Cost and economic pressures drive Asia Pacific organisations to adjust compensation and benefit strategies

Compensation and benefits strategies across the Asia Pacific region are beginning to shift in response to slower economic growth and rapid digital transformation. The emergence of U.S. tariffs is further driving this change as it increases operational costs for organisations, compelling employers to rethink compensation strategies to address cost pressures while retaining critical talent.

Salary growth and talent attraction adapt to economic changes and technological developments

The salary movement across Asia Pacific appears to reflect cautious optimism on the side of employers due to economic and other external pressures. For 2025, the salary increase rate is expected to be 4.9%, lower by 0.2% in 2024 (Figure 1).

A less optimistic outlook on salary growth can be seen in some countries while others have more robust projections due to competition for talent.

1. Australia and Singapore: In these markets, salary growth rates are forecasted to be modest to regulate inflation while adapting to a slower economy.
2. India: The salary increase rate in India is projected to be around 9% for both 2025 and 2026, as robust demand for talent in tech, digital and product development disciplines outweigh macroeconomic and geopolitical changes. The country itself is continuing to emerge as a global digital and engineering hub, driven by the integration of AI and automation that is fueling the creation of new business models.
3. Indonesia and Philippines: Salary increase rates in these markets are projected to be more robust than the regional average, due to strong demand locally and rapid digital development.
4. Malaysia: The salary increase rate for Malaysia is expected to be 4.7% in 2025, as companies consider mounting costs within an unstable economy. Organisations are beginning to prefer pay-for-performance models and hold back on fixed pay increases, with some industries restructuring or reducing their workforce.
5. Thailand: Organisations are also holding back on higher salary increases for employees to control costs amidst an uncertain economic background. Recent hikes to minimum wages have affected labor costs, despite being beneficial for low-income workers.
6. Vietnam: This nation follows India closely, where salary increase rates are expected to rise to 7% for 2025 and 2026.

In some markets, salary growth rate is influenced by the external business environment. In 2025, China's salary increase rate is projected at 4.3%, with robust growth in Biopharma, Life Sciences, and Tech, Media, and Gaming sectors due to government support and high demand for talent. Meanwhile, Hong Kong's overall salary growth is forecasted at 3.7%, as local companies shift toward pay-for-performance models, allocating more rewards to top performers to drive performance while managing costs.

Recruitment trends: Cautious yet strategic

Recruitment practices have become more cautious, with 81.4% of companies maintaining current hiring levels and plans to expand headcount dropping from 18.6% last year to 12.2%. Taiwan, Vietnam, and the Philippines have seen the sharpest declines in hiring intentions. The percentage of companies planning to aggressively hire has fallen to 6.3%, indicating a ‘wait-and-see’ approach due to business uncertainty.

In contrast, South Korea and Japan continue to add to their headcount to address aging populations. Attrition rates in the Asia Pacific region rose to 14.7% this year from 14% in 2024, with 1% due to involuntary exits from organisational restructuring or performance issues. Malaysia has the highest rate, driven by automation, which has reduced manual roles and highlighted the need for reskilling. Voluntary attrition rates remain stable, suggesting employees are holding onto their jobs amid economic uncertainty.

Tech roles on the rise in China and Taiwan

The rapid digital transformation is evident in China and Taiwan's talent markets. In China, AI specialist salaries surged by 20% in 2025, nearly triple the 7% increase from the previous year, with junior AI roles seeing a stable 12% growth. AI talent commands a 60% premium over other digital roles.

In Taiwan, hiring for Cloud Computing Engineering roles nearly doubled from 2022 to 2024, driving over 60% headcount growth in Data Engineering and Technology Product Development. System Architecture roles saw a 26% hike in total guaranteed compensation in 2024, eight times the average increase.

Emergence of U.S. tariffs also affects compensation strategies across Asia Pacific

In addition to the weak economy, the emergence of U.S. tariffs is also a potential threat for businesses in the Asia Pacific region. Nearly half (49%) of Asia Pacific organisations anticipate tariffs to have an impact on their profitability, according to WTW Resilient Incentive Design study (Figure 2).

To counteract this, 49% of companies aim to reduce operational costs, including their headcount. However, more than half (57%) of organisations are concerned about losing critical talent, while 36% of employers report that they see employee wellbeing as an issue against an unstable business climate. Therefore, more than half of organisations surveyed reported that they plan to modify their compensation plans such as changing incentive metrics or expanding performance ranges. These initiatives can help manage operational costs while at the same time driving employee performance and aiding the retention of critical talent.

Rising benefit costs becoming more of an issue for Asia Pacific employers

Rising benefit costs have emerged as the top two concerns of employers from 2023 to 2025 when it comes to strategies on optimising their benefits (Figure 3).

This is indeed valid as medical inflation in Asia Pacific is set to peak at 12.3% in 2025, exceeding global inflation projected at 10.4%, according to the 2025 WTW Benefit Trends Survey. Consequently, this can also affect how employers plan to enhance employee experience, which is also their third important concern. Benefits have been the tool used by employers to improve employee experience and attract and retain critical talent. Thus, there has been an uptick of organisations planning to rebalance or reallocate their benefit spend (Figure 4).

More than half (63%) of employers plan to enhance value or switch to better-value vendors across health, retirement and risk benefits. Others plan to upskill their benefits teams or use cost forecasting and risk analytics to navigate budgetary pressures. To control costs, organisations are prioritising which health conditions to focus on. At the top of the list is mental health, followed by inclusive benefits.

Employers are planning to address mental health by enhancing employee assistance programs, introducing onsite mental health resources and conducting regular events and campaigns about mental health. Meanwhile, actions aimed at inclusive benefits include enhancing choice and flexibility and providing leave benefits that caters to the moments that matter to employees and their families.

Imperatives for strategic compensation planning

These developments show that organisations must become strategic in their compensation strategy. Below are some initiatives that employers can adapt to maximise their compensation plan:

1. Use real-time benchmarks: Utilise real-time compensation data to arrive at informed and objective compensation decisions.
2. Prepare proactively for 2026: Prepare your 2026 salary budget proactively by using updated information on salary trends and role-specific inflation to adapt effectively to changes in the broader business environment.
3. Prioritise roles with significant business impact: Consider roles that are critical to your business objectives and prioritise these in your compensation allocation to drive attraction and retention of critical talent.
4. Adopt a holistic approach on total rewards: Employ a comprehensive strategy on your benefits offering by considering which benefits are important to your employees to attract and retain top talent while managing compensation costs.

Through these initiatives, Asia Pacific organisations can navigate economic fluctuations effectively and manage their compensation costs. At the same time, they can improve their benefits and employee experience that will allow them to maintain critical talent amidst a competitive job market.