www.pwc.com/Human Capital:A growingconcern for CEOsin Asia PacificBy Maita Valero-QuiochoHuman CaoitalThink TankAugust 2012www.pwc.com/ph/thinktankHuman Capital:A growingconcern for CEOsin Asia PacificHuman Capital:concern for CEOsin Asia Pacific
Human Capital: A growing concern for CEOs in Asia PacificThink TankPwC Financial Advisors, Inc. Page 2Spurred by the region’s continued growth, companies in Asia Pacific are pursuing ambitious expansion plans.According to the PricewaterhouseCoopers (PwC) 15th Annual Global CEO Survey, 50% of Chief ExecutiveOfficers (CEOs) intend to increase their headcount this year. Despite the optimism, however, CEOsconsistently cite a critical pressure point: talent. About 43% of CEOs indicate that it has become more difficultto hire talent in their industry. The problem is particularly acute in China & Hong Kong and South East Asia,where the proportion rises to nearly 60%.Demand is increasing at a time when finding and winning critical talent is becoming more challenging andexpensive. The region faces a unique paradox where there is an abundance of raw talent, yet the currentprofile of skills and capabilities is poorly matched.In high growth markets where demand is outstripping supply and with young people feeling little loyalty tocorporations, firms have found it more expedient to poach talent from competitors. However, rising costs haverendered this unsustainable. This degree of competition has the effect of driving up salaries to the point wheresome specialized roles are more costly in Asia-Pacific than in more traditionally expensive labor markets. Thissituation also means companies need to spend a lot more effort to establish core competencies in order tocompete.A report prepared by PwC’s Asia-Pacific Saratoga centre in Singapore says employee retention is a problem inAsia. The median resignation rate for Asia is 15.2% -- twice as high as Europe and the US. The report includesdata from more than 240 entities in 11 industries. The average company in the report has annual revenue ofUS$1.9 billion and 6,900 employees. While some of the participating firms are global companies, resultsincluded in the report refer only to Asia-Pacific operations.The study suggests that not enough is done to retain and engage existing talent. According to Michael Rendell,PwC’s Global Head of HR Services, business leaders need “to nurture and hold close the talent that you have –it’s hard to fill the bath with the plug out.” Given the increasing difficulty in hiring talent, it is vital forbusinesses to focus on retaining the talent already acquired. But research shows that while companies arebusily recruiting in the marketplace, not enough is being done to retain and engage existing talent. This isparticularly relevant in the case of new hires -- only 50% of Asia-Pacific organizations measure theeffectiveness of their onboarding process.Resignations are a key indicator of the low levels of engagement and satisfaction. The talent churn issue is aconsistent theme across Asia-Pacific. In fact, Asia Pacific resignations are twice as high as the West. There islittle difference observed in resignation rates between the advanced and emerging Asia-Pacific economies.Perhaps the more critical observation is that the turnover rate amongst the high performer segment of theworkforce is 9.1%. This is significantly higher than the West. While the loss of poor performers may bedesirable, letting high performer talent slip away will have a direct and tangible impact on any organization’sbottom line.In light of this lack of focus, it is perhaps not surprising that one in five newly hired employees leaves thecompany voluntarily before the end of their first year. The costs of new-hire turnover are immediate andsignificant. Calculating the business impact covers many components, including the cost to hire areplacement, compensation and benefits paid to the departed employee, cost of training, cost of facilities,systems and tools, cost of on-the-job training and more.Detailed examination of the recruitment volumes reveals only 50% of hires was made to fill a newly createdrole; the remaining hires were to fill existing roles that became vacant. Depending on the job, the costs of new-hire turnover can be up to 100% of annual salary for managerial and professional staff, and up to 150% forsenior management.
Human Capital: A growing concern for CEOs in Asia PacificThink TankPwC Financial Advisors, Inc. Page 3The issue of high turnover is further underscored by the rookie ratio, defined as the proportion of theworkforce with less than two years tenure. In Asia-Pacific, three out of ten employees would be classed as“rookies”. This is 50% higher than the Western benchmarks. While an injection of fresh talent into theworkforce has its advantages, excessively high levels can create problems in maintaining a strongorganizational culture and retaining critical knowledge and relationships.There are many reasons for lower engagement levels but an important driver appears to be an increasing gapbetween what employees want and what employers are offering.The report revealed that CEOs are now determined to be more strategic in the way they manage theirworkforce today and plan for future needs. Companies are recognizing that talent plans need to beincorporated in the business strategy if they want to close the gap today and map how talent needs willchange.Specifically, four out of five companies in the study do not have dedicated HR resources responsible for talentmanagement strategy and process. Without dedicated focus and prioritization, businesses cannot be certainthat their current processes are effective or if they are delivering value. The reality is that many companies donot know what talent will be needed to deliver the longer term business strategy.Overall, the study recommends that including the talent management approach as part of the strategic plan iscritical and businesses should take the necessary steps to prioritize this.Views and opinions presented in this article are solely those of the author and do not necessarily representthose of PricewaterhouseCoopers Financial Advisory, Inc.Maita Valero-Quiocho is the Associate Director of PricewaterhouseCoopers FinancialAdvisors Inc., a member firm of the PricewaterhouseCoopers global network. Forcomments and inquiries, you may call +632 845-2728 or email the author firstname.lastname@example.org.