Calypso Consulting

(NOTE: A version of this article originally appeared in CHO Magazine in January 2009)
 
It is important to remember that, even though we are in an economic crisis, the need for high quality talent is still enormous in China.  Good people, especially those with special skills, remain highly valued in the market and are actively sought by competitors.  The company that mistakenly focuses only on streamlining its costs during this time rather than trying to continue to grow in China will certainly lose out.
 
Salaries
For sure, salary growth, on average, will be lower in 2009 than in prior years.  This can present a particular problem in China since employees here are very used to getting pretty big salary increases.  HR needs to be prepared for this and make sure that senior management is very clear in its explanations about salary movement in the firm.  Just giving a smaller than expected increase, without a very good explanation and promise for the future will not work.  This may be a new message for many Chinese leaders and it is HR’s job to help develop the right message.
 
Most HR consulting firms are reporting that approximately half of the multi-national firms in China will have a reduced salary budget in 2009.  Also, approximately one-half of multi-national firms are likely to reduce their incentive plans.  Generally, local Chinese firms are not reporting salary reductions.  However, it should also be noted that local firms are still not generally competitive with multi-nationals in terms of annual salary so they may use this year to try to catch up.
 
However, the reduction in salary budget is very slight and still significantly higher than the United States, Europe and Japan.  We are probably looking at increases on average of 9% versus the 10% originally projected earlier in 2008.   Keep in mind that about 90% of companies in China are saying they will provide a salary increase in 2009 and only about 5% think they may have to lay off workers.   So this is quite different from what we are seeing elsewhere in the world.
 
Performance Management
Since we can expect smaller bonus pools, it is extremely important that all employees completely understand their performance goals this year and that the bonus targets are very clear.  Companies need to make sure they are truly paying for performance this year.  It is not necessary to pay very much above market.  We just need to assure that we pay fairly for good results.
 
Other Business Programs
This is a great year to have a recognition program – these programs are extremely effective and very inexpensive.  People are rewarded for special performance with plaques, certificates, movie tickets, dinners, hotel weekends, training, etc. There is no limit to what you can do here.  The main point is to recognize great performance of individuals and teams.
In tough economic times, usually about ½ of firms in China will cut back on training budgets.  Basically, this is a good thing in terms of overall financial return – but you need to balance that with employee morale and retention, which are often negatively affected when training is cut.  Remember your key employees here and make sure that at least your best employees continue to be trained.
Data are showing that approximately 70% of firms have already cut back on non-essential travel and more than half have cut back on employee recreation such as group outings.
As is always good business practice, deciding your HR direction based on business strategy will provide the best results.  The key challenge for businesses this year will be balancing cost with the needs of the workforce.  The right balance is different for each company.  But the company that does not consider this in its planning is bound to lose good people – either through poor cost management or poor people management.