Employee salaries in the private sector increased only by 5% year-on-year, on average, according to a report released today by leading global advisory, broking and solutions company Willis Towers Watson (NASDAQ: WLTW).

In the recently completed Philippine Total Compensation Survey, the 5% increase is a little lower compared to what companies have been budgeting for merit increase every year for their employees, which is at 6%. The 1% differential exists because companies were not able to spend as they are now more careful in allocating this budget, making sure that they use it to reward their high performing employees. The budget has been going down historically, and if that pattern continues in 2017, actual increases will be well below the 6% forecast by the companies surveyed.

Figure 1: Historical Salary Increase vs Inflation Rate

Figure 1 Historical Salary Increase vs Inflation Rate 

The Total Compensation survey report covers three areas – compensation, policies and practices on salaries and human resources in general, and the benefits programs. Industries such as BPO, IT, financial services, pharmaceutical and health sciences, energy and natural resources, retail, construction and engineering, and consumer goods are covered. It is designed to provide companies with guidance on how competitive their compensation and benefits package are relative to their peer companies.

One highlight of the report shows how companies tend to differentiate the pay of their employees through factors such as results and performance, education and background, and proficiency level and expertise.

Differentiating Pay through Performance. “Allocating the merit increase budget conscientiously can go a long way in terms of sending a message of how serious the company is, in their performance-driven philosophy”, according to Vangie Daquilanea, Global Data Services Practice Lead for the Philippines, Thailand, Cambodia and Myanmar. “Well thought out metrics and performance indicators that align with the organisation is critical in making the company’s bonus/variable pay program a success”.

Depending on the industry, the amount of bonus could vary. From the Willis Towers Watson 2016 report, the pharmaceutical industry has the highest bonus pay out, primarily driven by their MedReps’ incentive pay scheme.

Figure 2: Target and Actual Bonus Pay out per Industry

Figure 2 Target and Actual Bonus Pay out per Industry

 Differentiating Pay through Education and Background.

As companies execute their recruitment strategies, they look at credentials and educational background, and differentiate the salary offers accordingly.

Figure 3: Entry Level Salaries by Education Level

Figure 3 Entry Level Salaries by Education Level

“Educational background is further differentiated in terms of the college course or discipline the candidates are in. Those who are in the information technology field command higher starting salaries compared to other courses,” said Daquilanea. “Nowadays IT professionals do not need to in an IT outsourcing company to receive a competitive pay.  Sectors outside IT are now offering aggressive compensation coupled with travel and training opportunities to attract and lure IT talent.”

“While companies may have all these programs in place, if they have not done a proper and thorough workforce analytics, to get a deeper understanding of what will motivate and what programs will be appreciated by the employees, all these investments can go to waste.”

Based on the report, the employee workforce is now predominantly Gen Y, at 64% of the total workforce, 30% Generation X and 6% Baby Boomers.

Figure 4: Labor Market Profile

Figure 4 Labor Market Profile

“Employees are now looking at some flexibility in their benefits packages, something more attuned with their needs. Companies need to listen more to their employees and to be open in adopting a more holistic approach and consider total rewards factors such as career development opportunities, recognition, transparency and open communication, as well as flexible work arrangements,” Daquilanea added.

More details of the report as well as other trends will be shared by Willis Towers Watson on March 8, 2017 at Makati Shang-ri la Hotel, during their HR Annual Conference, Business Agility for the Digital Age.

About the Survey

The Total Compensation Survey Report is an annual survey compiled by Willis Towers Watson’s Data Services Practice. The survey, aimed to address organisation’s most challenging pay questions, such as how their pay strategy measures up to their competitors or if companies are overpaying or underpaying their employees, looks at a range of industry sectors and job grades from factory shop floor to executive suite, and focuses on salary data, HR programs and practices as well as benefits programs.

The survey was conducted in July 2016. Approximately 400 responses were received from companies across 12 industries in the Philippines. Click here to learn more about the annual Compensation Surveys.