EMPLOYEES in Singapore need to tighten their belts, going by the findings of a survey on how inflation would
affect salary increment.

Most bosses polled said that inflation has negligible effect on salary movements in the employment market generally, even though inflation hit a 26-year high of 6.7 per cent in March this year.

In the survey conducted in March and April this year by global management consultancy Hay Group, 250 Singapore-based companies from the private and public sectors were asked to indicate their salary increases last year and their projections for the next 12 months.

Although 75 per cent of the companies surveyed said they would factor inflation into salary reviews over the next 12 months, most employers actually plan to maintain only the same percentage increment as the previous year.

So, the overall real wage, that is, wage adjusted for inflation, would still have shrunk by 1 to 2 per cent - should inflation average 6 per cent, and considering that further hikes in fuel and food prices are likely.

It would also affect the employee's disposable income.

Companies that do not actually take into account the impact of inflation in salary movements run the risk of hurting staff morale and losing talent.

SaidMr Andrew How, general manager of Hay Group Singapore: 'The key to talent retention and cost control without damaging the core of business operations is to manage the organisational, relational and human capital aspects as rigorously as you would your balance sheet.'

'One way is to adopt a varied compensation structure that rewards the top 10 per cent and key talent while keeping pace with the inflationary trend.'

He added that it is important to balance the short- and long-term priorities when economies take a downturn, and it
would serve organisations well to continue to focus on people during such times.

'In our experience, we find the best organisations are the ones which turn these situations into opportunities to motivate people and fine-tune operational processes,' he said.

'Leaders of such organisations have enjoyed the spin-offs of keeping employees engaged and motivated, while maintaining the performance required to weather the storm.'

The current business environment places tremendous pressure on organisations to evaluate their variable pay programmes to establish clear links with performance, said Mr How. But tough times are opportunities
for change, and the best companies are able to 're-energise employees around a shared objective'.

And companies that resort to salary freeze or cut to keep costs down during difficult times are downplaying the hard work, loyalty and commitment of their staff. They are also sending the wrong signal to employees that they are not as important as numbers during an economic downturn.

This article was first published in my paper on May 20, 2008

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