Companies in China are struggling to retain their professional and support staff, and face either having to pay higher salaries or excessive recruitment costs, according to research by Mercer Human Resource Consulting, a global leader for human resources and related financial advice and services. A survey of more than 100 organizations in China, many of which are multinationals, shows that 54 percent have experienced an increase in turnover for professional staff since last year, while 42 percent have reported higher turnover for support staff.

The survey also reveals that the average tenure for 25 to 35 year olds - the age group targeted most by multinational companies - fell from an average of three to five years in 2004 to just one to two years in 2005.

Brenda Wilson, principal at Mercer, said, "The employment market in China has ignited in recent years, as more multinational organizations set up operations there and local companies expand. Individuals with transferable skills have become a valuable commodity, and companies are battling to keep hold of them.

"When employees threaten to walk out of the door, many companies respond by throwing more money at them. While this can sometimes work in the short term, more often than not a competitor is willing to pay just as much. Companies are starting to realize they need to be more sophisticated in their approach to employee attraction and retention. Those that offer variable pay, promote 'softer' benefits like flexible working and provide meaningful career opportunities are most likely to keep hold of their best employees."

Benefits

The survey found that 83 percent of organizations offer healthcare and related insurance, while 41 percent provide health and fitness plans and 24 percent offer flexible working. Just 21 percent offer supplementary pension plans - the majority of which are defined contribution - and 10 percent provide subsidized loans. But results also show that 44 percent of organizations believe their employees are dissatisfied with the benefits on offer.

Career development

Offering staff overseas assignments is deemed the most effective tool for developing employees' careers, although only 42 percent of organizations provide such opportunities. Individual career development plans, offered by 51 percent of companies, are also believed to be effective. In contrast, mentorship programs are considered relatively ineffective and are offered by just a quarter (26 percent) of companies.

"Attractive pay and benefits and opportunities for career development are rated as the most important factors for attracting and retaining employees. Companies that offer structured overseas assignment programs and individual career development plans demonstrate a willingness to invest in staff, and this can pay dividends," said Wilson. "High-profile multinational organizations with strong employment brands typically provide more career opportunities and better training and mentoring programs than many domestic companies in China. Employees tend to be attracted to these organizations because of the prospects they offer and the kudos associated with working for them."

Staff replacement costs

According to the survey, organizations report that the average cost of replacing staff at any level is around 25 percent to 50 percent of annual salary.

"Many organizations in China underestimate the true cost of replacing staff, particularly at more senior levels," said Wilson. "Taking account of all the elements that contribute to turnover cost, like recruitment agency fees, interviewing time, and loss of sales while positions remain unfilled, employers can face bills of over 200 percent of salary for senior staff."

Copies of Mercer's China Employee Attraction and Retention Survey 2006 are available at www.imercer.com/chinaattraction.

The survey covered 114 organizations in Greater China. Of the participating companies, 24 percent were from the high-tech industry, 19 percent consumer, 14 percent chemical, 11 percent pharmaceutical, 8 percent automotive and 6 percent from the service industry. The remaining 18 percent were from other industries.

  Top five methods for attracting and retaining staff in China

  Method                                            % of respondents

  Attractive salary and benefits package                    23%
  Opportunities for career development                      19%
  Meaningful and creative work                               7%
  Unique organizational culture                              7%
  Company location                                           3%