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Talent Management Perspectives

Published April 2008

Chinese "Pay Now, Worry Later" Mentality May Be Retention Killer

Kellye Whitney

China is one of the fastest-growing economies in the world, and the talent supply is not sufficient to meet the demand. As a result, qualified candidates with relatively minimal management experience are able to hop from job to job and reap substantial pay increases.

"Rewarding China: Talent Management in the World's Most Competitive Economy," a new study from global management consultancy the Hay Group, said if an employee moves to a position two steps above his or her current role in what's called a champagne promotion, often the person's base salary jumps some 91 percent, which is substantial when compared to a 48 percent increase in Singapore.

"On the pay side of the talent management equation, where supply and demand are not aligned, we're seeing pay levels, base salary and incentive levels really spiral upward at unprecedented rates," said Tom McMullen, U.S. reward practice leader at Hay Group. "For even relatively junior talent, if someone shows great promise, the salary increases in China are pretty substantial."

McMullen said salary increases are growing at about 9 percent a year, and Chinese managers are getting promoted at a much faster rate than other managers in Asia. Further, he said when talent is lured away from another Chinese company, they not only get a promotion, they typically get a 40 percent increase in base pay that compares to averages in the low to mid-20s in places such as Singapore and Hong Kong.

Organizations can mitigate some of their recruiting and retention woes without throwing money at talent. Implementing some basic building blocks of effective reward-program management into compensation considerations might be a good place to start.

"Going back to basics would be a good thing," McMullen said. "There's still a lot of across the board pay increases going on in China. Irrespective of what your performance levels might be, a lot of Chinese organizations are providing the same level of pay increases to their employees regardless of performance. We would advise organizations to at least fold in a robust performance management process into your base salary or compensation program and better allocate the significant rewards for people who are more deserving."

Huge salaries and quick promotion opportunities are not aiding employee retention in China. Job hopping is extremely common, as is a general lessening in organizational loyalty.

"It's kind of like professional sports in our country when the highest bidder is getting a lot of talent," McMullen explained. "Retention is a key issue. Organizations would be better-served to start trading on their intangible rewards, as well as the tangible ones, as strong retention drivers."

He said Chinese organizations could facilitate employee retention by playing up favorable work climate or environment, strong leadership and the availability of career development opportunities that will equip them for future roles.

"Going to another organization can be a risky move," he said. "You know how good it is here. You may not know if the pastures are as green on the other side.

"Organizations would do themselves a favor by constantly reinforcing the positive aspects of working at the organization they're at now. Are you [as an organization] admired or considered a great place to work; have you received accolades on your work environment in the press? Trade on that brand equity. Money can only go so far. What else do you have to compete on? It's these other intangible rewards like career development opportunities, strong leadership, strong work climates, that companies should trade on."