While companies in Malaysia forecasted an average 5% overall increase in salaries for 2021 when surveyed in the first half of 2020, recent surveys reveal a softening at 4.5%, with 14% of companies forecasting a salary freeze. This is according to the Mercer’s annual Malaysia Total Remuneration Survey (TRS) 2020, conducted between April and June this year. Additional surveys were also conducted in July and August in light of the fast-changing market environment.
The survey also found that salaries in Malaysia increased by an average of 4.7% in 2020, despite the challenges triggered by the COVID-19 pandemic. However, close to 2 in 10 companies have reported implementing a salary freeze. This marks the first time in four years that overall salary increment has dipped below 5%.
The projected salary increments come on the back of a weak economic outlook for Malaysia, with Gross Domestic Product (GDP) expected to contract between 3.5% to 5.5% in 2020 and continuous pressure on businesses to keep costs down amid uncertainty brought on by the COVID-19 pandemic. Inflation is projected to be at 0.5% for 2021, compared to -1.2% in 20202.
Godelieve van Dooren, Mercer’s acting CEO for Malaysia said, “The economy is expected to stage a rebound in the range of 5.5% to 8% in 2021, and businesses may be cautiously optimistic, taking a “wait-and-see” approach on their compensation strategy, depending on the course of the pandemic. This is likely welcome news for employees as slowing inflation will also give real-wage increases a boost. On the other hand, due to this uncertainty, companies may decide to delay the increase of salaries, or lower the budget even further – depending on the industry segment of the company. After all, affordability remains a key criterion for deciding salary budgets.”
Mercer’s flagship annual compensation and benefits benchmarking study, the Total Remuneration Survey, identifies current pay practices and benefits policies, as well as budget, hiring and turnover trends for the year ahead. This year, 529 companies participated in Mercer’s Malaysia survey.
The biggest dip in salary increases is reported in the Retail, Manufacturing and Logistics industry. Koay Gim Soon, Consulting Leader, Malaysia said, “The salary increment in High Tech is reflective of the growth in demand seen for technology, due in part to the massive shift to remote working and related digital transformation efforts of businesses; as well as general stable demand for consumer goods. It’s not surprising that Lifestyle Retail recorded a drop, given the change in consumer consumption patterns, lower spending capacities and reduced leisure activities as a result of the pandemic.” “However, it is important to note that the impact even within industries may be uneven. In consumer goods, for example, consumer durables as well as beverages like alcohol have come under immense pressure, which may impact salary increments in harder hit sectors.”
The salary trend forecast for 2021 in Malaysia remains stable across job families as well. The top two job families with the highest projected salary increase are healthcare and pharmacy services (5.2%) and production and skilled trades (5.2%). General management jobs are predicted to receive the lowest increment at 3%.
Variable Bonuses for 2020 remained stable, mirroring trends in salary increases Overall, budgeted bonuses for 2020 stayed the same as 2019 at 17%. The High Tech industry saw the highest increase at 22% compared to 20% in 2019. However, we foresee a decrease in bonus payout in 2021, due to sustained uncertainty and the economic impact of COVID-19,” said Mr Koay.
Looking Ahead: A Wait-and-See Approach
With the cautious business outlook, recruitment efforts are expected to slow down in the year ahead, based on Mercer’s pulse survey. 84% of companies in Malaysia indicated that they have imposed a hiring freeze in 2020 with 81.4% stating that the hiring freeze will remain until business stabilizes.
The survey has also seen a shift to remote working arrangements among Malaysian companies. 62.2% of the organization have implemented remote working arrangements; and 31.7% have put in place flexible working arrangements in response to the COVID-19 outbreak. Ms van Dooren said, “Companies have seen some success with remote working, with close to 50% stating that it has not impacted the level of productivity. We expect to see more employers embrace flexible working arrangements post-pandemic, which may give companies an opportunity to consider how they compensate employees and review their total rewards packages. Policies to cover commuting costs or other voluntary benefits such as parking allowances that may have been necessary before the transition might prove unnecessary to a remote workforce. Instead, companies could consider supporting work from home allowances to provide a good work experience at home as well.” “Remote working arrangements will also allow companies to build more diverse workforces, bringing in talent from different parts of the country and the region. While the future still remains uncertain for many employers, it is important to take a longer-term and more holistic view despite the pressures to make short-term decisions. Companies typically pore over compensation and benefits numbers, especially at a time like this, but there is an opportunity to look beyond salary such as enhanced training and flexible health and wellness initiatives, to position their companies for recovery when demand returns.”