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Confronting new challenges with base pay

Compensation Strategy and Design|Total Rewards|Talent
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By Sambhav Rakyan | October 29, 2018

Compensation programmes are becoming more complex in nature. What steps can be taken to overcome challenges with base pay in Asia Pacific?

It has been four years since Asia Pacific salary increases last experienced an upward turn. This year has delivered a mild rebound of 0.1% to 5.7%. And projections suggest we will see an average increase of 5.9% in 2019.1

Taking encouragement from this cautiously optimist outlook, we turn our attention to broader base pay trends and influences across the region. Recent Willis Towers Watson studies into current compensation practices have revealed that base salary programmes are becoming more complex in nature. A majority of Asia Pacific organisations still look at final ratings and achievement of goals as the primary factors for base pay increases. But there is an increasing number of employers considering future-focused factors, such as skills and roles that will be critical in business models of the future.2 Additionally, there is a growing trend of using base pay as a proxy for variable pay and other rewards.

Less than half of Asia Pacific organisations (48%) say that their base pay practices are effective at differentiating pay and driving higher individual performance. While two-thirds of employers in the region say that their constant struggle with limited budgets can make it difficult to sustain these objectives.2

Salary budget funding will always be an issue. To combat this, organisations need to review their goals around base pay and to examine other emerging drivers for employee attraction, retention, performance, and engagement. Addressing these can greatly help to optimise pay strategies as you focus on what is truly essential to your workforce.

Key actions to meet base pay challenges in an evolving business landscape
Key actions to meet base pay challenges in an evolving business landscape

Here are some of the key actions you could take to meet these challenges in an ever-evolving business landscape:

Deliver an appropriate upside to the right employee groups

Ideally, incentive pay-outs should be tied to performance. But in Asia Pacific, four out of five organisations cut pay-outs of top performers as much as they do for other employees when budgets are below target. And when they're above target, 50% of employers increase pay-outs to other employees as much as they do for top performers.2

This year, only 16.8% of salary increase budgets were allocated to top performers, a group which represented 12.8% of employees across the region.3

High performers strive for salary budget allocations
High performers strive for salary budget allocations

Employers need to review funding targets at all performance levels to ensure that they are consistently rewarding their top talent appropriately. They should also consider implementing personalised recognition programs, which can offer more flexibility than base pay.

Leveraging sophisticated technology for performance analytics could also help to create fair and data-driven decisions around base pay and merit increases. Today, less than half of Asia Pacific organisations use modern software for compensation tasks, and most only do so to support the implementation of base pay and short-term incentives.2

Achieve pay equity before tackling pay transparency

According to Willis Towers Watson's 2018 Getting Compensation Right Survey, only 19% of companies in Asia Pacific have begun their journey to pay transparency.2 Pay transparency is relatively difficult when there is no clear reward and career framework in the first place. Before beginning a conversation around transparency, it is crucial to allocate time, effort and money towards achieving pay equity. Once organisations get this right, it is much easier to have open conversations about pay decisions and to facilitate communications on the skills, career opportunities and other factors required to be successful. Making fair pay integral to the compensation programme helps to accomplish total rewards goals, optimise employee engagement and minimise risk.3

Gender pay equality is a particularly significant matter in most workplaces around the world today. Currently, only 23% of Asia Pacific organisations consider gender pay equity as greatly influential to individual pay decisions.2 To identify inequalities, organisations should review their historical data of pay increases and promotions between male and female associates. This will establish a solid fact-base for closing any gaps that exist. Moreover, employers need to encourage and empower all employees to have a voice in discussions around pay, career development and progression. This could actively pave the way to increasing female representation in senior leadership and technical roles.3

Innovate your compensation programs

Having highly skilled specialists in your organisation is fundamental to surviving in the future economy. Close to 90% of Asia Pacific employers are experiencing challenges with attracting and retaining digital talent. One reason is the global scarcity of individuals with specialised digital skills. Another is down to organisational culture.4

Competitive pay remains the top driver of talent attraction and retention globally. However, a culture geared towards continuous learning and innovation is crucial for the long-term engagement of digital talent. Employers also need to be creative and innovative with their total rewards offerings. The traditional 'one size fits all' pay model is not enough to secure this group of critical talent.4

It's important to adapt to employee expectations and align their compensation programmes accordingly. Employers could consider creating a specialised pay and rewards scheme that ties salary increases to market rates for emerging skills or future potential. Another progressive option is to leverage non-monetary incentives such as professional development opportunities and flexible working arrangements. Over two-thirds of organisations in Asia Pacific find these practices to be highly effective for attracting, engaging and retaining this important group of talent.3 4

Ultimately, the key to overcoming challenges with base pay is to tackle them head on. Taking a proactive approach to performance-related rewards, pay equity, and compensation innovation, is a big step in the right direction.


Sources:
1 2018 Salary Budget Planning Survey Report Q3 – Asia Pacific
2 Five keys to getting compensation right: Paying for what matters in the new world of work – Findings from the 2018 Getting Compensation Right Survey – Asia Pacific
3 Beyond Data: 'Get Your Pay on Point' webinar – Asia Pacific
4 2017 Willis Towers Watson IT Skills Matter Now – Global


Additional notes:
Visit wtwdataservices.com to order the 2018 Salary Budget Planning Survey Report Q3 – Asia Pacific
Contact us if you require the Beyond Data webinar access passcode.