Despite the challenges of the past year, companies in Asia Pacific are feeling optimistic about growth. The question is, what are their business and HR priorities today? How are they planning to reward the talent they need to achieve their goals? Korn Ferry’s recent Spot Survey revealed two very different mindsets.
When we surveyed 1020 HR leaders in the Asia Pacific region between March and April 2021, more than half (57%) told us they expected business revenue to be in line with forecasts or even increase. A significant negative impact (drop in revenue by 16% or more) is expected by just 14% of companies (compared with 30% in 2020).
This optimism has an impact on HR priorities: around the same proportion (58%) also expected to maintain or increase their HR budgets by up to 5%, while 14% of companies plan to increase their HR budget by more than 5%.
Our survey also revealed a clear divide when it came to the top focus areas for businesses in 2021. 48% of companies are planning to reduce costs while 44% are firmly focused on revenue growth. These two priorities may not be mutually exclusive – for example, travel expenses are unlikely to return to pre-pandemic levels regardless of growth aspirations. But we do see a difference in how these two groups are planning to review their rewards strategy.
Just over one-fifth (21%) of companies that focused on growth plan to increase HR budgets – compared with 12% of those focused on cost reductions. Conversely, 38% of “cost-reducers” plan to decrease HR budgets, compared with 23% of those focused on business growth. Given compensation and benefits are a major part of HR budgets, this gives us some indication of how financial rewards – and their prioritisation – may shift in the near future.
As business models and requirements are changing, it’s important to consider whether your reward system supports these needs. Is your reward strategy driving the right behaviours – so people reach their targets in the new business environment? Or should it be modified to address new challenges? 41% of companies in the region see the need and plan to review their total rewards strategy. But the elements they want to focus on are different – depending on their business priorities.
Revenue-growth focused companies are prioritising performance management and short-term incentive design, such as bonuses and sales commissions. They’re also paying more attention to career architecture – providing new development pathways to promotion, or rethinking roles in response to the needs of a growing organisation. Along with financial incentives to meet performance targets, this can motivate talent to achieve growth goals.
Cost-cut focused companies, on the other hand, are looking for an organisational redesign that helps lower costs, rather than delivers growth. This might mean stripping out management layers to make structures more cost-effective, grouping interdependent capabilities together and creating bigger teams. They are also reviewing their total reward strategy including benefits.
Both sets of companies are looking also at external competitiveness, internal equity, and effective communication of the total rewards structure.
Rebalancing pay can come with risks, especially in markets facing a talent shortage. One-third of respondents said talent shortages might affect their business growth. It’s still important to remain competitive in the race to attract top-tier talent, but the painful truth is there is a limit to what companies are able to pay for talent in this war, and it won’t always be the top market price. This is increasingly pushing companies to come up with new ideas for recruitment, as well as retaining and motivating talent – which could mean reallocating HR spend to meet employee needs and build engagement in more creative ways.
For companies seeing the potential business risk of a talent shortage, the HR priorities are clear:
- External market competitiveness (66%) – this does not always mean paying the most but paying above a certain threshold with smart role definitions and reward structures including less tangible elements
- Succession planning (65%)
- Leadership development (64%)
We also see a growing trend for these companies to focus on retraining or reskilling employees (45%) when the capabilities needed are changing fast – especially in the context of the increasingly digital landscape.
Different markets, different approaches
We did see significant variances across different markets, both in business sentiment and HR plans. Chinese companies are most positive: 82% see positive or neutral impact of the current situation on their revenue in 2021, compared with 57% in the APAC region. 62% of Chinese companies are focusing on revenue growth, and only 31% on cost reduction.
As a result, 46% of Chinese companies plan to increase their HR budget by more than 5% (15% in the wider APAC region).
In China, maintaining external market competitiveness is the number one priority for HR leaders, and we certainly see demand for talent soar in that country.
Companies in Australia, New Zealand and Vietnam also have higher levels of optimism than on average in APAC. On the other side of the spectrum, just 40% of companies in Hong Kong and Thailand predict positive business outcomes this year and this will impact HR budgets. In Thailand, 39% of companies plan to decrease HR budgets by more than 5%.
Back to normal?
In terms of reward practices such as salary increases and bonuses payouts, we see companies adjusting back to normal. 65% of companies in the region plan to increase salaries in 2021, compared with 52% in 2020. The most cautious and conservative markets are Hong Kong (52), Malaysia (56%) and Australia (58%, but a significant improvement from 33% last year).
South Korea, Vietnam, China are among the countries where 75% to 80% of companies plan to do regular salary reviews this year.
Across the APAC region, 53% of companies plan to pay bonuses according to budget – while 18% have a bonus freeze and 17% have not yet decided. A greater proportion of companies in Australia, New Zealand and Indonesia plan to pay reduced or no bonuses in 2021, while the majority of companies plan to pay out regular bonuses in Vietnam (83%), South Korea (73%), China (59%) and India (65%).
A new deal for non-financial rewards
While a laser-focus on cost efficiency made sense when markets looked uncertain, there is always a limit to cutting costs – at a certain point, organisations may lose the ability to perform. Then, they will need to invest in new opportunities. And that includes re-thinking the way talent is rewarded.
While COVID put pressure on organisations, it also pushed employees to re-evaluate what they want from work. More intangible rewards, like flexible scheduling, more focus on health and wellbeing or a stronger purpose, have become increasingly important.
For the 55% of organisations now using a hybrid remote working model, this might mean including working from home allowances as part of the package – covering the cost of energy consumption, stable internet and equipment, for example. You will also need to consider individual employee preferences – while some may value working from home as a benefit, others would prefer to have a collaborative, well-equipped space they can go to. A number of companies are currently gathering information about employee preferences, analysing costs, and creating their own version of future work models.
Towards a new normal for rewards
When we discussed these findings with 223 HR and business leaders on a webinar in June, we asked attendees whether they felt their own rewards practices have adjusted to reflect business transformation challenges. More than half (56%) said they have not changed yet – but they know they need a new approach to total rewards.
Whether you are focusing on cutting costs or growing revenue, your total rewards strategy will play a pivotal role in meeting those targets. It’s important to carefully monitor compensation spend against business performance and be prepared to think differently about how you value and treat employees.
If you are interested in participating in our reward survey to obtain more detailed reports, please check the benefits here.
For more findings from our pulse survey and to learn more about trends in rewards and benefits in APAC, watch: POST COVID-19: Is there a new normal for rewards?