalances/re-balancing and the growth rates of companies in the region.

The Shared Services Dilemma

The above trends present significant implications for HR Shared Services (HRSS) Centers in Asia Pacific. Rapidly changing economies and technologies make it hard to plan for long range investments at the best of times. The region’s talent shortage and soaring salaries present additional complexities and challenges. Earlier this year, Jeff Immelt, Chairman of General Electric observed that call-centre costs between the US and India were narrowing to within 10% of each other. In a more high touch HR environment, it is logical to think that the true gap is even closer — especially when cost vs. performance is considered.

India has enjoyed considerable success over the last few years as a BPO Leader. However, talent shortages, IT infrastructure issues and the cultural and language limitations of staff have been problematic overall and especially when a high level of internal customer interface has been required, which is generally the case with multinational HRSSCs. China is in its infancy as a regional center and as a location for shared services organizations in general. There has been much recent ‘trial and error’ in that market.

Regional HR Leaders in Asia Pacific report that they have encountered many unexpected hidden costs in moving to a HRSS model – including training issues, technology issues and also the need to fly in managers from the U.S. or elsewhere to supervise or damage control. Many have found that one of the biggest shortfalls as been the ability of local hires to interface with the business effectively. The ‘hidden’ cost has been substantial — in absolute dollars and also in terms of the overall reputation of the HR organization within the broader business.

These days, at a global level, Shared Service Centers are being looked to enhance the business as well as save cost. Progressive business leaders talk about the value-add aspects — including metrics reporting; analytics; business intelligence; process improvement; centers of excellence, etc. On the other hand, it is generally understood that the underlying expectation and motivation of any Shared Services arrangement is cost savings.

With increasing industry sophistication and rising expectations that HRSSCs will simultaneously add more value while delivering cost savings, the question needs to be asked about the ability of the Asia Pacific region – especially China and India to deliver on this conflicted agenda. It remains to be seen as to whether these markets will prove cost competitive with the United States and other Western locations, whilst providing a world class standard of service given their spiralling salaries and gaping talent shorta
ges.

Making It Work

To compete, companies have had to radically change their perceptions of Asia as a low cost region and do that in fast order, given the rate of change. In order to keep global leadership in touch with on-the-ground realities in these key markets, we are seeing a de-layering of regional headquarters in many instances, along with substantial restructuring. Not the outlier it once was, Japan is increasingly coming under the Asia Pacific umbrella, while India and China are more often seen as separate regions and bypassing the Asia Pac reporting structure altogether so that organizations can enable faster decision making and higher levels of senior leadership involvement.

With a move among corporations towards more transparency and measurability globally, it is critical that HR and Business Leadership deals effectively with the ‘opaqueness’ of Asia. This can only happen through having top leadership very close to the business — another underlying reason for some of the re-structuring that has taken place.

Separately, the rapid growth and high potential of China and India are also helping to drive a trend towards many multinational companies forming Emerging Markets ‘clusters’ and we are seeing a continued rise of Emerging Markets HR specialists on a global level. The HR function is becoming more specialized to solve complex questions from the business and regulators. Companies are very committed to specialization, however finding willing candidates still remains highly challenging for HR professionals. In Asia Pacific, most candidates covet a generalist career path.

There is a widespread awareness among multinationals that Asian talent is under-represented at the top leadership level. We are observing a growing seriousness among U.S. and European multinationals about hiring, keeping and fast tracking top Asian HR talent. However, for the most part, these efforts are still reactive and short-term in nature. Very few organizations are taking the long 2-4 year view with regard to the development of high potentials. Nonetheless, increasing numbers of enlightened employers are committing to this path and we expect to see some positive evolution in this regard in the coming 1-2 years.

Summary

In summary, given the current uncertain global economic environment and the rapid pace of growth and change in Asia Pacific, we don’t envisage an easy time for Asian and global HR Leaders over the next few years with regards to dealing with ‘pay for performance’ issues within Asia Pacific. However you look at it, it’s becoming increasingly difficult to make the Asia Pacific numbers stack up. Going forward, we therefore see a big role to play in the region for the best, most highly skilled HR leadership available. We expect that for these reasons, we will continue to see growth in the number of global HR roles being re-located to the APAC region; and a continued increase in regional and global positions being located in China and India in particular.

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