In the aftermath of the 2008 global financial crisis, employers in China have become wary of adding headcounts and are struggling with rising costs of wages and benefits.

That was according to research from Aon Hewitt which highlighted that overall salary increase budgets in China have been on the decline for the past few years.

In fact, at 7.6% in 2015, they are at their lowest since the global financial crisis.

A bigger worry for business heads and CHROs, however, is the declining productivity observed across industries.

Compensation & benefits costs as a percentage of revenue have gone up by as much as 50% in some industries – stemming from higher headcounts, rising wages, increased competition, and a slowing economy.

The efficiency of companies’ rewards strategies have also come into question.

Across industries in China, top and high performers formed a significant 34% of the employees, yet only 42% of the total bonus pool was allocated to them for their efforts.

Privately owned enterprises (POEs) are now taking the lead in sharper differentiation in performance and payouts, with bonuses for top performers going beyond three times target.

There is also a distinct supply-demand mismatch in China with an aging, manufacturing-oriented workforce.

Although the overall turnover for China has come down from 16.5% in 2014 to 15.1% in 2015, it is still high for an economy considered to be slowing down.

The functions contributing to this turnover are not the core functions.

Rather, the report found key talent in engineering, R&D and internet are being enticed away by attractive employer propositions.

To attract the best talent, foreign-invested enterprises (FIEs) and POEs are investing aggressively in research and product design and development and are paying local talent at senior levels on par with the US.

Aon Hewitt observed that in China, employers are increasingly being engaged by companies to deliver total rewards optimisation, which looks at rewards from a return on investment lens, thus delivering higher satisfaction rates on rewards and boosting retention.

In China, the time is ripe now for HR to take a strategic and long-term view of talent and then integrate rewards with talent and performance.

Identifying critical talent, high potentials and top performers through robust business and HR partnership will be a success factor for talent retention and development.

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