Salaries in Malaysia expected to rise in 2021 despite COVID-19 crisis, says Mercer survey
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CONSULTING firm Mercer Inc expects any prospects of a wage rise to soften in 2021 as Malaysia’s economic outlook continues to look bleak.
With business shutdowns and job losses mounting, it is safe to say that a majority of Malaysian employees will not be seeing fantastic increments and bonuses next year.
More than 30,000 companies in Malaysia have shut down since March and the job loss tally was close to 90,000 at end-October. Basically, the writing is on the wall for employees expecting hefty salary increments and bonus payouts next year, except perhaps, for those in specific sectors or with niche skills or experience.
Mercer’s annual Malaysia Total Remuneration Survey (TRS) 2020 conducted between April and June this year showed that companies were forecasting an average 5% overall increase in salaries for 2020 — but an updated survey conducted by the consulting firm reveals a softening in the projection to 4.5% for 2021.
While companies initially projected a 5% overall increase in salaries for 2021, recent Mercer surveys reveal a softening on projection at 4.5% for 2021, compared to the actual increase of 4.7% in 2020.
For the High Tech, Consumer Goods and Life Sciences Industry, projected salary increments for 2021 remain relatively stable while the Retail, Manufacturing and Logistics Industry see starker decreases compared to 2020.
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Lower salary increments and bonus payout seen in 2021, survey reveals
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) 1 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. In addition, Mercer also conducts regular pulse surveys throughout the year to keep up with the impact of the rapidly changing business environment and compensation and workforce trends.
Across industries, Lifestyle Retail recorded the biggest dip
Across the industries surveyed, increments for the High Tech, Consumer Goods, Life Sciences and Chemical industries remained relatively stable. 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, while the Chemical industry saw an increase from 14% to 15%. The Lifestyle Retail industry saw the biggest drop from 12% in 2019 to 8% in 2020.
“2019 proved to be a good year for businesses with 87% of companies reporting bonus payouts of 1.9 to 2 months this year. The remaining 13% did not provide any bonuses in 2020. 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.”
- Department of Statistics Malaysia and Bank Negara Malaysia, 14 August 2020
- IMA Asia Brief, 12 October 2020
Mercer believes in building brighter futures by redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being. Mercer’s more than 25,000 employees are based in 44 countries and the firm operates in over 130 countries. Mercer is a business of Marsh & McLennan (NYSE: MMC), the world’s leading professional services firm in the areas of risk, strategy and people, with 76,000 colleagues and annual revenue of $17 billion. Through its market-leading businesses including Marsh, Guy Carpenter and Oliver Wyman, Marsh & McLennan helps clients navigate an increasingly dynamic and complex environment. For more information, visit http://www.mercer.com.