Inflation, talent supply and demand drive salary increases for 2023

Salaries in southeast Asia are expected to increase slightly for 2023, according to a report by Aon.

While inflation plays a significant role in how salary changes look across the region, supply and demand in the talent market is also driving increases, says the report.

High attrition rates are putting pressure on firms to use compensation measures to tackle hiring and retention challenges.

Conducted in the third quarter of 2022, the survey found median salary increase budgets are forecasted across industries at:

• 6.8% for Indonesia (actual for 2022: 6.4%)
• 5 .1% for Malaysia (5.1%)
• 6% for the Philippines (5.7%)
• 4.7% for Singapore (4.6%)
• 5.1% for Thailand (5%)
• 7.9% for Vietnam (7.5%)

While it is critical for businesses to define and adapt pay for different worker types and the nature of the work, organisations must stay agile as they rethink their pay principles, according to Rahul Chawla, partner and head of Human Capital Solutons for southeast Asia at Aon.

“Businesses need to shape their strategies towards long-term drivers of pay and performance by making changes in a phased manner to optimise pay effectiveness. In addition, companies must define their 2023 salary increase approach in the context of the competitiveness of their current salary levels and employee value proposition.

“Companies that adopt a skill-based compensation programme will help ensure they can continue to build future skills for their organisation's resilient workforce."

Back in the summer, employers across the Asia Pacific Region (APAC) were budgeting an overall median increase of 5.1% for 2023 across 14 markets, according to a separate report.

Tech sector changes

Salary increases in 2022 varied across industries, finds Aon, with the retail industry having the highest increases (6.%), followed by technology and life sciences (6.1%) and financial institutions (5.9%), says Aon’s Salary Increase and Turnover Study.

While ongoing technology and digital skills shortage resulted in higher year-on-year increases in salaries and total compensation, recent reports of a potential global economic slowdown means firms are taking a cautious approach and focusing on salary increases for selected employee groups or levels as they navigate a volatile and uncertain environment, says Aon.

“With the rise of fintech and digital banks in the region, roles in areas such as risk, compliance and talent acquisition are in demand,” says Alina Cheng, senior consultant, Human Capital Solutions for southeast Asia at Aon.

“Firms are paying a premium to attract new talent at the junior and middle management levels for these roles. As a result, over the past two years, we have seen compensation structures shifting towards lesser variable and pay at risk and an increased focus on salaries.”

There is no one-size-fits-all approach for developing a salary increase strategy in a volatile environment, she says.

“Employers must constantly analyse the market, study the available data and contextualise the unique circumstances of their industry and organisation to make better and more informed decisions."

“Employees want to see a meaningful number that counters the cost-of-living crisis, but organisations need to be deliberate about their cost structures, so they’re being careful with their compensation budgets,” says Belinda Armenta, a partner in Aon’s human capital solutions practice.