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Employee Retention Problems in China

September 5 2006 - Companies in China are struggling to retain their professional and support staff, and face having to pay higher salaries or excessive recruitment costs, according to research by Mercer Human Resource Consulting, a global leader for HR and related financial advice and services.

The China Employee Attraction and Retention Survey 2006 covered 114 organizations in Greater China, many of which are multinationals. About one-quarter (24 per cent) were from the high-tech industry. Other major industries included were consumer (19 per cent), chemical (14 per cent), pharmaceutical (11 per cent), automotive (8 per cent), and service (6 per cent).

The survey found that 54 per cent of organizations have experienced an increase in turnover for professional staff since last year, while 42 per cent have reported higher turnover for support staff. The survey also reveals that the average tenure for the age group most targeted by multinational companies (25-35 year-olds) fell from an average of 3-5 years in 2004 to just 1-2 years in 2005.

Fermin Diez, national business leader of human capital at Mercer Aus/NZ, said:

"The employment market in China has ignited in recent years, as more multinational organizations set up operations there and local companies expand. Individuals with transferable skills have become a valuable commodity, and companies are battling to keep hold of them. When employees threaten to walk out of the door, many companies respond by throwing more money at them. While this can sometimes work in the short term, more often than not a competitor is willing to pay just as much. Companies are starting to realize they need to be more sophisticated in their approach to employee attraction and retention. Those that offer variable pay, promote 'softer' benefits like flexible working and provide meaningful career opportunities, are most likely to keep hold of their best employees."

The survey found that 83 per cent of organizations offer healthcare and related insurance, while 41 per cent provide health and fitness plans and 24 per cent offer flexible working. Just 21 per cent offer supplementary pension plans and 10 per cent provide subsidised loans. Results also show that 44 per cent of organizations believe their employees are dissatisfied with the benefits offered.

Overseas assignments are felt to be the most effective tool for career development, although only 42 per cent of organizations offer such opportunities. Individual career development plans, offered by 51 per cent of companies, are also believed to be effective. In contrast, mentorship programmes are considered relatively ineffective and are offered by just one-quarter (26 per cent) of companies.

Fermin Diez said:

"Attractive pay and benefits and opportunities for career development are rated as the most important factors for attracting and retaining employees. Companies that offer structured overseas assignment programmes and individual career development plans demonstrate a willingness to invest in staff, and this can pay dividends.

"High-profile multinational organizations with strong employment brands typically provide more career opportunities and better training and mentoring programmes than many domestic companies in China. Employees tend to be attracted to these organizations because of the prospects they offer and the kudos associated with working for them" he added.

According to the survey, the top five methods for attracting and retaining staff in China are: attractive salary and benefits package (23 per cent); opportunities for career development (19 per cent); meaningful and creative work (7 per cent); unique organizational culture (7 per cent); and company location (3 per cent). Organizations report that the average cost of replacing staff at any level is around 25-50 per cent of annual salary.

Fermin Diez commented:

"Many organizations in China underestimate the true cost of replacing staff, particularly at more senior levels. Taking account of all the elements that contribute to turnover cost, like recruitment agency fees, interviewing time, and loss of sales while positions remain unfilled, employers can face bills of over 200 per cent of salary for senior staff."

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