‘Disruption’ was the central theme of 2016, as geopolitical and technological events as well as natural evolution shaped our world like never before. In HR circles, discussions around productivity, innovation and rating scales (or a world without them) featured in newsprint across the globe.
Malaysia was not insulated from any of these headwinds. The continued decline in oil prices put further pressure on the economy. At 4.2%, GDP growth rate declined to its lowest since the Great Financial Crisis, and CPI-driven inflation didn’t show signs of abating and the spectacular decline of the Malaysian Ringgit compounded the woes. As expected, salary increases slowed down to 5.2%—a far cry from the 6.2% that companies in Malaysia handed out in 2012.
What are employers really afraid of?
The fact of the matter is, Malaysia is an employee’s market. Flanked by Singapore, whose powerful dollar continues to be a talent magnet, Malaysian companies have to constantly be on their toes when it comes to battling turnover. Companies have started putting a premium on hiring talent from the market instead of allocating these premiums to driving performance.
As a result, compensation cost/FTE for Malaysian companies went up by 33% in the last 4 years. Yet, during the same period, sales revenue/FTE went up by only 5%. So while companies were falling over each other to recruit talent at higher costs, the same talent was not delivering results.
Faced with tighter budgets, the average Malaysian employer has become much more conservative in rewarding high performance. As more and more employees continue to ‘creep’ up to the high performing category, this desired differentiation starts diminishing even further. This can’t be deliberate, as it has not borne any positive business results. Attrition rates have been hovering at 14% since 2012. So, are companies missing the most important point here? Do they just fear attrition of employees that they have ‘invested’ so much in to hire?
Is it really pay for performance?
Within Malaysia, the war for talent never seems to take a breather, all the while impacting salary budgets. Moreover the pay for performance narrative, which includes sharper differentiation in performance and pay, seems to have taken a back seat in these disruptive times.
Companies would be typically expected to tighten their budgets and exclusively reward their top performers. But what unfolded in 2016 has raised many eyebrows. Insights reveal that in conjunction with the significant diminishing of salary increases from 2012 to 2016, the differentiation between top and bottom performers also narrowed. In 2012, 31% of the Malaysian workforce was rated to be performing at above average levels. In 2016, this number went up to 38%—when tough times demand performance to be looked at very discerningly.
When it comes to rewards, top performers received an increment that was 1.9 times of what an average performer would have received. In 2016, this was reduced to just 1.35 times. In very simple terms, employers put a lower premium on performance in 2016 than in 2012, back when the economy was growing and times were good.
What’s next for Malaysian employers?
Aon Hewitt’s Employee Engagement research suggests that understanding how work goals relate to the organisation’s goals and confidence that employees will benefit from the organisation’s financial success are key to driving engagement. In these challenging times, more than ever, Malaysian employers must break away from the tradition of containing attrition and spreading rewards across the employee base. Organisations which will be able to take tough calls on sharper differentiation on performance and rewards will be able to retain top performers, drive productivity, and deliver better business results.
Start a conversation with us
Need help with retaining your best talent in Malaysia? Get in touch with us.