Executive compensation in Australia’s financial sector could fall to equal or below CPI in the next few years in line with a trend being seen across Asia Pacific.

Research conducted by Watson Wyatt in October last year revealed salaries in Australia’s financial sector were expected to rise by 5 per cent in the year to October 31, 2009, however the consultant warns they could now fall with CPI.

In Asia Pacific, the gap between salary increases and inflation closed dramatically in the year ending December 2008.

In some countries such as Hong Kong, Singapore, the Philippines and Vietnam, salary increases across the general, consumer, financial, pharmaceutical and high technology sectors have already dropped below the rate of inflation.

In Japan, Australia, Taiwan, Malaysia, China and Indonesia, wage hikes remain only slightly above CPI.

In Australia, CPI was around 4.7 per cent last year but is expected to fall to 3.1 per cent this year, and 2.6 per cent in 2010.

Andrew Heard, regional practice director, Asia Pacific at Watson Wyatt, said Vietnam provides a good example of the rapid reduction in CPI, with December’s 23.1 per cent figure predicted to fall to 5 per cent this year and 3.5 per cent in 2010.

“Two years ago, the gap between salaries and CPI was two to three times,” he said.

“Salary increases are equal to or below CPI now.”

Heard said the contraction has implications for superannuation funds as more moderate salaries could see investors command higher investment returns to make up the difference. However this won’t be easily achieved. 

“There’s a mix of dynamics at work – a growing population, deflation, and the economic crisis, and it will be a reasonable while before the funds can build their assets back up,” Heard said.

Unemployment is continuing on an upwards trajectory putting further pressure on the social security systems in the region.

A November poll by Watson Wyatt of 1500 companies revealed 15 per cent of employers anticipate headcount reduction in 2009, while 36 per cent anticipate no new hires.

By 2050, 1 billion people will be over the age of 60, with the number of young people in the workforce shrinking.

“This is just a snowball of economic impact,” Heard said.

 

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