New rewards culture on the horizon for China as growth slows

Author: Liana Cafolla | Date: 22 Dec 2015

More sustainable progress should be the aim, says Aon Hewitt

China’s slowing growth marks a switch to a more sustainable type of economic progress and a structural turn that offers organisations the chance to take stock and refresh.
 
That is the essence of Aon Hewitt’s recent paper, ‘China’s Structural Shift – Rethinking Rewards’, which sees opportunities for growth in China’s still dynamic economy. “A successful organisation transformation within the current economic context rests on the key pillars of big data-driven analytics, customer centricity, go-to-market agility, and productivity enhancement,” says the paper. “With these forming a foundation, companies are looking to build key capabilities to outpace competition.” E-commerce and sales force effectiveness, along with innovation, will play leading roles among these capabilities, the paper adds.
 
Organisations should look to the pharmaceutical industry, which seeks to improve sales by focusing more on service and technical expertise. This shift is backed up by the drop in the number of direct sales representatives in the most economically important cities, which fell by four per cent in 2014-15 after increasing by 16 per cent between 2011-12, pointing to a ‘new normal’ emerging in this arena.
 
Wage budgets have been declining in China for the past several years. Now standing at 7.6 per cent, pay increases are at their lowest levels since the onset of the financial crisis. But there are deeper concerns, warns the paper: “A bigger worry for heads of organisations and CHROs… should be the declining productivity observed across industries. Compensation and benefits as a percentage of revenue has gone up by as much as 50 per cent in some industries, on the back of higher headcounts, rising wages, increased competition and a slowing economy.”
 
Aon Hewitt’s research shows that companies are growing wary of increasing headcounts and opting instead to focus only on hiring quality talent. Progressive companies are looking to develop a sustainable rewards strategy based on pay for performance, pay for position and perceived value.
 
Pay for performance: Across industries in China, top and high performers formed about one-third of employees, but received just 42 per cent of the bonus pool. “Privately owned enterprises (POEs) are now taking the lead in sharper differentiation in performance and pay-outs, with bonuses for top performers going beyond three times target. Clearly, the intent is there, but the sustainability needs to be tested,” according to Aon Hewitt’s paper.
 
Pay for position: Key talent in engineering, R&D and Internet is being enticed away by attractive employer propositions. Companies are responding by integrating their rewards programs with talent management, and positioning key functions and critical positions at a premium compared to other functions. “Foreign-invested enterprises (FIEs) and privately owned enterprises are investing aggressively in research and product design and development, and are paying local talent – at senior levels – on a par with the US.”
 
Perceived value: “The full spectrum of an organisation’s investment in fixed cash, bonuses, social and supplemental benefits and career development now need to be revaluated for their efficacy as employee preferences,” says the paper.
 
The private sector will continue to find innovations that unlock the untapped entrepreneurial potential of its aspirational workforce, particularly millennials, predicts Aon Hewitt. “We will see more examples of aggressive long-term incentive plans and co-investment in POEs. The FIEs will have to leverage their robust practice and systems, while adapting their variable pay schemes to the Chinese market.”