While nearly all industries are reporting lower salary increases for 2020 compared to last year, some industries are showing signs of recovery. We explain how different industries have been impacted and what they need to consider as they plan for 2021.
Given the current economic environment, Chinese companies are faced with both challenges and opportunities in their business and human capital strategies. They need to answer tough questions like: How do I allocate incentives when business performance is down and my bonus pool is smaller? How can I improve my hiring and retention goals with a limited budget?
To answer these types of questions, companies need benchmarking data they can turn to. The human capital business at Aon recently launched its 2020 Mid-Year Salary Increase Report for Chinese Market, covering 576 companies in various cities and industries. By mid-year, the overall salary increase rate for Chinese companies is 5.2%, a considerable drop from 6.1%, which was the projected rate for 2020 in the last survey conducted a year ago. This decline highlights the impact COVID-19 has had in the first half of this year. However, most companies are showing signs of optimism in the recovery that’s already underway. The projected salary increase rate for 2021 is slightly higher at 5.3%.
Eighteen percent of survey participants say they are under a salary freeze, spanning all industries except foreign invested (FIE) pharmaceutical companies. About 30% of reporting companies in the logistics, automobile, retail and machinery industries are under a salary freeze. While 20% of high-tech firms are reporting a salary freeze, only 5% expect that to continue into 2021.
Salary Increases by Industry Show Differences in Economic Impact
From an industry perspective, retail & consumer goods, automobile and engineering companies reported a considerable drop in their salary increase rate, while pharmaceutical, healthcare and high-tech industries were comparatively stable.
- FIE pharmaceutical & medical devices reported the highest salary increase this year at 6.5% for pharmaceuticals and 6.3% for medical devices. There are no pharmaceutical companies reporting a salary freeze. However, the projected rate is a little bit down for next year (6.1%) due to policy adjustments and control orders from headquarters.
- Real estate: Aside from the COVID-19 pandemic, the industry is also impacted by transformation and policy restrictions. However, we have witnessed more companies focusing on improving human capital effectiveness. This year, the real estate industry is reporting a 5.4% salary increase compared with 6.5% of 2019. While this figure is disappointing, it reflects the industry’s transformation into stable development mode and learning to spend money where it counts most.
- Retail & consumer goods: This industry is among the most impacted by COVID-19. Due to the lockdown in China in Q1 2020, the revenue for offline retail stores and restaurants was near zero. However, the industry is showing signs of recovery. The salary increase rate is expected to reach 5-6% by the end of this year.
- Automobile: Considered a benchmark of traditional industries, automobile companies are suffering setbbacks from the pandemic and general downswing that was already underway. The industry has an average salary increase rate of 4.1%, down from 4.9% in 2019. Statistics from the China Association of Automobile Manufacturers shows that car sales in China dropped 30% in the first quarter of the year, but the monthly sales in the second quarter were higher than the same period last year. Given headwinds this industry is experiencing, we expect the 2021 salary increase rate will be similar to this year.
In the second half of the year, we’re seeing the Chinese economy on the path to recovery. Salary increases are almost universally lower in 2020 compared to last year, but there are signs of greater optimism for next year. While the pandemic has created enormous business challenges, it has also presented opportunities for business leaders to think about how to maximize efficiency with limited resources.
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Companies that are struggling with budget cuts should continue to refine their pay-for-performance programs and consider smaller or no salary increases to average and below average performers in a bid to stretch their budget further for high-performing talent. The success of business recovery relies on human capital, and rewards programs need to reflect a comprehensive employee value proposition that can be executed even when budgets are contrained.
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