Should fresh Singapore graduates receive higher pay than junior employees?

WITH the fight against inflation still ongoing in Singapore, it is encouraging to see more businesses stepping up to support their employees.

A survey by Singapore’s four autonomous universities shows employers here have raised the median gross monthly salary of 2022 fresh university graduates by 10.5 per cent from S$3,800 in 2021 to S$4,200 in 2022, to help with the rising cost of living.

This seems to have sparked resentment, however, among junior employees, some of whom find themselves with lower pay despite having more experience.

Understanding the demand for fresh graduates

Underpinning this phenomenon is strong local demand for fresh graduates. Gen Zs, as this generation is known, seem to be highly valued by organisations now for the fresh perspective they bring, and have also been found to work harder and more passionately than many in my generation, Gen Xs.

More importantly, being an employer myself, I have come to realise that one of the biggest benefits of hiring a fresh graduate lies in them not having learnt any bad habits from being in the workforce for too long. This allows organisations to mould them to better complement the unique needs and demands of the roles they’re looking to fill.

Gen Zs are also extremely adept with technology and pick up on systems very quickly – an advantage in today’s workforce where more and more advanced solutions are brought in to speed up work processes.

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What’s driving these pay discrepancies?

In a perfect world, new hires would begin with a lower salary than existing employees who are more experienced and skilled. But the rules of demand and supply are not forsaken in today’s recruitment landscape.

Some 83 per cent of companies in Singapore experience talent shortages. This means organisations must increase compensation to attract the talent they require.

As starting salaries continue to increase while annual raises of existing employees are stagnating at 3 to 5 per cent, pay compression – where the salaries of fresh graduate hires exceed those of existing junior staff – becomes increasingly prevalent.

Instead of depressing fresh graduates’ starting salaries, however, it is more important to focus on ensuring existing employees are compensated fairly for their contributions.

With both fresh graduates and existing employees demanding higher compensation, are companies now inclined to set a much higher budget for wages? Is this financially sustainable?

How to solve the problem? Invest in a good people analytics system 

An efficient and effective compensation planning system is the key to satisfying the demands of employees while ensuring the financial feasibility of doing so.

People analytics have helped organisations gain insights into the drivers, outcomes and trends of pay across different groups, levels and roles. Its insights assist with evaluating the effectiveness of compensation strategies, identifying pay gaps and disparities, and simulating the impact of different pay scenarios.

Companies use people analytics to assess proposed candidate offers and/or counter-offer considerations, as well as promotions of existing employees. Team leaders and HR personnel can instantly compare compensation profiles, incentive scores, performance ratings and attributes of employees to others on the same team or in similar positions.

With data from multiple sources including managers’ feedback, employee engagement and productivity, people analytics also allows organisations to accurately align pay with performance to measure and reward employee contributions.

People analytics can also predict the factors that determine compensation from both the employee and employer’s perspective. These can include skills, experiences, education levels, location, industry, and market demand.

Advanced systems also examine measures of employee satisfaction, retention, motivation and performance. With a strong understanding of these relationships, organisations can build transparent, fair and competitive compensation structures.

The people doing pay assessments matter too 

No matter how advanced any technology is, it still has its limitations that can only be overcome by a human. People analytics tools require human capability in developing and implementing differentiated compensation systems. Companies should staff their human resource (HR) divisions with professionals with skills in HR management, compensation analysis and talent acquisition.

Here’s why they’re important:

• HR professionals: Good HR professionals understand not only the employee’s value proposition but also the business’s objectives and culture. They also need to have the skills to assess fresh graduates’ potential, aspirations, and expectations. These are the people who design a company’s compensation system that is tailored to its needs and motivations.

• Compensation analysts: These are experts in market trends and salary benchmarking, and who can balance internal equity and external competitiveness, ensuring that pay decisions are compliant with legal and ethical standards. Compensation analysts monitor and analyse the pay data of employees and compare it against relevant market and industry benchmarks. They can also simulate and evaluate the impact of different pay scenarios and adjustments on the organisation’s budget and performance.

• Recruitment specialists: These are the ones who understand the talent landscape and competition. They identify and know how to attract high-potential fresh graduates and to communicate role and pay offers effectively. 

Keeping up with inflation may not be enough in future

In Singapore, more employers are looking to raise salaries, with 67 per cent of them planning to do so in the next year at an average of 6 per cent – just enough to match inflation. Large companies with higher budgets are doing this more decisively – 88 per cent of them intend to increase employees’ salaries while 73 per cent of SMEs are mulling pay raises.

Although this is a positive step towards helping their employees beat inflation, focusing merely on keeping pace with inflation might not suffice in motivating and encouraging innovation and better productivity among employees. This would also not resolve the dissatisfaction of employees who feel they deserve higher raises than their co-workers.

Rather, a merit raise – a type of pay raise that depends purely on how well the employee is performing – would prove more effective. The merit raise is a reward that motivates employees to work harder and perform better to increase their salary – an approach that benefits both employer and employee.

I believe we will see more companies willing to invest in the right compensation tools and HR talent to better understand their employees, and this will pay off when attracting and retaining top talent.

With the right HR personnel harnessing good people analytics systems, businesses can focus on providing transparent and consistent merit pay raises to their employees, ensuring employees are fairly compensated for their contributions and ability.

Terrence Yong is Asia Pacific general manager for Visier, a people analytics provider