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The Complexity of Pay in China

We continue to see companies challenged by the complexities of pay structures and packages in China. When assisting our Global and Regional HR leaders, we are reminded of the difficulties they face in remaining competitive, attractive to the elite HR talent and in retaining their high potential HR talent. We thought it may be of interest to highlight a few points that I am certain most, if not all, companies continue to grapple with in this ever changing and dynamic market.

As in many emerging markets and developing locations, compensation packages are influenced heavily by the taxation system and government policies. In China, this is particularly high and complex. There can be grey areas where companies need to view carefully and navigate their way through the legislation in order to interpret the rules and regulations; walking the fine line of balancing cost savings whilst remaining compliant.

Many multinationals are trending towards employing local PRC HR talent in their #1 and #2 leadership positions. Although most view this as ideal, the challenge comes where organisations of an international status are finding that the local talent of this level of competency and experience is proving to be often more costly than bringing in an equivalent HR professional on expatriate terms.

Depending on the location of the role, this will also play a part in the remuneration package. In the past, the tier one cities (demanding higher pay) were typically limited to Shanghai and Beijing. This seems to be no longer the case and in many situations, we are now discovering that companies are working towards a plan whereby geographical pay differences are more aligned with business strategy and reference to the cost of living in particular locations.

The estimated merit increase for 2012 is 9-10% however this does not include promotional increments. We also find a greater expectation for an increase where HR professionals are undertaking a transition or external move. It is not uncommon for the expectation to be anywhere between 20-30% on their current package.

In addition to the points mentioned above, when we view the local HR talent in China, we regularly see their compensation packages consisting of items that you may view would be limited “expats”. For example; car and driver, accommodation allowances, travel allowances, additional leave to return home (if they have relocated within China) along with retention bonuses and sign on bonuses.

Compensation packages continue to be a hot topic in China and we are sure it will remain high on the agenda with ever changing dynamics and aggressive growth strategies that many of our clients are planning for the future of their businesses.

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