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In Southeast Asia, staffing challenges are driving many organizations to examine hiring and pay policies. Key to organizations success in the region is meeting demand for employees and retaining trained workers.

Despite the collapse of the Thai Baht and other serious market shifts in the past several months, Southeast Asia is likely to continue to be one of the highest growth areas in the world in the years ahead. While future annual growth rates are expected to slow from about 6 percent to 10 percent (the historical growth rates of the past 15 years) to the more sustainable 4 percent to 6 percent range, rates still will be nearly double that of the growth rates in more developed countries.

Malaysia, for example, is expected to exceed 4 percent growth over the next year. This is a significant drop from last year, but is still greater than the projected 1.5 percent growth expected in the United States. Under pressure from the International Monetary Fund (IMF), Southeast Asian governments are reviewing their monetary policies. In Indonesia, the government recently ordered several banks closed. The IMF has created a $33 billion bailout plan for Indonesias financial institutions. Similar plans are being implemented in Thailand and the Philippines. The IMF has termed the current crisis as a maturing process that will allow Asian nations to reevaluate their financial institutions and establish high-quality growth in the future.

The impact of the regions growth on human resources hiring, training, compensation, benefits and other areas will continue to shape global and regional organizations practices and programs. In the short term, financial difficulties may hurt the Asian job market. Organizations may engage in less hiring, wage inflation may decrease, and new business programs may be put on hold. In the long term, organizations are likely to realign, then resume many of their practices.

In general, as the regions economy has moved away from an agrarian to industrial and technological producer, employers increasingly will need highly-trained professionals, which local educational institutions cannot adequately supply.

Meeting Demand

Southeast Asian faces a shortage of skilled and technical workers. By 2000, Thailand is likely to have up to 15,000 unfilled positions in the information technology industry alone. Malaysia also is suffering from a shortfall in various skilled professions. The impact of these economic forces on organizations is creating challenges for employers, including high turnover, escalating wages and employee expectations that exceed organizations abilities to accommodate them.

Besides rapid growth, another influence affecting staffing is emigration. Salaries generally are lower in many Southeast Asian countries than in more developed nations and, as a result, professionals often move abroad when opportunities arise.

Hiring

With the severe shortages of qualified professionals and technical workers, recruiting is difficult and competitive among employers, leaving organizations with three options:

• Hire locals.
• Hire returnees.
• Hire expatriates.

Recruiting in the local market is the most problematic for multinationals. The number of skilled workers available from the local market is few, prompting organizations to pump money into on-the-job training. The drawback to this type of program is that, once trained, the employees value drastically increases, and they can be easily enticed by higher paying firms to leave. This poaching phenomenon has lead to high employee turnover rates.

Recruiting returnees, or locals that have gone abroad for education or employment, has a number of advantages. Returnees come back familiar with Western business practices, and they have no language barrier. However, typically returnees demand a higher salary and more benefits than local workers do.

Recruiting expatriates, even those who know the organizations products and the culture, may seem attractive to an organization opening an office. However, recruiting expatriates is often an expensive and cumbersome process. Salary and compensation packages out of the regional norm as well as government regulations make recruiting expatriates not worth the effort.

Remuneration

 In comparison to mature markets, wages in Southeast Asia are low. For unskilled workers, a wage of less than $10 a day is common. Minimum wage, the U.S. benchmark of compensation, was largely unheard of in Southeast Asia until recent years.

The minimum wage scale in Southeast Asia is region-dependent. To entice industrial growth outside major cities, several Southeast Asian countries have lowered the minimum wage in rural areas. The minimum wage in Manila, Philippines, is approximately $5.60 per day. In rural areas, the minimum wage is as low as a daily wage of $4.50.

Until 1989, Indonesia had no minimum wage. During the first half of the 1990s, the wage tripled in nominal terms and doubled in real terms. The wage increase led to a 10 percent increase in average wages, a 2 percent decrease in employment and a 5 percent decrease in investment, according to a World Bank report. Because investments are an essential part of growth, minimum wage is an issue Southeast Asia governments are attempting to address.

As part of total remuneration, many Southeast Asian organizations pay workers a bonus or thirteen month salary. The bonus, which is contingent on the success of the employee and organization, may amount to three months salary.

Over all, salaries for mid- to upper-level executives in Southeast Asia still are substantially lower than salaries in neighboring countries. For example, an executive in Hong Kong earns 2.58 times as much as an executive in Malaysia. Also, as of November 1996, mid- to senior-level executives still earn less than their counterparts in Poland, Greece and Portugal. With a short supply of well-trained and educated professionals, however, salaries in Thailand, Malaysia and Indonesia rapidly are increasing. Organizations are paying higher salaries to keep employees from job-hopping or being poached by other companies.

Executive salaries have increased steadily in recent years. Besides a regular salary, many large organizations provide a contractual bonus of one months salary and a discretionary bonus based on individual and organization performance.

In spite of this trend, many CEOs recently have moved to or demonstrated an interest in moving to variable pay and strategic rewards. Many CEOs in this region hope to slow the rapid, yet arbitrary salary increases and move toward a productivity-based system of payment. Watson Wyatt Worldwide surveyed 88 companies in Indonesia in a range of industries and discovered that many companies were worried about their ability to pay salary increases over the short term. However, the current economic problems have led to a marked increase in the number of companies implementing performance-based bonuses and also an increase in the number of companies planning to implement such a strategy within the next one or two years.

Benefits

Many Southeast Asian governments are attempting to establish labor laws that ensure a wide variety of benefits. All governments in the region entitle workers to national holidays and one day of rest per week. Vacation benefits vary throughout the region from one to three weeks per year. Sick days and maternity allowances vary from country to country. (See Other Benefits.)

Other Benefits

As occurs in other parts of the world, many organizations operating in Southeast Asia offer additional benefits to retain highly valued employees. For executives, some companies offer discounted company products, entertainment allowances and additional health insurance for executives. Other benefits for higher-level employees include housing, entertainment costs, car costs (which may include gasoline, maintenance and registration costs), maid service and executive club membership. Expatriates also may receive education, relocation and hardship benefits to work in the region.

Many Southeast Asian nations have housing policies to which organizations need to contribute. For example, in the Philippines, the Home Development Mutual Fund (HDMF) is supported by a combination of employee and employer contributions. Employees who earn over $135 a month contribute 2 percent of base salary to HDMF, and employers provide a matching fund. In Malaysia, housing benefits are included as part of Employees Provident Fund (EPF). The EPF is a mandatory government savings program that requires employees to contribute 11 percent of their income, and employers match that amount. Sixty percent of this fund is available for death, disability or upon permanent emigration; 30 percent is available for housing; and 10 percent is available for health concerns. The housing portion can be used toward the purchase of a house or to settle outstanding loans.

As an extension of their benefit plans, in Malaysia some organizations offer housing loans to executives after the individuals have worked there for a number of years. These vary in size according to the seniority of the employee. Interest usually is lower than a home loan charged by banks, and the repayment period is usually 15 to 20 years.

Retirement

Southeast Asian nations all have a form of social security. The systems provide health, retirement and compensation for injured workers. They generally are funded by a combination of taxes levied on employers and employees. Since many countries have experienced difficulties with inflation, retirement benefits are often paid as a lump sum.

Culture and HR

Southeast Asia is an ethnically and religiously diverse area. Religious diversity is an issue organizations need to be aware as they design pay practices, leave policies and other factors. For example, Moslems in Malaysia and Indonesia may wish to pray five times a day, and have meals prepared in accordance with Islamic dictates.

Cultures in the region are less oriented towards individuals, as in many Western countries, but more oriented towards the group. As a result, workers share a sense of cooperation or inherent team orientation rather than a competitive one. In Thailand, for example, employees have great respect for paternalistic hierarchy in which age commands respect. The culture values social harmony, shuns conflict and is quick to recognize authority. Culture, like other factors, serves to shape HR practices and impact organization policies.

About the authors  Ames Gross is President of Pacific Bridge Inc., a recruiting and human resource firm that specializes in helping U.S. companies with staffing in Asia. Tim McDonald is an Associate at Pacific Bridge.

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