Salaries across most of Southeast Asia are expected to increase in 2024, according to the latest 2023 Salary Increase and Turnover Report for Southeast Asia by Aon.

While salaries in Singapore and Malaysia are expected to stay flat at 4.0% and 5.0%, respectively, the survey found the median salaries are expected to increase by 6.5% for Indonesia, 5.5% for the Philippines, 4.9% for Thailand and 8.0% for Vietnam in 2024.

Although slightly higher, the projected salary increase in Southeast Asia continues to defy economic slowdown concerns.

Additionally, attrition rates across southeast Asia have dropped in 2023 compared to 2022 yet remain in the double digits, a consequence of an ever-changing talent strategy and the ongoing gap between supply and demand of talent. Attrition rates are the highest in the Philippines at 17.5% and lowest in Vietnam at 13.8%.

Rahul Chawla, partner and head of Talent Solutions for Southeast Asia at Aon, said, "As companies navigate new forms of volatility including focusing on costs and investments, salary-increase planning has become challenging across the region. A reassessment of compensation strategies based on advanced analytics is crucial for firms to stay competitive. By leveraging data from within their own organisations as well as the market, companies can make more informed decisions enabling them to not only weather the challenges of an uncertain economic climate but to thrive in an evolving workforce landscape."

The report further revealed that businesses in Southeast Asia are cautiously optimistic about hiring, with 40% of the companies reporting no changes to their recruitment numbers and 40% having hiring restrictions. Despite an increase in layoffs earlier in the year, Aon's data shows headcount numbers across industries are still higher than pre-pandemic levels, with layoffs mainly occurring in the non-core/expansion areas of the business. At the same time, they continue to hire for other business lines.

New hire premiums are averaging between 5.6% and 13.3%, with firms becoming more cautious with compensation spending as they streamline budgets, enhance cost efficiency and re-evaluate compensation strategy. This contrasts with 2022, where Southeast Asia saw a hiring boom and new hire premiums averaged between 14.7% and 23.6%.

Alina Cheng, head of Data Solutions, southeast Asia for Talent Solutions at Aon, said, "Firms need to recognise and proactively address pay compression that is the gap in pay between employees regardless of their experience and talent to maintain an engaged, competitive and resilient workforce. When new hires receive higher compensation than long-term employees, firms start to see pay compression issues develop."

"The unintended consequences of pay compression can lead to higher attrition and a decline in employee morale," Cheng said. "By focusing and nurturing talent from within, firms can subsequently decrease the need for new hire premiums while enhancing their organisation's employee value proposition."

Looking ahead to 2024, salaries across industries continue to vary, in addition to the differences between countries. The retail industry has the highest budgeted salary increases at 6.1%, followed by technology at 6.0%, the life sciences and medical devices industry at 5.9%, manufacturing at 5.8% and financial services at 4.8%.
The technology sector is expected to have the highest increase in Singapore (4.5%), Indonesia (10.2%) and Vietnam (10.9%), compared to the manufacturing industry, which had the highest year-on-year salary increase across industries in Thailand (8.0%), Malaysia (13.7%) and the Philippines (14.5%).
Across Southeast Asia, Malaysia, Philippines and Singapore, more than half of the roles have had salary increases outrun inflation, with Singapore and Philippines having 71.7% of salary increases outrunning inflation and Malaysia at 56.4%. However, for Indonesia, Vietnam and Thailand, on average, 70% of salary increases lagged inflation. For 67% of Southeast Asian firms, inflationary pressures are included as part of their pay policy considerations when reviewing salary increases.