Having left one of the Big Four accounting firms in her home city last year to go to university in the U.S., Shanghai-native Amanda Peng is already thinking about the companies she wants to work for after she finishes her studies and returns to China. Not so long ago, Western multinationals would have been among her top choices because of their ability to offer better pay and more career opportunities than, say, a local state-owned enterprise (SOE). But having witnessed the "ruthless" layoffs of many of her colleagues in 2008, Peng says she is looking at SOEs in a different light.
She’s not alone. According to the eighth annual Best Employer Ranking published in August by Chinahr.com, an online recruiting company, Chinese companies are gaining ground among young graduates as places where they aspire to work. Polling roughly 200,000 university students in 200 schools across China, it found that of the 50 most popular employers, 46 are domestic companies, up from 29 in the previous year’s study. Among them, 33 are SOEs, including China Mobile, Bank of China and State Grid.
This shift in attitude among young job seekers is just one of a number of changes that China’s HR professionals are grappling with as their companies leave the worst of the global economic downturn behind and return to hiring mode. While they say the war for talent among China’s white-collar workers is raging once again, pay packages and bonus schemes reflect the new mood among employers, which is more cautious and frugal than in previous times.
More for less seems to be the new mantra. While China’s relatively low wage levels have been hotly debated ever since the wave of high-profile pay-related disputes erupted at factories across the country this year, HR professionals of both local and foreign firms are now under pressure to find innovative ways to attract and retain talent other than the salary one-upmanship with rival employees that was once the norm.
Back at the Grindstone
Along with innovation, there’s also a need for speed as more firms reignite the job market. Already in the first part of this year — as other economies around the world were still being pummeled by the downturn — 51job, China’s largest recruitment company, reported a 61% increase in online recruitment ad revenue over the same period last year, to US$16 million (RMB 110 million), and a 74% increase in the second quarter, to US$20 million (RMB 135 million).
Salary and staff turnover rates are also on the rebound. According to the recent Total Compensation and Measurement 2009-2010 Study from Hewitt, a global HR consulting and outsourcing company, salaries in China are expected to increase 8.4% year on year in 2010, up significantly from the 4.5% recorded in 2009 but down from 2008’s 10.3%.
Overall, out of the 11 Asia-Pacific countries reviewed, only salaries in India — at 11% — are projected to grow faster, as has been the case since 2007. Compensation for senior management in mainland China is now close or equal to their counterparts in Hong Kong, Singapore and South Korea. As for next year, there will be more of the same as wages expected to rise in China 9.1%, with supervisors and middle management receiving the highest pay hikes.
Along with wage inflation, HR managers are also back on familiar ground in another way: Employees are job-hopping once again. Hewitt’s research also shows that attrition rates have become staggeringly high, increasing from an average 8.3% in 2001 to a 10-year high of 16.7% by mid-2010. Many HR experts in China say that part of the reason for escalating attrition rates has to do with the harsh layoffs undertaken during the downturn, tarnishing the reputations of many companies, particularly foreign multinationals that had to slash headcount at satellite offices worldwide in response to their ailing domestic markets.
That’s been a concern for Craig Rong, HR director for East China of A. P. Moller-Maersk, a Danish shipping and energy conglomerate, which tumbled into the red for the first time in its 105-year history in 2009, booking a $1 billion net loss and was forced to cut worldwide headcount by around 20%. Maersk currently has 1,500 staff in China. Though back in the black with a $2.52 billion profit in the first half of 2010 and providing the markets with an upbeat full-year profits forecast in August, Rong says staff turnover at Maersk in China has been comfortably high since the beginning of the year. What’s more, laying off such a large number of staff may have helped the company’s balance sheet, but it might have damaged reputation a job applicants when the time comes to hire again, says Rong.
"We are not the only ones," he adds. "Most foreign companies in China face similar challenges, as many SOEs and private Chinese companies did not pursue aggressive layoffs for a variety of reasons."
If there is a consolation, says Rong, it’s that "the crisis has made it a priority for us to restructure some of our human resource strategies. We are now actively designing and implementing new measures to make us a more attractive employer."
"We now have the right systems, measures and tools in place to focus on this new strategy, and there will be very detailed implementation plans throughout every layer of the company," he says. That’s why Rong is pushing for a new strategy combining performance-based pay and a larger portion of the budget going toward flexible benefits, without increasing the company’s overall budget. At the meantime, Rong says he will focus on building communication programs with employees, as well as researching a new Employee Value Proposition project tailored to the needs of employees to strengthen the competitiveness of the company to retain current employees and attract external candidates.
The financial crisis has made companies more acutely aware of one of their biggest costs — their staff, says Tim Glowa, lead consultant of employee research at Hewitt. Increasingly, he says, corporate HR managers such as Rong are designing compensation packages with greater employee input about which benefits — ranging from housing to pensions — they deem the most important. Such input, he reckons, helps ensure that companies spend their money on employee rewards more effectively. After all, he says, "in a post-financial crisis era, companies need to be thinking about delivering greater value to employees while saving, say, 10% [of their costs]. Total rewards programs taking employee preference into account in order to mostly optimize the scenario are getting more ground. "
But it’s not all about pay, says Nico Van Dam, a senior consultant with Hay Group, another HR advisory firm. Research from Hay has found that alongside cash, Chinese employees rate the quality of their boss’s leadership, respect and recognition, and work-life balance as the top reasons why they stay at a company, ahead of compensation. Also important are career development opportunities, work environment, and general organizational attributes.
The message to employers in China is clear, says Van Dam: A bigger paycheck won’t stop talent from leaving. As he sees it, particularly critical is the quality of a firm’s leadership team. "In China, leadership has long been a neglected part of doing business, although this is gradually changing," he says.
"I don’t believe people leave a company just because of money," agrees Wang Guo Ping, an HR executive for the RMB 3.5 billion Chinese arm of a Japanese consumer goods company with more than 4,000 local staff. "High turnover rates can’t be solved just by offering higher pay checks."
But while compensation might not be as important as other factors to retain staff, it’s a different matter when it comes to hiring. Wang and other HR experts warn that the revival of the war for talent might make it tempting for company recruiters to use higher and higher pay to woo candidates, rather than other aspects of their compensation, such as whether incentive plans are indeed motivational and encourage productivity and engagement, features that can benefit both the employee and employer in the long run. In his company’s case, Wang says, that balance manifests itself in a compensation structure "based on an employee’s actions, performance, attitude and results, rather than academic background or seniority," he says. "We are more like a big family."
New China Model
But redesigning compensation packages to reflect a new, post-financial crisis job market may require companies to ask a lot of tough questions and even shake up the status quo. "When you’re talking about attracting and retaining employees, you have to ask yourself whether the current system is effective," asserts Wilson Hua, general manager of HR & Administration department for Ricoh China, a Tokyo-based office automation company, which has more than 10,000 staff throughout China. That includes questioning the use of performance-based pay. "Over the past decade, Chinese companies have been overly enthusiastic about adopting U.S.-European management, with most of them implementing performance-based systems to manage employees. We need to consider whether this model is working in China."
According to Hua, the over-reliance on performance-based compensation has helped some companies to hide behind impersonal metrics while not paying enough attention to the "softer" cultural qualities of their companies. What happens in such cases, he says, is that employees lose any "emotional" connection they have with their jobs, and their employers, and makes it easier to look for a new job elsewhere.
Many employee-employer relationships were also damaged further as a result of the downturn, he says, contending that some companies in China responded to the downturn better than others. For example, instead of cutting staff, some trimmed salaries, which helped buoy morale and bolstered loyalty over the longer term.
Hua is currently working on a three-year HR strategy. He wants to build a family atmosphere at the company with a rewards structure underscoring staff camaraderie, while as before focusing on teamwork, rather than just a handful of "superstar employees." To this end, his multi-layered strategy focuses on personal development and training for all staff as well as new competency evaluations that will be linked to pay. Also under way are plans to roll out a new way to identify and retain high performers.
His biggest challenge? Time. "We need time to make the strategy, to set up the system, and we need time to communicate with employees to have their support. But the market changes quickly, and we can only compete with time."