FILIPINO WORKERS may find it difficult to cope with overall price increases this year, global advisory, broking and solutions firm Willis Towers Watson said in a press release on Monday, noting that it expects salaries to be flat from 2018 at a time that inflation has been forecast by the central bank to clock in at 3.2%.

Willis Towers Watson’s latest Salary Budget Planning Report — whose Philippine segment was drawn from findings of the company’s annual compensation survey conducted in the country in July 2018 among 500 respondents from 12 industries — showed that salary increases in the Philippines averaged six percent last year “and is projected to remain flat for 2019”.

The global 2018 Salary Budget Planning Report covered, among other regions, 21 markets in Asia and the Pacific. Besides the Philippines, the others were: Australia, Bangladesh, Brunei, Cambodia, China, Hong Kong, India, Indonesia, Japan, Macau, Malaysia, Myanmar, New Zealand, Pakistan, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.

The Philippines’ average salary increase last year was “quite aligned” with Asia Pacific’s 5.9% average, the company noted.

The country’s headline inflation surged to a decade-high 5.2% last year, although overall price hikes have been easing since November after nine straight months of increase. It steadied in October at September’s nine-year-high 6.7%. September also saw the peso hit its weakest value in 13 years at P53.80 to the greenback.

“With the Philippines’ inflation rate at 5.2%, employers are being deluged with inquiries and requests from their employees to review salary increase budgets so that they are able to afford and retain their lifestyle,” Willis Towers Watson said in its statement.

“With the increasing prices for basic commodities such as food, rice, non-alcoholic drinks, as well as costs for housing, water, electricity, gas and other fuels, Filipinos are now carefully assessing how they can further stretch their current income.”

The same press release quoted Vangie Daquilanea — Willis Towers Watson’s Global Data Services head for the Philippines, Malaysia, Thailand, Cambodia and Myanmar — as saying that “majority of employees are likely to receive a salary hike lower than the inflation rate this year.”

“Looking at the historical data on inflation rate vis-a-vis salary increase in the Philippines, companies always maintain a comfortable 3-4% upside difference on salary increase compared to the inflation rate. This is to ensure that the high performers get a salary increase higher than the inflation rates,” she explained.

“Companies would typically use the inflation rate percentage as a basis to determine the salary increase to be given to average performers or employees who fall short of their performance objectives. With a budgeted salary increase at only about one percent higher than the inflation rate, there is henceforth very little room for employers to differentiate how they can reward the high performers and average performers in their companies.”

Ms. Daquilanea added that “economic changes in the Philippines over the last few months have directly impacted salaries of the workforce, specifically in the private sector”, citing in particular the imposition of higher or new taxes on a host of goods and services by Republic Act No. 10963, or the first of up to five planned tax reform packages that took effect a year ago, even as the same law slashed personal income tax rates; last year’s inflation surge amid higher fuel and food costs; the weakening of the peso that made imported goods more costly; as well as confusion caused by Revenue Memorandum Circular 50-2018 which states that health-care premiums paid by companies as benefits for employees and their dependents are now taxable beyond a P90,000 threshold.

Asked how these developments will affect their companies, 38% of respondents cited increasing operational costs as the most critical, significant impact.

About a fourth of respondents said such developments forced companies “to revisit their current compensation and benefits programs so that they stay ahead and be competitive in the market,” Ms. Daquilanea noted, adding that firms are also “looking into innovative and creative ways to design their rewards programs, without necessarily spending more, to ensure that employees are engaged and retained.”

“… Giving the employees the flexibility to upgrade or downgrade certain benefit programs depending on their needs and lifestyle is highly appreciated by the employees. Having a flexible work arrangement program in place is also now proving to be a critical factor in retaining and attracting employees, the necessity being driven by the worsening traffic conditions in Metro Manila.”

The same Willis Towers Watson study also detected some changes in employee behavior. “Employees are now staying longer with their current employers, with the voluntary attrition rate now down from 16% to 12%” even as “involuntary attrition is quite high at five percent compared to two percent in previous years,” the press release read. — with inputs from GMC