Competing for talent: three key trends driving compensation decisions in Asia Pacific

 

Balancing rising employee compensation costs with the need to attract and retain top talent is a key challenge in today’s economic environment. In this article, we explore three critical trends shaping the compensation landscape in Asia Pacific and offer insights from Aon’s data consultants to help organisations navigate a competitive job market and emerge as employers of choice.

Key takeaways

• Market forces and a hyper focus on performance is pushing HR to become granular in their approach to determining salary and bonuses.
• Pay compression poses a challenge for companies aiming to maintain balanced salary structures and avoid dissatisfaction and increased turnover among experienced employees.
• The convergence of industries is blurring traditional boundaries and influencing compensation strategies across the region

 

Trend #1: Hyper-differentiation: taking pay personalisation to a new level

When it comes to compensation trends, performance-based remuneration is a major factor each year for determining each employee’s compensation package Hyper-differentiation is a trend we observe that widens the pay range across jobs as employees hittheir key performance indicators (KPIs) differently, and those far exceeding performance targets receiving greater compensation packages as a result.

Let’s take private banking in Singapore, as an example,. “When a relationship manager is maintaining productivity at the same level year-on-year they’re actually experiencing a 10-15 per cent drop in total compensation when taking bonuses into account,” says Aon Data Consultant Evon Lock. “Top performers, by contrast, are receiving a higher uplift in bonus payouts, driving an increase of perhaps 60-70 per cent in total compensation. This is just one example of the hyper-differentiation we’re seeing, with marked gaps between bonus levels for the consistent and outstanding performers.”

In exploring what’s driving this trend a number of factors are in play across all sectors. There’s the internal driver of policies linking performance to pay which are common to many organisations, both in the Asia Pacific region and globally. There’s the role of market forces in raising compensation levels, particularly for key roles and skills where talent is scarce,. Add to this the fact that bonus pools have been challenging when business performance is down, and we find HR teams have little choice but to become very granular in their approach to awarding bonuses, with a far higher weighting of the pool directed towards their top performers.

For HR leaders to make informed decisions each year on pay data is an essential input. “You need a deep understanding of market benchmarks for your sector and talent pool, based not just on fixed pay but also bonuses,” says Evon. “At Aon, our database breaks down compensation into different elements like base pay, allowances, bonuses, and long-term incentives, allowing our clients to understand the nuances of pay structures to better inform performance conversations and their overall rewards strategy.”

Trend #2: Pay compression: an ongoing challenge for rewards

The pay compression phenomenon is not a new issue facing HR teams, but it is a growing challenge, particularly in countries or regions where it’s an employees’ market. Pay compression occurs where the pay gap between junior and senior employees narrows, which is often a result of market pressures to raise entry-level wages without proportionate increases for higher-level positions. This can lead to internal equity challenges for employers, as well as a loss in consistency when making pay decisions.

As a job market where new hires are commanding high premiums, Malaysia is one of the countries where many Aon clients experience the pay compression challenge. “Malaysia is an employee's market with organisations all fighting for talent from the same small pool,” says Aon Data Consultant, Rachel Jayaprakash. “The gap between the 10-year tenured employee and the new hire is becoming very small.”

While pay compression is still an emerging trend in Malaysia, this could change as employers catch up with their peers in other countries in the region on the related matter of pay transparency. “In Malaysia, only limited information is shared, even by very large government organisations,” says Rachel. “But we‘re expecting to see a rise in the prevalence of companies informing their employees on pay from the current level of just less than 30% of companies.” This disclosure is likely to highlight the presence of pay compression and potentially create significant challenges with dissatisfaction among employees aand potentially could lead to increased turnover.

For pay conversations, with new hires and incumbents, data can play a critical role in demonstrating they are being paid in line with the market. This can prevent pay compression going forward by basing discussions on accurate marketfigures drawn from a wide sample of roles and/or organisations within and across sectors. Using accurate market information as a guide, rather than market sentiment, can keep pay expectations realistic across all levels.

Industry convergence: universal skills are reshaping compensation models

Technology continues to disrupt traditional industries, redefine the job market and reshape compensation models across APAC. Skills such as software engineering, data analysis, and cybersecurity are no longer confined to specific sectors and every sector from advertising to aged care is vying for talent.

"We’re seeing a shift where industries that traditionally did not compete for the same talent pool are now vying for the same skill sets," says Aon’s Masahiro Kuroda, Aon’s data solutions leader in Japan. "Tech companies, retail chains and financial services firms, for example, are all seeking software engineers and data analysts. This convergence is driving up compensation as these industries compete to attract and retain top talent. There's always going to be some degree of domain knowledge that defines talent, but these roles are now largely sector agnostic. You've got a bigger talent pool to fish in, but you've also got more fishermen at the pool.”

Adding to this dynamic is the rapid advancement of artificial intelligence (AI), which is not only transforming business operations but also intensifying the demand for emerging skills. AI expertise, machine learning, and automation are now at the forefront of what many companies need to stay competitive. As AI becomes more integrated into various sectors, the demand for these skills is set to skyrocket, further exacerbating the competition for 'tech’ talent.

As industries converge, it becomes increasingly important for organisations to understand how their compensation packages compare to those offered by their competitors in other sectors. "It’s not enough to compare salaries within your own industry anymore," explains Masahiro. "Companies need to benchmark their EVP against a wider range of sectors to ensure they remain competitive." The blurring of lines is not only occurring between sectors but also across geographic locations, particularly for emerging skills such as AI and green technologies driven by the energy transition It’s likely some countries will develop and mature these workforces at a faster rate than others.

In a dynamic job market where compensation trends are continually evolving, having access to accurate and up-to-date data can keep HR teams grounded and objective in their approach to managing pay and rewards. Understanding the drivers behind both trends and data is critical in making, and communicating, strategic, defensible pay decisions. The ability to interrogate data with precision, supported by advanced analytical tools such as talent and location analytics, equips companies with the insights they need to stay competitive in this rapidly changing landscape.