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 HR and related financial advice and services. A survey of over 100 organizations in China, many of which are multinationals, shows that 54% have experienced an increase in turnover for professional staff since last year, while 42% have reported higher turnover for support staff.

The survey also reveals that the average tenure for 25-35 year olds -- the age group targeted most by multinational companies -- fell from an average of 3 to 5 years in 2004 to just 1 to 2 years in 2005.

Brenda Wilson, Principal at Mercer, commented, "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." She added, "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% of organizations offer healthcare and related insurance, while 41% provide health and fitness plans and 24% offer flexible working. Just 21% offer supplementary pension plans -- the majority of which are defined contribution -- and 10% provide subsidized loans. But results also show that 44% 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% of organizations provide such opportunities. Individual career development plans, offered by 51% of companies, are also believed to be effective. In contrast, mentorship programs are considered relatively ineffective and are offered by just a quarter (26%) 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," commented Ms Wilson. She added, "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% to 50% of annual salary.
"Many organizations in China underestimate the true cost of replacing staff, particularly at more senior levels," said Ms 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% of salary for senior staff."

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

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