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Focus: Human Resources

Hiring and Compensation Trends

To remain competitive in China's tight labor market, companies must prioritize talent management—and track compensation trends

by Tony Dickel and Chris Watkins

Over the last three years, the war for top talent in China has intensified. Multinational corporations (MNCs) in China have become increasingly concerned about and challenged by the compensation demands of desired candidates. Foreign companies have had to make significant adjustments to their compensation bands to avoid losing staff to firms with more flexible compensation packages. Furthermore, over the last year, new trends began contributing to China's talent market paradox—that companies in a country with more than 1.3 billion people suffer staff shortages.

Quick Glance

Compensation packages have risen sharply in China over the last few years.
Companies must make strategic decisions about how stringent their job requirements are and the level of compensation they are prepared to pay.
Agreement within the company on the requirements for the position and the interview process will shorten the recruitment time.

Hiring and retention get tougher

Recent MRI China Group research shows the following human resources (HR) trends in China (see Box):

Employees are leaving established companies for new entrants Thousands of new companies enter China monthly and create additional demand for already scarce talent. Consequently, many employees are leaving their current companies for ones that have more flexible compensation-banding structures and thus can offer better packages.
More companies are localizing talent MNCs are increasingly focused on hiring high-performing PRC nationals for vice president, director, and manager positions in China. A high percentage of localization has already occurred at the director level in most MNCs, but the majority of vice president and higher positions are still held by regional or Western expatriates.
With more than one offer, candidates can negotiate As many established companies expand in China, they want to attract top-level talent to replace existing expatriates, who carry large compensation packages. As a result, top candidates can receive several offers during the recruitment cycle, which allows them to compare opportunities and leverage them against each other.
Hiring cycles last longer Most companies' hiring cycles have lengthened, sometimes taking 8 to 12 weeks to complete, or roughly two to four weeks longer than four years ago. The longer time to make a decision often means missed opportunities.
Candidates are growing more sophisticated Candidates are becoming more sophisticated in their approach to job changes and have a better idea of where they fit in the marketplace. Candidates believe that they have a clearer idea of their worth in the talent market because they have read formal market research or conducted their own informal research among their rapidly expanding personal and professional networks in the last three to four years. The results of their salary research may be unreliable, however, if their friends and colleagues exaggerate their salaries.
Companies are boosting the salaries of top performers In the last two years, many MNCs have been aggressively reviewing top performers and giving them significant pay increases to reduce the risk of losing them. Such raises are particularly common when an individual receives an offer from another firm, and the employee's current company makes an aggressive counteroffer. This practice, however, increases overall costs for both the new and existing employers.
Companies are demanding strong leadership and language skills Many companies are unwilling to lower their expectations for language skills, technical skills, and managerial and leadership competencies when interviewing and selecting candidates for key positions. If a company is unwilling to compromise, it will likely pay at the higher end of the position's compensation range.

What companies can do

Businesses can take several steps to improve their hiring and retention practices.

Make talent management a strategic priority

CEOs should treat talent management as an instrumental part of their business plans and take an active role in the hiring process.

Many business leaders do not regard talent management as a strategic business priority, even though it is one of their main concerns. CEOs should treat talent management as an instrumental part of their business plans and take an active role in the hiring process to ensure that it is handled strategically and tactically. CEOs or managing directors should make a director or vice president responsible and accountable for the planning and implementation of staffing policies. This will help companies focus on talent management and make attraction, recruitment, and retention campaigns more streamlined and effective to gain a higher recruiting and retention success rate. At the same time, companies should link line managers' performance to the goals of the company's talent acquisition strategy. This will create a more cohesive strategy in which the line managers and the HR head work together more closely.

Develop a strong corporate vision and employer branding

When recruiting talent in China, each company needs a well-developed vision of its growth, the position being filled, and the potential hire's career path. Whether the company has a strong brand and whether the candidate would have a clear career path are among the top considerations for candidates thinking about a job change. It is also critical for all those involved in the hiring process to deliver a consistent message. Candidates have many options and often choose to move to the company with the strongest employer branding and corporate vision.

Clarify job scope

Before launching a candidate search, companies should explain the position's requirements and scope to all parties involved. When all relevant parties in a company agree on these points, the interview process will proceed more smoothly. Many positions in China have a matrix reporting structure, however, and the relevant parties often disagree on the job specifications. As a result, candidates may become confused and concerned by the inconsistent requirements, which may cause them to lose interest in the opportunity and withdraw from the application process.

For certain positions, companies need to decide how flexible they can be on language and leadership requirements. Candidates with strong language and leadership skills will be in demand across all functional and industry-specific positions and command high salaries. If a company has a tight compensation band, it will have great difficulty hiring someone with both of these skills. All parties need to agree on the company's flexibility on these two requirements, or they run the risk of wasting time in the recruitment cycle by interviewing candidates whom they can not afford to hire.

Keep the selection process short

Every company should define the steps required before making an offer to a candidate. The steps should include the various levels of interviews and who conducts them at each level, an interview timeline, and the procedure followed after the completion of each step. With proper preparation, a firm can shorten its interview and hiring process to 30-40 business days, giving it a distinct competitive advantage over firms with much longer recruitment cycles. A shorter recruitment cycle will also boost the employer brand, as candidates tend to perceive quick decisionmaking as positive. To shorten the process, each hiring manager and HR director needs to agree to execute the process in a timely manner; adherence to the schedule can be part of the hiring manager's key performance indicators.

Manage candidates' salary expectations

Candidates, especially in China, nearly always want more money than employers are willing to pay. Candidates have rapidly grown more sophisticated in the last few years, and they are much more likely to consult with people in similar positions to discover how much more they should be paid in the new position. Candidates also gather as much information as possible to strengthen their position in the interview process. If they have not changed jobs in the last four years, candidates may expect an even larger percentage increase. In recent years, many employees in China could get a raise of more than 30 percent simply by changing jobs. This expectation is further exacerbated by the "face" issue that can strongly influence an applicant's decision. If candidates believe that they will lose face by taking a lower percentage increase than they originally requested, then they are likely to turn down an offer even if it is 30 to 40 percent more than their current package. Hence, companies should manage candidates' expectations early in the process so candidates will be more realistic when the offer is made.

Know the market

Companies should determine the compensation they can afford for a position at the beginning of the talent acquisition process. Many companies are unaware of how much salaries have increased in China in the last three years and have compensation band structures that prevent them from attracting the best talent in the market. To obtain a more accurate picture of appropriate salary levels, HR directors should conduct annual market research to determine appropriate salary levels for all positions. The company can then make an offer that is in line with market rates.

Use a third party to negotiate or research

A company may find it beneficial to use a third party to negotiate on its behalf and to better assess the real bottom line of a candidate. The third party can be an internal recruitment team or an executive search firm. These professionals can also help keep the process moving quickly, keep the company in the loop on other opportunities that the candidate is considering, and quickly identify problems in the recruiting process—such as a noncompete agreement or the requirement of a lengthy notice period in the candidate's past contract.

Solidify the connection

In China, most candidates will reject or accept offers based on a comparison of their current and potential managers. Candidates must see greater value in going to work for the new line manager than in working for their current manager. Though the employer brand and compensation package are important, the candidate must also see significant benefits in the new relationship, such as acquiring a new mentor and being exposed to new "higher ups" and training opportunities.

In addition, once a candidate has accepted an offer, it is critical for the new line manager and HR director to solidify an emotional connection with the candidate to combat any counteroffers or emotional manipulation (in cases where the current employer pressures the employee to stay at the job) that can occur at this stage of the process. The new hiring manager should maintain consistent communication with the candidate during the resignation and notice period, or the candidate will likely accept a counteroffer. Frequent follow-up phone calls from different staff in the new organization will create a sense of belonging to the new company and decrease the likelihood that the candidate will accept a counteroffer.

Stay focused

During the remainder of 2008, rising inflation, appreciation of the renminbi, and the dynamics of the global economy could all affect compensation trends in China. Depending on the magnitude of each of these factors, compensation could rise further or level off. To remain competitive when attracting talent, companies must stay focused on their recruiting practices. When companies implement their talent acquisition strategy with focus and flexibility, they will gain a significant advantage in the war for talent in China.

Survey Shows Compensation Hits Record High

This spring, MRI China Group released its most recent Annual Compensation Package Report in China. The report's data was compiled from more than 300 individuals in mid- to senior-level positions who changed jobs from one multinational corporation (MNC) to another, from January 2007 through January 2008. MRI collected data from more than 115 US or European MNCs across industries in mainland China. Nearly 90 percent of those surveyed were Chinese nationals; 10 percent were foreign nationals.

The report reveals that compensation packages for mid- to senior-level staff at MNCs during the period grew to record levels, despite slower economic growth and appreciation in the value of the renminbi. During the period, base compensation rates jumped 38 percent and total compensation jumped 34 percent within the top talent pool. In addition, PRC nationals made up more than 90 percent of sought-after talent.

More than 95 percent of candidates surveyed accepted total compensation that was worth more than their previous package. Of these, 49 percent of candidates received a more than 30 percent increase over their previous total package. Most compensation package increases were in the base salary component, with candidates becoming more focused on guaranteed income than on the total package.

The banking sector reported the highest compensation increases compared to other sectors, likely because of the rapid expansion and opening of the banking industry in China (see Table). Human resources and finance functional positions remained in high demand, with increases of 35 percent and 26 percent, respectively.

—Tony Dickel and Chris Watkins

Table 1: Average Total Package Increase by Industry and Function, January 2007-January 2008
Industry	Average total Industry package increase (%)
Banking	53
Industrial/manufacturing	40
Life sciences	37
Chemicals	35
Retail	31
Consumer products	26
Information technology/technology	24
Supply chain/logistics	16
Function
Human resources positions	35
Finance positions	26
Source: MRI China Group

Tony Dickel (tony.dickel@mrihk.com) is the CEO of MRI China Group and is based in Hong Kong.

Chris Watkins (chris.watkins@mri-china.com) is the China country manager for MRI China Group and is based in Beijing.

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