How businesses can rethink their people strategy amid rising wage costs

By 2030, one in four Singaporeans will be at the retirement age of 65 or above, up from one in six today.

To keep pace with rising salaries and support retirement adequacy for Singaporeans, the Singapore Government announced in its Budget 2023 statement that the Central Provident Fund (CPF) monthly salary ceiling will increase from $6,000 to $8,000 by 2026.

The senior worker CPF contribution rates and minimum CPF monthly payouts for seniors on the Retirement Sum Scheme will also increase.

The raising of the CPF monthly salary ceiling implies a reduction in take-home pay of up to 6 per cent for CPF-eligible employees earning more than $6,000 a month. In addition, as a result of the CPF changes, the retirement provision gap in absolute terms for foreign employees who do not receive help from CPF has widened.

For employers who supply retirement benefits to non CPF-eligible employees, the question is if they should align them to the new CPF levels in their retirement provision for all staff.

While the CPF changes will be implemented in stages over a few years, they could lead to increased pay expectations and have a significant impact on an organisation’s wage costs.

These factors, combined with the current inflationary market conditions, are likely to increase the financial pressure on businesses.

Under these circumstances, to stay competitive, organisations will need to fundamentally rethink their business and people strategies to ensure they balance productivity and cost efficiency, while sustaining their business.

Organisations will need to look at their people strategy with a fresh lens. The key question they need to address is how to achieve higher returns per dollar spent, through people strategy. More specifically: “How do we increase productivity and workforce resilience to drive business success?”

The answer lies in having a strong employee value proposition (EVP) – the specific set of drivers, including pay, benefits, work models and environment, career and culture, that an employee receives in return for the skills, capabilities and experience he brings to a company.

The EVP needs to be more than simply a public relations exercise, and must clearly communicate what a company stands for and wants to be known for. It should be closely aligned with the company’s core values, culture, business and human capital strategies.

Total rewards are a key EVP driver. Organisations must review how their total reward programmes are designed to support and drive business strategies, such as the link between performance and pay, and the availability of career development and progression opportunities through robust assessments and career pathing.

Career mobility is also critical as companies embrace digitalisation to drive efficiency. In addition to total rewards, organisations may do well to focus on other aspects of narrowing the talent gap through job redesigning and skill development.

Accelerated digitalisation and global issues such as climate risk, the Covid-19 pandemic and geopolitical challenges have pushed companies to reassess the agility and resilience of their workforce. To stay relevant and competitive, organisations need to reassess their current talent with the skills they require in the future.

A crucial step forward would be to embrace reskilling, upskilling and job redesigning to build a future-ready workforce. These initiatives would encourage employees to stay with the organisation and chart their own career paths.

The Singapore Government has several initiatives businesses can tap, including the Skills Development Fund, Career Conversion Programmes, and Support for Job Redesign under the Productivity Solutions Grant, to defray the costs of job redesigning and upskilling existing employees to move into new roles that contribute to the long-term growth of the business.

By providing such opportunities for employees with an aptitude for learning, organisations can address the current skills gap and enhance their ability to deliver innovation, drive revenue and accelerate growth.

Another critical component of an EVP that could contribute to workforce resilience is employee well-being.

This can be driven by employee benefits, career development, work environment and company culture, and pay competitiveness.

While organisations are taking proactive steps to support employees, their programmes sometimes reveal gaps between perceived value to employees versus what employees actually value.

For instance, many financial well-being initiatives focus on retirement savings, while some employees are far more concerned about more immediate financial needs such as mortgage loans, creating an emergency fund and managing everyday expenses.

Organisations must therefore, using surveys and data science, understand their employees’ well-being needs and support them accordingly.

While increasing wage costs are inevitable, it is critical that organisations rethink their approach to talent.

Using data, analytics and insights, they must reassess their talent needs and bridge this gap with succession planning, empowering internal talent mobility, building future skills among the workforce, and providing employees with information on the possibilities of how to realise their own potential.