More companies link salaries to performance
JAKARTA (JP): The economic crisis has forced many companies in Indonesia to pay employees based on their performance, a common practice in the West, a human resources consultant said on Wednesday.
Because of soaring inflation in 1998, companies have abandoned the old practice of linking salaries to the consumer price index, PT Watson Wyatt Purbajaga's president Lilis Halim said.
Speaking on the sidelines of a presentation of Watson Wyatt's New Phase Corporate Compensation seminar, she said a survey of 150 companies in Indonesia found salary levels had increased by 18.31 percent in 1998 when inflation was running at 77.63 percent.
In 1997, the year the crisis began, the average increase was 16.39 percent against an inflation figure of 11.05 percent.
This year, the average increase will be 21.41 percent while inflation is predicted to be less than 5 percent, according to the survey, which was mostly based on joint venture companies.
"The survey tries to identify the impact of the crisis on companies' rewards systems," Lilis said.
While inflation was still used when calculating salary increases, individuals were now compensated more based on their performance, she said.
Companies with Asian cultures had been reluctant to relate salary increases to performances, she said, because "It's difficult for Asians to say that someone is lacking in performance."
That has changed because the crisis has forced them to adopt the compensation scheme widely practiced in Western companies.
"Companies rewarding employees based on their performance enjoy better productivity levels," Lilis said.
Providing stock options, she added, was one of the practices surveyed companies had adopted in linking compensation to the performance of their executives. Stock options would motivate executives to improve their performance, she added.
The shift in compensation practices was part of the corporate restructuring wave, in which companies had to find new ways of motivating their employees, she said.
A commonly found problem in human resources management during the crisis was a lack of motivation among employees because companies were cutting back on benefit packages, reducing the numbers of expatriates and in some instances downsizing their staff, Lilis said.
"Before the crisis, many executives were given huge bonuses and facilities which became too costly to maintain," she said.
The survey found that many companies had frozen employees' loan programs, for cars and housing, because of high interest rates.
Club memberships, often provided to managers and above, have been limited to directors and selected managers within sales and marketing departments, the survey reported.
Another change brought about by the crisis was the increasing search for local top executives, after most companies had repatriated their expatriate staff, Lilis said.
Companies were now willing to pay high salaries in a bid to attract local talent, she said.
Salaries of expatriates who remained were maintained as companies tried to maintain those whose performance was high.
As a result, the gap in basic salaries between top local executives and expatriates had narrowed, she said, adding however that expatriates usually receive huge allowances, particularly for housing and cars, on top of their salaries.
Watson Wyatt, which opened its Jakarta office in 1990, surveyed 21 different industries including life and general insurance, consumer products, foreign and joint venture banks, construction, retail and supermarkets and tobacco.
It predicts salary growth next year in 11 industries, with the shipping sector leading with 25 percent, followed by fund management (22.60), life insurance (20.71), foreign banks (18.91), information technology (17.46), pharmaceuticals (17.13), consumer products (17.06), joint venture banks (16.21), distribution (15.59), general insurance (15) and buying agencies (13.56). (03)