Business

Saturday April 4, 2009

Smaller budgets for salary increases and bonuses

By CECILIA KOK


THAT the current job market is tough is an undeniable fact. Malaysia’s unemployment rate is on the rise due to the increasingly slow business activities as a result of the global economic crisis.

Although not all sectors will be retrenching their workers, it is a fact that it is going to be harder now for people to switch jobs as companies across sectors begin to implement hiring freezes and restructure their organisations as part of a contingency plan to cope with the current economic gloom.

So, both hiring and employee turnover rates are expected to slow down significantly this year. It is the “employers’ market” now as they say, and employers are expected to focus on strategic hiring and filling in critical roles selectively.

Kala Kularajah Sundram ... Organisations should adjust pay increases accordingly

While it looks like the job market is going to remain rather stagnant, human resource and compensation specialists say pay cut is not a prevalent trend for the year, although pay freezes may apply in some cases.

According to their research findings, most companies have already allocated budgets for salary increases and bonuses for their employees this year, albeit with a lower quantum of increments.

Reducing budgets for salary increases and bonuses is a normal response as organisations turn cautious in their decision-making, Hewitt Associates Sdn Bhd compensation consulting lead Madhvi Pande explains.

Hewitt’s survey of 50 organisations across industries reveals that 54% of the respondents are considering redesigning their incentive programmes for their employees. This is an emerging trend among local and multinational companies as they look for workable means that could attract and retain key employees in the current economic conditions.

Lower increments

Watson Wyatt (M) Sdn Bhd managing director Vivek Nath says although his research finds that companies in the Asia-Pacific are better prepared to deal with the current crisis, most of them have lowered their budgets for the increase in employee compensation this year.

Recent study by Watson Wyatt suggests that the budget allocations for the increases in employee compensation for 2009 by companies in Malaysia are on average between 3% and 3.5%, compared with around 6.5% last year.

Vivek Nath ... Companies should also channel their limited budgets to developing their people

On the other hand, Hay Group Sdn Bhd’s survey of 232 companies from various sectors, including financial, oil and gas, industrial, transportation, telecommunications and construction, estimates the average salary increment for the financial year 2009 to be 4.7%, compared with 6.3% in the preceding year.

Hay Group also finds that many companies have now started focusing on rewarding employees based on performance. It estimates that the average salary increment for high-performers to be 6% compared with the average salary increment for average performers at 3.5% to 3.9%.

According to Hay Group director Kala Kularajah Sundram, most of the survey respondents have indicated their commitment to pay out revised budgeted salary increment and bonus payouts for the financial year 2009.

But she says the pertinent issue that most organisations are facing now is the question of affordability.

She explains: “In boom times, organisations would generally look at inflation rates and adjust pay increases accordingly so that they could recruit and retain their employees while ensuring that a certain level of profitability can be achieved.”

But in times of recession, the approach changes to what level of profitability that organisations need to stay afloat, and how to maintain a viable liquidity level to be able to fulfil their financial obligations, Kala adds.

While keeping costs low is important, human resource and compensation specialists say companies should not neglect the importance of retaining and motivating key talents.

Successful strategy

“Companies should focus on human resource effectiveness, and not merely on the costs of human resource,” Hewitt’s Madhvi says.

Vivek of Watson Wyatt concurs. He says one of the hallmarks of a successful compensation strategy is for organisations to continue rewarding their high-performance employees.

“Companies have to balance between cost control, maintaining employee engagement and preparing for future staffing challenges. While implementing cost control across the broader organisation, companies should also channel their limited budgets to developing their people infrastructure to support future growth,” Vivek explains.

Hay Group’s Kala believes that organisations should learn from a common mistake that they committed during the 1997/98 Asian financial crisis, that is, letting go of too many good talents then, and only to have to rehire them at much higher salaries when the economy started to pick up a few years later.

In most cases, human resource and compensation specialists say, companies with high-performance workforces tend to recover much faster from any downturn than their average peers. Hence, it is even more vital now than ever for companies to focus on driving a high-performance work culture through a fair compensation scheme to support their business performance and create a competitive advantage despite the challenging times.

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