Tight labor market, inflation concerns drive PHL employers to boost 2023 pay raises

Salary budgets for employees are projected to increase in 2023, mainly influenced by a continuation of the tight labor market and rising inflation concerns in Asia Pacific (APAC), including the Philippines.

Leading global advisory, broking and solutions company WTW’s (NASDAQ: WTW) Salary Budget Planning Report found that companies in the Philippines are budgeting an overall average median increase of 5.7% for 2023, compared with the actual 5.5% increase in 2022.

This is the highest salary increase budgeted since the pandemic.

Market	2022 actual salary increases	2023 projected salary increases
Australia	3.0%	3.0%
China	6.0%	6.0%
Hong Kong	3.8%	4.0%
India	9.5%	10.0%
Indonesia	6.7%	7.0%
Japan	2.5%	2.6%
Malaysia	4.8%	5.0%
New Zealand	3.0%	3.0%
Philippines	5.5%	5.7%
Singapore	4.0%	4.0%
South Korea	4.3%	4.5%
Taiwan	3.7%	3.9%
Thailand	4.8%	5.0%
Vietnam	7.9%	8.0%

 

Source: WTW 2022 Salary Budget Planning Survey Report – Asia Pacific (July 2022 edition)

Median salary increases by market excluding zeros

The survey results show that 52.5% of employers in the Philippines have budgeted for higher salary increases in 2022 compared to last year.

When asked whether they have changed their 2022 salary increases from their original projections, only 32.5% have made further adjustment from what they have initially planned for while the 51% have maintained the pay budgets they set at the start of 2022.

Dynamic talent and compensation market trends are reflecting dynamic business environment in the Philippines

Overall, the most cited reasons for organizations reporting higher 2022 actual salary budgets versus projections made last year were:

• Concerns over a tighter labor market (59%);
• Concerns related to cost management e.g., inflation rising cost of supplies (58%); and
• Employee expectations for higher increases driven by inflation (44%)

“Compounding economic conditions and new ways of working are leading organizations to continually reassess their salary budgets to remain competitive,” said Patrick Marquina, Work & Rewards Leader, Philippines, WTW. “Although higher salary increases are expected, various industries are showing different developing rhythms. With such a dynamic environment, it’s imperative for organizations not only to have a clear compensation strategy but also a keen understanding and appreciation of the factors that influence compensation growth.”

Industry	2022 median actual salary increases	2023 median projected salary increases
Consumer Products	5.6%	5.8%
Energy and Natural Resources	6.0%	6.0%
Financial Services	6.0%	6.0%
Fintech	7.0%	7.1%
High Tech	5.5%	5.7%
Pharmaceutical	5.5%	5.7%

 

Source: WTW 2022 Salary Budget Planning Survey Report – Philippines (July 2022 edition)

Median salary increases by industry excluding zeros

Despite concerns on inflation and rising cost, 65% of companies are not looking into making more frequent salary increase adjustments with only 35% having already increased or planning to increase how often they raise salaries. Among those respondents, the vast majority (98%) have or will adjust salaries twice per year.

Companies are taking non-monetary actions for talent attraction and retention

According to the survey, attraction and retention challenges continue to plague organizations across the country, although fewer respondents expect those difficulties to be at the same level next year. Eighty-six percent (86%) are experiencing difficulties attracting talent this year, but only 38% expect difficulty in 2023. Similarly, 84% of companies reported difficulty retaining employees this year, but that number is expected to drop to just 49% next year.

Information Technology skills are most sought after by companies. In the Philippines, 64% of the organizations are looking to recruit digital talent in the next 12 months. Yet these professions are some of the most difficult to attract and retain, as three-quarters of companies experienced problems in attracting (74%) and retaining (66%) them.

In response to these issues, many organizations have taken or plan to take non-monetary actions to attract talent. For example, 65% of respondents have increased workplace flexibility, and 20% are planning or considering doing so in the next couple of years. More than half of the respondents (58%) have placed a broader emphasis on diversity, equity and inclusion (DEI), and 24% are planning or considering doing so in the next few years. Additionally, 45% of companies continue to enhance recruitment offers with sign-on bonuses and incentive awards, while 22% are planning or considering doing so in the next few years.

Facing a fierce battle for talent, employers are taking various reward approaches

Efforts to retain talent are also under way. In the Philippines, 59% of companies have broadened their emphasis on DEI to retain more talent, and 25% are planning or considering doing so. In addition, a little more than half (52%) have increased the flexibility for remote work, and 26% are planning or considering doing so in the future. Almost 40% have changed their compensation programs (e.g., base salary and short- and long-term incentive plans), and another 35% are planning or considering to. Thirty-six percent (36%) have already made changes to improve their employees’ experience while 45% are planning or considering doing so.

“With significant risks in the global economy, continued high inflation and employers grappling with talent supply challenges, organizations need to get more creative to address attraction and retention challenges,” added Patrick. “The workforce is composed of a diverse employee population, each with their own unique dynamics. Employers are challenged to meet their preferences and needs while delivering on a superior employee experience for all.”