Study finds widening salary gap in Indonesia

Mariani Dewi, The Jakarta Post, Jakarta | Sat, 05/17/2008 11:16 AM

The gap in salaries between managers and clerics in Indonesia widened last year from 2006 in part because of a shortage in talent amid the country's growing economy, a global study says.

The finding, released by global consulting company Hay Group, takes into account compensations and benefits of 12 million employees in 61 countries, including 71,000 employees in Indonesia working in large multinational and local firms.

The disparity rate rose from 8.7 percent in 2006 to 9.1 percent last year, placing Indonesia's rate 8th highest out of 11 countries. The study shows the gap is widest in telecommunications and banking industries -- both fast growing sectors in Indonesia.

Michelle Low, the company's regional marketing manager in Singapore, told The Jakarta Post on Friday the gap was mainly driven by a lack of skilled labor to support the country's high economic growth.

"It is not that Indonesian managers demand high salaries, but companies competing with each other for a limited pool of experienced and skilled managers have driven up their salaries," Low said.

"As more companies in Indonesia adopt a pay-for-performance approach, the situation is becoming more balanced. Companies are able now to better measure their ROI (return on investment) for their salary budgets, while managers know what they are being paid to achieve."

Worldwide, the study finds that the larger the population of well-educated and highly trained workforce, the smaller the disparity in salaries.

In Singapore, salaries tend to start low but employees can see up to 24 percent pay rises within the first two year for high productivity and good performance, the report says.

Malaysia and Singapore performed better, with disparity percentages of 6 and 4.7, respectively.

China tops the list, with Thailand and Vietnam behind, although the economies in those countries have grown faster than that in Indonesia.

The U.S. saw its disparity grow 20 percent, although its figure remains low, ranging from 3.1 to 3.7 percent.

"Positions at this level are one step away from the executive suite, and companies are looking to fill them with high-caliber candidates who can then progress into more senior roles," said Tom McMulley of Hay Group U.S.

"However, if U.S. recessionary fears are realized, we may see the gap stabilize or even decrease. Our experience is that it's this level that gets hardest hit in recessionary markets, as companies reduce staff and curtail hiring plans, reducing competition for these candidates.

"At the same time, clerical level roles have tended to continue to increase at a steady rate, in line with the cost of living," Low said, adding that salary was not always the main attraction.

"Like employees around the world, Indonesians are willing to trade some salary for intangible factors like conducive a environment, interesting projects and a good manager.

"Hay Group's research with Fortune's World's Most Admired Companies in 2008 showed the most admired companies were able to pay slightly less than the market rate to attract and retain employees."