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China’s Structural Shift - Rethinking Rewards
The ‘New Normal’ – Not a Surprise

Hong Kong, 29 October 2015 – Today Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), shared in its Aon Hewitt Annual Rewards Conference – 2015 Hong Kong the latest trends and outlook into Greater China talent and rewards.

*Long before President Xi Jinping made his ‘New Normal’ speech in November 2014, the Chinese government already had sent many signals that they would be taking a new route to sustainable economic growth. When President Xi introduced the world to the ‘new normal’, he was just reiterating with a final mark of authority, what the world had seen coming for more than the previous 18 months. 

In the midst of the current deceleration in growth, the Chinese economy is also making a ‘structural turn’. Organisations across industries and sectors are feeling the effects of this slowdown; some had anticipated it in the last 18 months and geared up for it.

An Opportunity to Take Stock and Refresh
Nonetheless, it is important to recognise that although the Chinese economy is slowing down, it remains dynamic and still offers abundant opportunities for companies to grow. A successful organisation transformation within the current economic context rests on the key pillars of big data-driven analytics, customer centricity, go-to-market agility, and productivity enhancement. With these forming a foundation, companies are looking to build key capabilities to outpace competition. These capabilities will span across the traditional sales & market organisation, placing special emphasis on e-commerce and sales force effectiveness. Innovation is another indispensable capability that the government, private and foreign players in China are striving hard to build.

In the ‘new normal’, companies can achieve breakout growth by synthesising strategies across sales, marketing and distribution. They can no longer rely on relationship selling or adding sales headcount to achieve revenue growth. As an example, pharmaceutical companies are looking at tweaking their sales model to focus more on service and technical expertise, rather than purely ‘feet on street’ selling. The direct sales rep headcount in Tier 1 cities fell by 4% in 2014-2015. Comparing this with 2011--2012 when the headcount increased by 16%, we know that there is a ‘new normal’ being played out here. Similarly, there is an emphasis on increasing engineering headcount and in industries like Auto Vehicle and Machinery. With a long term focus on building innovation capability; these industries have started reconfiguring their workforce.

Overall salary increase budgets in China have been on the decline for the past several years and at 7.6% in 2015 are at their lowest levels since the Global Financial Crisis. A bigger worry for business heads and CHROs, however, should be the declining productivity observed across industries. C&B cost as a percentage of revenue has gone up by as much as 50% in some industries, on the back of higher headcounts, rising wages, increased competition, and a slowing economy. 

While there is a war for talent, companies are becoming more wary of increasing headcounts and instead want to focus only on hiring quality talent. A cross-industry view of the Aon Hewitt 2015 China TCM Study revealed that headcount increase rates are projected to decline (to mostly single digits) across industries, with consumer goods being the only exception. Companies are willing to invest in longer-term measures like upskilling and reskilling employees, workforce planning and organisation redesign. On the rewards front, progressive companies are looking to develop a sustainable rewards strategy that rests on the three Ps of Pay for Performance, Pay for Position and Perceived Value.

- Pay for performance: Companies with sustainable rewards programs are not just looking at increasing their overall budgets, they are allocating a bigger share of the pie to   the top performers.

- 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. Clearly, the intent is there, but the sustainability needs to be tested. 

- Pay for position: There is 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 still is high for an economy considered to be slowing down. The functions contributing to this turnover are not the core functions;  rather, it is the key talent in engineering, R&D and internet who are being enticed away by attractive employer propositions.

- Hence, companies are increasingly integrating their rewards programs with talent management and positioning key functions and critical positions at a premium  compared to other functions. In fact, 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 a par with the US.

- Perceived value: The full spectrum of an organisation’s investment in fixed cash, bonuses, social and supplemental benefits, and career development now need to be  re-evaluated for their efficacy as employee preferences. Some insured and non-insured benefits as well as career development programs designed just a few years ago are now being seen as budgetary burdens that do not deliver any quantifiable value for employees. Thus, Aon Hewitt in China is 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.

What next?

The private sector will continue to innovate on practices that unlock the huge entrepreneurial potential of its aspirational workforce, especially the ‘millenials’. This generation has not only been brought up in a period of economic growth, they are also witnessing significant start-up successes amongst their peers. We will see more examples of aggressive Long-Term Incentive (LTI) plans and co-investment in POEs. The FIEs will have to leverage their robust practices and systems, while adapting their variable pay schemes to the Chinese market.

Career opportunities and Rewards continue to play an important role in China as detailed in the Aon Hewitt Best Employer 2015 findings[1]. The time is ripe now for HR to take a strategic and long-term view of talent and then integrate rewards with talent & 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. Managers need to take tough decisions on rewards, as budgets will be limited and talent quite mobile.

The next few years will undoubtedly pose challenging questions for CHROs across China --questions that can only be answered through practices that are groundbreaking and fundamentally sound. Companies will need to identify their core strengths, key capabilities that need to be built, and the right strategies to build those capabilities. Organisation architecture, talent development, and rewards will need to rally around these identified capabilities. The organisations that ultimately succeed in doing this will be the ones who demonstrate not only speed-to-execute, but also great agility in adapting to the ‘new normal’. 

ENDS

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To order the full length Aon Hewitt white paper: China’s Structural Shift - Rethinking Rewards, The ‘New Normal’ – Not a Surprise” by Rahul Singh Chawla, please contact Nicole Lai nicole.lai@aonhewitt.com.

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further infor­mation on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com

About Aon Hewitt
Aon Hewitt empowers organisations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organisational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt in Asia Pacific, please visit www.aonhewitt.com/apac

While there is a war for talent, companies are becoming more wary of increasing headcounts and instead want to focus only on hiring quality talent. A cross-industry view of the Aon Hewitt 2015 China TCM Study revealed that headcount increase rates are projected to decline (to mostly single digits) across industries, with consumer goods being the only exception. Companies are willing to invest in longer-term measures like upskilling and reskilling employees, workforce planning and organisation redesign. On the rewards front, progressive companies are looking to develop a sustainable rewards strategy that rests on the three Ps of Pay for Performance, Pay for Position and Perceived Value.

Media Contact:

Romy Serfaty, Head of Regional Campaigns, Asia Pacific, Middle East, Africa | Tel: +852.2917.7952 | Email: romy.serfaty@aonhewitt.com

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* To order the full length Aon Hewitt white paper: China’s Structural Shift - Rethinking Rewards, The ‘New Normal’ – Not a Surprise” by Rahul Singh Chawla, please contact Nicole Lai nicole.lai@aonhewitt.com

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