Compensation Intervention is Coming to the Asia-Pacific Region

When it comes to remuneration the ancient proverb “He who Pays the Piper Calls the Tune” might be better written “Pay the Piper who plays the Right Tune.” As the economy in the region shows resilience in the face of Bird Flu and even Hong Kong is forecasting 6% growth and thus our thoughts inevitably turn to the prospect of inflation and the annual pay increment. Hotel companies around the region are considering what, if any, adjustments they will be making each year to the payroll. Nothing illustrates the diversity of the Asia Pacific region more clearly than the variety of pay practices, compensation after all reflects the conditions in each environment, at least that is the theory.

In Singapore there is support for a zero increase on pay levels with any reward being reflected in bonus pay. Last year the company contribution to the Central Provident Fund has been reduced to stimulate employment levels in the city.

In Thailand competition for skilled staff remains a key factor in determining any payroll increment and other industries have targeted hotel staff as they are perceived as having essential basic business skills. In 2003 salary increases that might have been provided for in the budget were largely not implemented as SARS and worries in the Middle East prompted a cautious and prudent course. This year a modest increase of 3% to match the cost of living, has been the norm.

In Seoul negotiations with unions determine salary levels and it is understood that the increases will continue to range from between 5 – 9%.

Hong Kong has one of the highest payroll costs in the region, a result of almost two decades of rampant payroll inflation; though the Employers Federation has taken a lead role in recommending that employers hold off pay rises, amazingly after over five years of patchy economic performance the territory’s employers still largely maintain a fixed 13th month bonus. Part of the problem in Hong Kong is that overall Civil Service pay has risen steadily despite economic performance and private sector practice. The challenge is to introduce independent governance in civil service pay which will ensure that government compensation decisions are not administered by those who are the beneficiaries of the system; rather similar to the problems of establishing independent enquiries to determine accountability in other areas.

And here lays the key to appropriate pay practice, independent oversight.

Independent Oversight

It is unreasonable and unrealistic to subject an individual manager to the suspicion that a pay proposal he/she is championing has been determined against a consideration of “what’s in it for me?”. A 3% increase on a salary of a line employee making US$1000 a month is a mere US$30; however further up the food chain the same increment becomes a serious amount. It takes extraordinary courage and objectivity to recommend and implement appropriate pay policies that may not be in the interests of certain individuals or groups of colleagues with whom one is working. Independent oversight is required and smart companies form an independent Compensation Committee to oversee the Company’s compensation programs. This Committee ensures that the Company’s compensation program is designed to attract, retain and motivate employees at all levels, and takes into account the compensation practices of other companies competing for hotel industry talent.

We have all experienced service inconsistencies in the same establishment, no matter the level of training and supervision individual staff members perform at their default capability or comfort level. This means that a customer might experience a rushed and garbled telephone greeting from one operator and the same words pronounced perfectly with warmth and feeling from a another operator. In restaurants customers know, as do Restaurant Managers, that the service varies from one waiter to another; that’s why a VIP table will be allocated the “best” talent available. Everyone knows which staff member will be allocated to check in a VIP or a Corporate executive. Employees who perform outstanding service stand out, they know they’re good, and they expect to be rewarded. It encourages them, it sends a message to others and defines the standards expected far clearer than any standards policies filed away in dusty manuals. Failure to execute a compensation practice that recognizes and rewards talent leaves the competition free reign to pillage and poach with temptations commensurate with the talented employees self image. Pay awards that recognize individual contributions as well as overall business results will ensure the company message is conveyed far better and clearer than any memo or staff meeting. These rewards convey the alignment with financial and strategic company goals and also with stockholder interests. Put simply this requires that a substantial portion of each employee’s compensation be variable and be tied closely to the achievement of specific business objectives and corporate financial goals. No matter what a company says about how the company is performing and how it sees the prospects for the coming year, HOW and WHAT a hotel ends up paying will communicate a much louder and compelling message.

Pay for performance, means a decrease in pay for under achievers!

Pay for performance has long established itself in the text books on compensation, but to ensure it doesn’t remain as a theory stern application of “Pay for Performance” requires that under achievers receive a pay decrease.

Banish the expectation and the implementation of an across-the-board increase. If there is a budgeted payroll increase of say 3% then allocate those Dollars, Baht or Pesos according to individual performance. This means some individuals might receive as much as a 15% – 30% increase in overall annual pay, a hefty reward and one they will notice and remember. However, instead of implementing this reward as an increase in base pay, pay the award in the form of a one off or partially deferred bonus that will not have the cumulative effect of an increase to monthly base pay. Imagine how compelling the following example of a Pay shake up would be. A top performing staff member, who incidentally also receives regular approaches from competitor employers, earns a salary of US$1,000 per month; this staff member expects the usual one month bonus, instead they receive a bonus of US$4000, four times the normal expectation. Alongside this star performer, poor performers receive a decrease in base pay. No need for a memo to communicate this message.

Arguments will be made to the effect that there are few poor performers and that these rare under achievers are systematically disciplined, coached etc., and if no improvement then they are eventually released. Just look at the variety in the proficiency of the required languages in any hotel in the region and you will see the disparity in service delivery; this despite countless years of language classes offered free by hotel training departments.

Yes, such radical pay policy requires courage and objectivity; it will come from informed, knowledgeable and independent oversight not intimidated with the prospect of the “loud” voices of the whispering classes invested in maintaining the status quo.