The Compensation & Benefits Balancing Act in Asia: Employing the Best Talent at the Lowest Cost

The Chapman Consulting Group yesterday co-hosted an HR roundtable with Accenture for 25 select regional Compensation & Benefits Leaders. The discussion centred on current challenges for C&B in Asia, and the guests represented a senior cross-section from a variety of industries, including Financial Services, Technology, Retail, Logistics, Industrial and Pharmaceuticals.

Two topics stood out from the discussion and were clearly high on the current agenda for C&B Leaders:

1. Challenges of expat localisation over the last 12 months, where talent costs in Asia (particularly China and India) are getting higher at the same time as the rest of the world is trying to cut costs cost; and
2. The knock-on effect of regulatory changes challenging the C&B teams to consider risk and compliance far more than before, particularly within Financial services.

Top Priorities for APAC C&B Leaders

1. China and India no longer represent the best ‘value for money’ when looking to hire top talent at mid manager level upwards across Asia. Not only is China becoming one of the most expensive Asian locations in which to hire talent, but the depth of experience in relation to cost can be less compared to other countries in Asia and the rest of the world. Salary levels for Chinese talent is now on a par with their US peers and in some cases exceeding it. It is prompting organisations to question whether leadership or specialist roles can be hired out of country (for example in Hong Kong or Malaysia) or whether these roles should themselves be moved to lower cost locations elsewhere in Asia. India has similar challenges to China, but the escalation in salaries has not been so dramatic.
2. With huge hiring volumes in China and India, C&B departments increasingly been finding it harder to retain talent. Getting solid data to structure reward programmes and justify promotions/compensation levels (whilst managing expectation) is not easy especially in economies where double digit growth is standard. With compensation levels at corporate HQs in Europe and the US remaining flat, it can be a political tug-of-war to get approval for salary costs.
3. Asia is still seen globally as a growth engine, and C&B teams are being asked to commercialise reward programmes to help drive improved sales and also attract new talent to the company through recruitment. This has meant a need for C&B Leaders to get closer to the business and become more creative.
4. Within Financial Services companies, the regulatory environment has tightened, and even within global organisations in other industries the complexity of worldwide regulation changes has made it more important than ever to be able to navigate risk and compliance as part of C&B. In other industries there has also been a pull on C&B Leaders towards hiring plans and the cost implications of doubling workforce size in certain Asian locations along with Talent Management planning to make sure reward can match with positions.

Localisation of Expats

With the economic downturn of 2009, extra focus had been put on the cost attached to employees on expat packages, and wherever possible these safeguards have remained in place. In many casescompanies have attempted, with varying degrees of success, to localise employees. ‘Local plus’packages (base salary plus travel allowance or housing allowance) is often used to bridge the gap,however cost benefits can sometimes be negligible. For organisations who want their employees to have international experience in order to benefit the business in the longer term, there is little choice to offering expat packages to ensure the best talent is mobile. When employees can be based anywhere and still work online or over the phone, a ‘global salary’ needs to be used and benchmarked outside of Asia. In these cases often the Middle East is the location of choice due to the zero tax benefit.

There is no formula to localising expats, however a gradual approach with aspects being taken over time from 1-5 years in some cases, will make the whole process less challenging as future planning for cost is possible. In extreme cases setting a precedent by removing an expat from the business altogether, because a middle point could not be met, can send a message to the other employees that compromise is the best solution.

Expat packages are not going to disappear while there are still talent shortages in certain locations. And it makes best sense to find talent (with experience of the business being the added advantage) elsewhere. However pressure should be put on the Talent Acquisition process to make sure that expat assignments are used as a last resort where; a) no-one else can do the role, b) it’s beneficial for knowledge transfer, or c) it’s necessary for an individual’s long-term career enhancement.

The C&B Talent Pool in Singapore

There is a shortage of C&B talent in the Singapore market, and this is true of most markets across the region. In many cases talent that is available have salary expectations that don’t match the depth ofexperience leaders are expecting for the price tag. Companies are successfully looking internally to develop business or HR talent instead. High intelligence coupled with the ability to learn is fundamental to make the transition, however as with any aspiring talent the challenge is retaining them within the division or business after 2-3 years when other opportunities can open up. Employers are also looking outside their industry to find new talent and identifying the competencies (such as problem solving, analytical ability and numeracy) rather than business knowledge.

Summary

C&B teams are under pressure from a number of angles. On one hand, they are being asked to come up with growth tools in rewards and sales incentives. On the other hand, they are being asked to come up with ever more creative cost reduction solutions, especially when localising expats or advising on the cost to hire for a location. With lean teams and expanding roles, something has to give, and one answer may be with the greater implementation of shared services/service centres to reduce the transactional volume where possible. Hopefully these kinds of structural changes will continue to enable C&B Leaders to advise the business and look to the future.