As the economy recovers from the brutal hit at the start of the COVID-19 pandemic, organisations in APAC are budgeting for pay raises across their workforce based on market sentiments from Willis Towers Watson’s 2021 Salary Budget Planning report.
Globally, most countries are projecting a higher salary increase in 2022 compared to 2021 as indicated in the figure below. Majority of organisations in APAC (78%) are expecting employees’ salaries to grow in 2022, while the vast majority of the remaining organisations expect salaries to remain stagnant.
Source: Willis Towers Watson 2021 Salary Budget Planning report
Key drivers behind higher salary increases
There are several key drivers behind the higher than forecasted salary increases in 2021, largely attributed to lower operating costs in 2021, rewarding employees for their resilience during the pandemic as well as fewer organisations freezing salaries in 2021 as compared to 2020.
As organisations shifted to remote-working at the start of the pandemic before settling into a hybrid work arrangement for employees, the majority of organisations reported lower operating costs. Organisations did not see the need to have large office spaces given that employees were able to get the same or even more work done without necessarily having to go into the office. As organisations continue experimenting with hybrid work arrangements to suit employees’ preferences, this may eventually result in long-term cost savings. After all, lower operating costs simply translates to more budget for business leaders to funnel into human capital costs.
The booming labour market is also driving salary increases in 2022. Recruitment has boomed in recent months thanks to the Great Resignation, which is a culmination of employees feeling burned out, overworked, and stretched due to the blurred lines between work and personal space during COVID-19. As changes in working conditions result in many workers reflecting on their working conditions and career prospects, many employees are moving on to new roles or organisations in pursuit of better work-life balance and career prospects. In fact, close to half of the organisations surveyed (47%) indicated that their current rate of recruitment far outpaces their 2020 efforts. In order to retain and engage talent with this new hybrid business model, organisations need to pay competitively in order to hold on to their top talent.
How does this impact HR and payroll in 2022?
Higher salary increases and salary expectations simply means that HR and payroll need to set aside a larger pot to pay employees at least close to their salary expectations. HR would likely have to make organisation-wide salary adjustments while taking into account employee career levels, performance rating, criticality of job and market demands. In some cases, there may be a need to backdate payroll calculations or stagger salary adjustments throughout the year to ease the strain on organisation’s finances.
As with any salary review and adjustment exercise, communication is key. HR needs to ensure clear and consistent messaging when communicating salary increases and adjustments to each employee. When communicating salaries to employees, there should not be any surprises. Ensure that both HR and the employee’s line manager is in the room so that he or she is able to have an open communication on the decisions made as well as the context in which it was taken.
With the economy bouncing back from COVID-19 pandemic, organisations can almost expect business outlook to return to pre-COVID levels. This optimistic outlook also means that employees can look to reap the benefits of a better business performance. While each industry would likely have their own nuances on the extent of the industry or business performance, at the end of the day, businesses still have to maintain a healthy balance between costs and revenue to ensure business growth while attracting and retaining critical talent.