Inflation, shortage of skilled staff will lead to higher salaries in 2008

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Companies will have to increase their budget for salaries by nearly 10 percent for next year, according to an industry report released yesterday.

As reported in the Shanghai Daily, the salary increases are a result of both inflation and a shortage of talent. This will add pressure on the companies to improve their profitability, said the China Compensation Report 2007 issued by U.S.-based management consulting firm Hay Group, which based its estimate on information from more than 500 business entities in China.

According to its survey, conducted in July, the companies – from WFOEs and JVs to state-owned enterprises, plan to raise their salaries by an average of 9.4 percent in 2008 – the highest for the past three years.

Inflation will impact on the increase, allowing employees to enjoy an effective increase of 6.4 percent. This is based on an inflation rate forecast at 3.2 percent next year.

“The combined impact of higher consumer price inflation and the shortage of talent have created the perfect storm for employers,” Goh Hern Yin, country manager of reward information services, Hay Group China told the Shanghai Daily.

Blue-collar workers are expected to receive as high an increase as their white-collar counterparts for the first time in three years, largely due to intensified competition for skilled staff. Still, financial service industries like insurance groups and banks will dole out higher-than-average increases in 2008, compared to other sectors like chemical, oil and gas, agriculture, shipping and logistics and retail.

Salary increases in fast-developing cities, such as Suzhou and Tianjin, should be bigger than the national average for they have attracted many large-scale investments from companies like Airbus and Alcan.