Bigger pay hikes in 2022 as employers price in higher cost of living: HR firms

EMPLOYERS are expected to provide larger-than-usual salary adjustments in 2022 to stay ahead of soaring inflation, say human resource and employment consultants, with companies such as Singtel already doing so.

Nominal pay rises must outpace inflation for wages to grow in real terms. Headline inflation is expected to be 4.5 to 5.5 per cent in 2022, up from 2.3 per cent in 2021; core inflation is expected to be between 2.5 per cent and 3.5 per cent in 2022, up from 0.9 per cent in 2021.

Despite fears that inflation will erode wages, Singapore is still likely to maintain real wage growth in 2022, according to the latest wage practices report by the Ministry of Manpower on Monday (May 30).

This is as companies respond to higher-than-expected inflationary pressures with larger pay rises, said HR and employment firms.

Last year, ECA International estimated that Singapore companies would raise salaries by a median of 3.5 per cent in 2022, which “would mean that many in Singapore will receive a decline in their real salaries this year” as inflation busted expectations.

But “given the current situation, it may well be likely” for this year’s pay rises to be higher than earlier projected, ECA regional director for Asia Lee Quane told The Business Times (BT).

“Pressures around inflation and the ongoing labour crunch are expected to lead to an increased demand for higher wages by workers,” he said. “As such, companies looking to either recruit or retain employees in 2022 would likely need to adjust their remuneration strategies accordingly.”

Similarly, Lionel Low, client solutions principal at Mercer Singapore, expects companies to offer higher salary increments in 2022 – just as they did a decade ago, in the wake of the global financial crisis, when inflation here crossed the 4 per cent mark.

“Typically, unionised organisations and organisations that have a more family-like culture or are more employee welfare-focused will be among the first to do so. This in turn creates pressure for others to follow,” he added.

Faiz Modak, associate director of tech and transformation at Robert Walters Singapore, believes that salary raises could be around 5 per cent to 10 per cent this year.

Meanwhile, Rahul Chawla, head of human capital solutions for South-east Asia at Aon, expects annual increments to come in around 4 per cent to 4.5 per cent, depending on the sector. This is on the back of earlier “off-cycle” increases that some companies initiated last year for entry- and mid-level talent with in-demand skills.

Some firms are already pricing the inflationary backdrop into their latest salary reviews. A spokesperson for mainboard-listed Singtel told BT that inflationary pressures were factored into its most recent salary adjustment in April “to provide greater certainty and more competitive salaries for our people”.

KPMG recently pledged some S$25 million this financial year to hike salaries for Singapore employees, with firm-wide annual increments that are “in step with or ahead of market”. Starting pay for entry-level professional staff is slated to go up by as much as 20 per cent.

Janice Foo, head of people for KPMG Singapore, told BT that a limited talent pool means that pay cheques in the professional services industry “cannot be dependent on core inflation – our salary adjustments will usually need to be more than inflation”.

Similarly, a spokesperson for Temasek Holdings said that the state investment firm took into consideration a range of factors – including cost of living – in its latest assessment in April.

Maybank Singapore has set aside a larger budget for raises this financial year compared to the last 2 years, due to the improved economic outlook, said its head of human capital Wong Keng Fye.

“With inflation rising significantly in this quarter, Maybank will closely monitor the impact of inflation on staff’s welfare,” he shared, adding that the bank will factor in “various economic indicators” to determine its budget for salary increases during its next review.

Meanwhile, Jacinta Low, head of human resources planning at OCBC, said that wage policies take into account current economic conditions and the bank’s overall performance.

Public and private sector economists indeed expect pay rises to outstrip inflation in 2022.

At the release of first-quarter gross domestic product figures on May 25, Yong Yik Wei, director of the Ministry of Trade and Industry’s economics division, said that “we do expect above-trend wage growth this year and our current expectation is for real wage growth to be positive” – especially as a tight labour market puts upward pressure on wages.

Yong also noted that moves “to uplift the wages of lower-income workers” taken by the government – such as the extension of the progressive wage model (PWM) to the retail industry from Sep 1, 2022 – should help to lift their nominal wages.

DBS senior economist Irvin Seah told BT that overall, “real wage growth would likely register a modest increase amid a positive output gap and extremely tight labour market” amid a record high ratio of vacancies to unemployed, though wage growth will be uneven across sectors.

Maybank economist Chua Hak Bin expects nominal wage growth of 6 per cent to 7 per cent this year, up from 3.9 per cent in 2021, which should make for real wage growth of 1 per cent to 2 per cent.

Yet this is “muted” compared to pre-pandemic rates, he noted. Real wages grew by 1.6 per cent in 2021, against 1.4 per cent in 2020 and 3.3 per cent in 2019.

Selena Ling, chief economist at OCBC, is less optimistic: “It is difficult to say if nominal wage growth can outpace headline inflation – that is, to get positive real wage growth – this year.”

The effect of inflation may also differ across income groups. Households in the bottom 20 per cent of the resident population saw the biggest falls in real income from work per capita in 2020 – followed by the biggest growth in 2021.

Private transport costs have been a major driver of inflation, rising 17.8 per cent in the first 4 months of 2022.

But Ling noted: “While it is true that rising private road transport costs affect the higher-income groups more, food is an essential and food inflation will cut across all income groups.” Prices of non-cooked food items were up by 3.4 per cent in the same period.