Pay Trends in the Current Market

1. Pay Trends in the Current Market Louis Pong Employers’ Federation of Hong Kong 6 February 2009

2. Current Economic And Employment Situation • Since last October, devastating business news keeps hitting the headlines. • In December 2008, the jobless rate in the US reached 7.2%. • Employers cut 524,000 workers that month, bringing job losses last year to 2.6 million, the most since 1945. • Applicants for unemployment assistance closed to 4.8 million, the highest since 1967. Pay Trends in the Current Market 6 February 2009

3. Current Economic And Employment Situation • Similar situation happens in Hong Kong, though in much smaller scale. • Low demand and frozen credit are prompting companies to pare jobs and output to stop unsold goods from piling up. • A local (Hong Kong) survey released last Sunday revealed that over 40% of respondents were worried about their job security. Most of them also tune down the expectation on pay adjustment in the year (i.e. from 4 - 6% to 1 - 3%). Pay Trends in the Current Market 6 February 2009

4. Employment Is Crucial For Domestic Consumption • Domestic consumption is the key motivator for economic development. • The underlying demand around the world is crumbling. We fall into a vicious cycle of continual contraction of investment and consumption. • When there are mass lay-offs, family spending would inevitably drop and in turn would further restrain companies to invest. Pay Trends in the Current Market 6 February 2009

5. Employment Is Crucial For Domestic Consumption • For the sake of Hong Kong as a whole, the Employers’ Federation believes that priority should be given to preserving jobs and skills as much as possible, knowing that this will be essential recovery comes. • When job losses are inevitable, we hope companies can achieve this through natural attrition, voluntary separation or early retirement. Pay Trends in the Current Market 6 February 2009

6. Cost-saving Measures • EFHK earlier survey - 80% and 67% of our respondents rated “enhance efficiency & productivity in operation” and “freeze of headcount” as the remedial measures to ride over the economic meltdown. • Other means for cost saving - Other measures adopted included travel restriction, development/expansion plan on hold, staff benefits revisited, decreased price to increase sale turnover. Pay Trends in the Current Market 6 February 2009

7. Cost-saving Measures • In SARS period, many companies offered alternatives like no-pay leave, job sharing for avoiding staff reduction and it was positively responded by employees concerned. • It is important that you make an open and honest communication with your staff and you may amuse with the result. Pay Trends in the Current Market 6 February 2009

8. EFHK Recommendations • Preserve jobs and retain competent and effective staff as much as possible, even if this might require reducing salaries, a shorter working week, unpaid leave or reducing costs in other ways; • Keep salary and necessary cost increases to a minimum – and only where thoroughly justified. Use variable pay effectively in preference to salary increases. Share options may prove attractive to executives since option prices will be low; Pay Trends in the Current Market 6 February 2009

9. EFHK Recommendations • Look beyond the immediate crisis and review your organisation and the competencies you need to position it for the recovery that will occur in due course; • Communicate your policies and news honestly and thoroughly. Your determined leadership will be critical for the morale of your employees. Pay Trends in the Current Market 6 February 2009

10. Thank You