Perspective - Summer 2009

Asia/Greater China facts and Figures

Salaries and Bonuses Adjusted to Economic Pressures

COMPANIES In Hong Kong both multi-national and local continue to look ahead to a sustained period of economic difficulty. Other cost-cutting measures are also on the agenda. An update to an ongoing series of Watson Wyatt surveys shows that most companies have already made changes to their human capital costs, such as hiring freezes. Many expect to make further cost-cutting changes this year, such as freezing salaries and reducing bonuses.

Cost-Cutting Measures

According to the March survey of 220 companies from 16 different industry sectors representing over 23,000 employees, companies have implemented a range of measures in the economic downturn:

43% of companies surveyed reported redundancies, with an average of 2.9% of their workforces being retrenched in the period up to December 2008.

Pay Trends 2009

Of the companies with salary reviews in January and February, 32% reported an actual salary freeze and a further 18% deferred their usual salary review to a future period. Amongst the remaining 50% of companies, the average increase ranged from 2.2% to 3.2%, reflecting the differential impact of the economic downturn on specific sectors. None of the companies reported an across-the-board salary reduction, although a number have selectively introduced a four day week or reduced hours for some staff groups.

Taking all companies (including those with salary freezes) into account, this represents a 57% drop in the average salary increase rate compared to 2008 (2% versus 4.7%).

Bonus Trends 2009

Variable bonus payouts have also shrunk. Slightly more than half of the reporting companies that have awarded bonuses so far this year (54%) reported a full bonus payout, while the remaining 46% reported an adjusted bonus payout. These adjustments translate into an overall 20% reduction between the 2008 Actual Variable bonus payout of 15% and 2009 payout of 12%. Companies are anticipating the same shrinkage for March � December 2009.

2009 Watson Wyatt Asia Workforce Planning Report

WORKFORCE PLANNING is a strategic response to changing workforce demographics, business models and economic conditions � and in today's environment, it is more crucial than ever. A workforce strategy that can address these challenges effectively will enable employers to make smart human capital investments and proactively manage business risks and costs.

Results from Watson Wyatt's Asia Workforce Planning Survey indicate that both HR professionals and business leaders recognize the need to address their organizations' workforce planning challenges. The current economic uncertainties provide the best opportunity for companies to rationalize and adopt a more strategic perspective to confront their workforce issues. Yet most companies surveyed do not have a formal approach to workforce planning. It is therefore not surprising that many find themselves in a inextricable situation of not being able to demonstrate ROI from their workforce planning activities. Conversely, those organizations that do take a structured approach to addressing workforce planning challenges are more effective at linking their workforce planning analytics to their business processes � a critical first step in being more strategic.

Key findings

Seventy-five percent of companies believe workforce planning has become more important
to their organization's business since the economic slowdown, and more than half have
already begun to increases activity around it.
Scarcity of critical talent is the top workforce planning challenge experienced by companies
surveyed. Even companies that say they have no formal approach to workforce planning,
take steps to address it.
Changing workforce expectations and reorganization are also cited as challenges by majority of the respondents. However, more than 60 percent are not taking any action to tackle them.
Companies that have a considered approach to workforce planning are more effective in providing analytics needed to rationalize business decisions related to talent, than those who just react to the issues as they occur.
High-performing companies are more effective in workforce planning than low performing companies.
Companies that adopt a formal approach are far better at engaging line management in the workforce planning function as well as providing analytics relevant to business processes.

Conclusion: This is the best time to start

Many organizations are going through significant changes because of the current recession. The tendency is to scale back efforts in response to tighter or declining budgets. With so many companies considering major changes such as restructuring or layoffs, effective workforce planning is essential. Workforce planning analysis can be invaluable in examining the human capital elements of significant business changes, but only if the HR department in general and the workforce planning function in particular develop the right metrics and analytics to make an effective business case.

It is encouraging that senior management is supportive for the most part. The challenge is to provide them with the information they need to help drive superior performance through effective cost management and improved productivity. This will go a long way as companies position themselves to remain profitable during the downturn and to take advantage of the opportunities that arise when the economy recovers.

About the survey

In March 2009, Watson Wyatt surveyed business leaders and human resource professionals regarding their organizations' workforce planning activities. The survey covered the objectives and effectiveness of their workforce planning programs. They survey was completed by 224 companies from 11 locations across Asia, representing a broad spectrum of industries with an average size of 3,789 full-time employees and average annual revenues of USD 4.5 billion.

Special Recognition for Watson Wyatt from Sun Yat Sen University, Guangzhou

WATSON WYATT has been presented with an award by the Business School Lingnan (University) College of Guangzhou's Sun Yat Sen University. The award recognizes the successful and long standing collaboration between education and business, in particular Watson Wyatt's involvement in lecturing in their MBA programs and providing internships and career opportunities for their students.

In addition, Deirdre Lander, Head of Human Capital Group for Hong Kong and Director, Organization Measurement for Asia Pacific has been appointed as a Visiting Professor for the next two years by the University, signifying her ongoing involvement with the delivery of the Human resources unit of their International MBA program. Here she is seen with Alex Zhu, Director & Principal Consultant, Watson Wyatt South China receiving the first of the Awards from the Assistant Dean of Lingnan (University) college, Yanmei Zhang.

Directions � A retrospective of Financial Crises

A NEW WATSON WYATT PUBLICATION provides an overview of the major financial crises of the recent past, placing emphasis on the behavior of governments, companies and individuals, to help guide the expectations of key decision makers on the potential effects that the current financial turmoil might have in relation to benefits and compensation. Two examples:

Southeast Asian crisis: end of the miracle

The crisis: In 1997, Southeast Asian economies were severely hit by a crisis that took many by surprise. The weaknesses in the financial sector and external vulnerabilities combined to create an atmosphere of panic among investors and individuals. Macroeconomic and financial indicators were negatively affected.

Key issues for comparison: Like the current crisis, the Southeast Asian financial crisis originated from a combination of excessive market liquidity, inadequate regulation and implicit government guarantees, which led financial institutions to engage in poor-quality and risky lending. As a result, credit deficit rapidly expanded in the economies.

Key Lessons: The cleanup process for risky lending is lengthy and the economic impact is widespread. The resulting reduction in contributions made by companies to pensions necessitated government intervention.

Effects of the dot-com crash on pensions in industrialized countries

The crisis: Overinvestment in technology stocks fed a ramp-up in global stock markets in the late 1990s. Then, between 2000 and 2002, stock markets declined substantially. The effect on the cost of employer-provided retirement incomes was magnified by a decline in long-term interest rates, with the net effect on retirement income of roughly the same magnitude as the current financial crisis.

Key issues for comparison: The dot-com crisis eroded defined benefit pension funding levels, leading many employers to scale back or terminate benefits.

Key lessons: Financial crises lead to potentially long-term changes in the structure of benefit provisions.

Read the full articles and more in Directions in: http://www.watsonwyatt.com/pubs/directions/

Meet Nigel Knowles, IFS
	NIGEL KNOWLES joined Watson Wyatt Insurance & Financial Services Consulting (IFS) as Office Practice Leader for Hong Kong and Head of Risk & Value Management, Asia Pacific. Nigel is an experienced actuary from the UK. He worked for Standard Life for 11 years in the UK and Spain, including in senior and high profile roles in the financial modeling and group risk teams. For the last five years, he has worked in the banking industry with Credit Suisse and HSBC, focused mainly on developing capital markets solutions for insurance companies.
With his strong technical background, Nigel will be spearheading Watson Wyatt's drive in the Risk and Value Management space across the Asia Pacific region and managing the Hong Kong IFS practice.