China’s Pay Problems

Employers in China are facing challenges on the compensation front, according to two new studies. Both dovetail with reporting I did in China earlier this year.

On Tuesday, March 13, consulting firm Watson Wyatt said Chinese workers are far less satisfied with their pay and benefit packages than workers in the rest of Asia Pacific and in the United States. According to Watson Wyatt's study of 180 companies and 60,000 employees in China, only 28 percent of mainland Chinese workers rate their compensation and benefits favorably, compared with 38 percent in Asia Pacific as a whole and 47 percent in the United States.

Faulty communication is part of the problem, according to Watson Wyatt. "[W]hile Chinese workers cite communication as a main driver of job satisfaction, many don't know how performance is measured or receive a consistent message from their company on the link between high performance and an individual's pay," the report said.

Watson Wyatt’s findings are consistent with what I learned about HR departments in China. Although progress has been made during the past decade, the HR field in China is in some respects far from Western standards. That’s partly a function of history. Traditional Chinese enterprises have not had much in the way of market forces to push them to develop sophisticated compensation or performance management skills.

On Monday, March 12, consulting firm Hay Group announced forecasts of real base salary increases for administrative, professional and senior management in 2007 for 50 countries worldwide, based on employers' projections once inflation has been considered. Hay Group said China tops the table for each of the three job categories, with a predicted a 7.9 percent increase for administrative workers, 7.8 percent for professionals and 8.9 percent for senior management.

By comparison, each of those types of workers in the United States will get real base salary increases of 1.4 percent, according to the report.

"The wealth created by rapid, focused economic development is resulting in a pay boom for Chinese and Indian workers, who will enjoy some of the largest real pay increases worldwide in 2007," Hern Yin Goh, director of Hay Group Reward Information Services in Shanghai, said in a statement.

Hay Group’s research is in keeping with the steep pay gains for leaders I heard about in China. Helen Tantau, senior partner with executive search firm Korn/Ferry International in Shanghai, told me local Chinese leaders with good track records can expect salary increases in the 10 percent to 20 percent range.

At the root of big salary gains for execs in China is a dearth of managers there prepared to do business in an international setting, combined with strong demand for such expertise amid the country’s fast economic growth.

Even as executive pay goes up in China, Chinese workers’ satisfaction with compensation is falling, according to the Watson Wyatt report. It says that in 2005-06, 21 percent of Chinese workers gave their total compensation package (pay, bonus and incentives) a favorable rating, compared with 27 percent in 2003-04.