Center for Advanced Human Resource Studies

Changes Recruiting/Retention and Compensation

We asked an outstanding ILR graduate student to update our research on HR trends in China in light of the landscape of the current global economic crisis and recession:

Recruiting and Selecting Talent

• Job seekers from around the world are overpopulating job fairs in China and applications are up significantly across all industries and job positions, including HR. A majority of firms have stopped or slowed hiring as of 2008 for recent graduates and this group is expected to have an even tougher time going forward as universities across the country increase enrollment each year.
• Currently, top Chinese MBA and HR graduates are struggling to find jobs. Companies are still coming to campuses and making presentations at universities, but they are often not offering jobs to local students without significant experience.  
• College students are faced with the same problem as MBAs. Of 5.59 million college graduates in 2008, an estimated 27 percent were unable to find jobs by the end of the year, according to the Chinese Academy of Social Sciences. Many well educated, desperate workers have turned to the army and restaurant industry to make ends meet because multinational corporations are not offering jobs.  
• Those firms that are hiring have more choices for talent because competition is becoming increasingly fierce as many Chinese who were laid off abroad are coming back home for work. Companies that have previously shown strength in difficult economic times and have strong brands are able to be the most selective at recruiting talent.
• Recruitment remains in full force for experienced, senior managers with knowledge of China and familiarity with risk management. Those with both English and Chinese language ability are the most desirable because both are seen as a necessity in the workplace.
• Many Chinese firms have made recent attempts to reverse the brain drain by recruiting native Chinese from around the around the globe. They have been successful in convincing many potential employees that China's economy and financial sector will grow in the coming years, while the US and UK financial situation will continue to contract.

Investing in Employees for Multiple Benefits

• During the downturn, some multinational companies in China are encouraging employees to take a more long-term view of their career growth. Many employees are learning through HR staff to become more understanding that development opportunities also slow during the economic crisis, which replaces the extremely high expectations for growth seen in recent years.
• Training and development programs have shifted to more low-cost strategies (e.g. coaching) in the crisis as many companies have cut funding to T&D programs as cost cutting measures are increasingly implemented.
• Many high potential employees in HR are given the opportunity to lead special projects to gain autonomous decision-making experience in lieu of promotion.
• There is a mixture among multinational firms that are expanding their operations and instating hiring freezes. This decision is mostly determined by the company's long-term strategy and their unique financial situation. Regardless of the situation, HR is working to provide other opportunities for employee growth that are low cost.

Compensating HR Employees

• Factories and exports in China were hit first by the financial crisis and now there is evidence of white-collar layoffs, downsizing and significant decreases in compensation across most jobs in China.
• Most companies are reducing their payouts to the majority of their staff with the help of HR, and plan to do additional cuts in 2010 due to broad economic concerns and a desire for overall cost reduction. In one survey of 250 companies, 63 percent have implemented hiring freezes, but 50 percent are still hiring strategically. Additionally, more than 50 percent of companies are continuing to grant promotions to ensure employee development.
• Employees with experience in US and UK financial firms can demand a "global standard" salary.
• Financial rewards keep many "top talent" workers who are navigating companies through the economic crisis. In order to compensate these employees and adjust to lower profits during these times, a majority of organizations sampled in the above survey have restructured their salary budget policies.
• Compensation gaps have long existed between foreign multinationals and locals in China. Trustworthiness of the expatriates mitigate many of the negative sentiments felt by locals in pay disparity, however, organizational commitment is directly correlated with perceptions of fair compensation.
• It's not just about salary and benefits anymore in China—cultural factors play an important role in retaining employees. The highly educated younger generation wants to make China a better place, and want to work for companies that project this image.

Retaining High Potentials

• Managers that have right the skills and experience in risk management are activity being recruited and are easily lured away by high salaries and total reward packages. Opportunities for promotion and job development are crucial for retaining high potential HR employees.
• While banks have suffered the most in terms of recruitment during the downturn, hedge funds are stealing talent by offering higher salaries and guaranteed bonuses. Similarly, hospitality has suffered in retaining talent for all aspects of the business. Employees are also moving to other countries, like Hong Kong and Singapore, to have access to more development opportunities and higher salaries.
• Besides high salaries and bonuses, offering quality health care and pensions have helped many companies retain talent. Stock options (with short term vesting periods of 5 years or so) and profit sharing are used to keep employees during times of growth but are less effective in the recession.
• Implementing algorithms and formulas like the Brownian Function and the trinomial tree have helped companies retain employees through this flexible re-pricing method. This method of compensation attracts employees because of its re-pricing nature and benefits shareholders too.
• HR has begun implementing exchange programs overseas for employees that have been effective in increasing company loyalty during the downturn.

Rapid Change: Increasing Maturity of a Profession

• HR is rapidly changing in a fundamental way in China. It is gradually emerging as a strategic partner in reaching company objectives. During the downturn and general talent shortage in China, retention has been a key issue for HR. Succession planning and retention of key management is where HR will continue to focus its efforts in many firms.
• The more contact a Chinese subsidiary has with its headquarters abroad, the more likely the firm is to have strategic HRM practices and capabilities. This means there are more Westernized practices within the firm and changes how the company navigates through the economic downturn.
• Through a sampling of 241 Chinese firms, it was found that HR configurations are directly correlated with turnover, but not related to sales or profit growth in any way.

Bibliography

Edward Wong. (2009, January 25). Job Pinch Trickles Up in China as Economy Slumps: [Foreign Desk]. New York Times, p. A.6.  Retrieved April 7, 2009, from Banking Information Source database. (Document ID: 1632241181).

Abstract: Many college and MBA graduates coming from top programs are struggling to find jobs because of the economic downturn and there are more students enrolled in these programs each year. Recent graduates are expanding their professional horizons as a result and looking to find a way to survive by taking jobs in the army and in restaurants.

James T. Areddy, Carolyn Cui. (2008, December 5). China Looks to Wall Street To Lure Back Native Talent. Wall Street Journal  (Eastern Edition), p. C.1.  Retrieved April 7, 2009, from ABI/INFORM Global database. (Document ID: 1607039171).

Abstract: There has been an effort to reverse the Chinese brain drain by recruiting Chinese that left for opportunities abroad back to China. Arguing that the financial markets in the US and UK have brought some recruiting success.

Jimmy Wang. (2008, December 19). Chinese firms recruit in tight U.S. job market Economic woes reverse the brain drain. International Herald Tribune, 1. Retrieved April 7, 2009, from International News papers database. (Document ID: 1614663341).

Abstract: While there is a limited amount of recruitment happening within many firms during this economic downturn, many Chinese firms are recruiting high-level managers with Chinese and global experience to manage risk.

Stella Hou. (2008, December 15). Top performers sought amid the hiring freeze. South China Morning Post, 6. Retrieved April 7, 2009, from International Newspapers database. (Document ID: 1612048521)

Abstract: The slowing economy has shown diverse strategies for recruitment. Some firms have opted to freeze all recruiting activity while others have decided to hire en masse. This information comes from a survey or 250 organizations.

Tony Dickel. (2008, December). Handling large-scale recruitment. China Staff, 15(1), 31-34. Retrieved April 7, 2009, from ABI/INFORM Global database. (Document ID: 1629188521).

Abstract: There is strength among top multi-national companies for recruitment because of their ability to project strength through size. Promoting career growth opportunities by moving to rapidly growing economy even during worldwide economic hardship has been seen as a development tool for many employees.

Anna Jagger. (2009, February). Climbing the Great Ladder of China. ICIS Chemical Business, 275, 5, p.22. Retrieved April 7, 2009, from ABI/INFORM Global database.

Abstract: While promotions are more difficult to come by for demanding Chinese employees, many are given the opportunity to lead their own projects in lieu of promotion. There is a general understanding that while career growth may not be as easy as during the world economic boom, development opportunities still exist within competitive companies.

Katzenbach Partners; How to Win in China as Talent War Heats Up. (2008, August). Investment Business Weekly, 83. Retrieved April 7, 2009, from Banking Information Source database. (Document ID: 1530909431).

Abstract: While compensation will always be important to workers around the globe, many Chinese workers want to feel that they are also working for a company that is improving China and the country's image around the globe.

Michael Taylor. (2008, October). China's talent retention dilemma in the new millennium. China Staff, 14(9), 17-19. Retrieved April 7, 2009, from ABI/INFORM Global database. (Document ID: 1584063881).

Abstract: Retention has become a difficult in many firms, but offering high salaries and bonuses as well as excellent health care, and pensions have kept some workers from fleeing China for jobs in Hong Kong and Singapore. Also, HR is continuing to change slowly into company strategic partner within many companies in China.

Sumelius, Jennie, Bjorkman, Ingmar, Smale, Adam (2008, December). The influence of internal and external social networks on HRM capabilities in MNC subsidiaries in China. International Journal of Human Resource Management. Vol. 19 Issue 12, p. 2294-2310, 17.

Abstract: The greater the contact the Chinese subsidiary of a MNC has with headquarters, the more likely it is to have progressive HR practices.

Leung, Kwai Sun, and Yue Kuen Kwok. "Employee stock option valuation with repricing features." Quantitative Finance 8, no. 6 (October 2008): 561-569. Business Source Premier, EBSCOhost (accessed April 11, 2009).

Abstract: Many different formulas are being implemented to ensure that employees are retained in a way that maximizes retention and shareholders interests.

Leung, Kwok, Zhu, Yongxin, and Cungen Ge. "Compensation disparity between locals and expatriates: Moderating the effects of perceived injustice in foreign multinationals in China." Journal of World Business 44, no. 1 (January 2009): 85-93. Business Source Premier, EBSCOhost (accessed April 11, 2009).

Abstract: While compensation practices in China have changed slightly over the year, mitigating the disparity of pay among multinationals and locals has become an important topic as of late.

Chow, Irene H., Huang, Jia-Chi, and Shanshi Liu. "Strategic HRM in China: Configurations and competitive advantage." Human Resource Management 47, no. 4 (Winter2008 2008): 687-706. Business Source Premier, EBSCOhost (accessed April 11, 2009).

Abstract: Strategic HR practices have been shown to give many firms the competitive advantage they need to survive.