VZCZCXRO0523
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DE RUEHIN #0764/01 1560252
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R 040252Z JUN 08
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UNCLAS SECTION 01 OF 03 TAIPEI 000764
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BOLIS
E.O. 12958: N/A
TAGS: ECON TW
SUBJECT: Taiwan's Best Leaving While Salaries Stagnate
Summary
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1. (SBU) Summary. Over the past seven years Taiwan salaries have
barely kept up with inflation, rising only 1.5% in real terms.
According to one local human resources consultant, Taiwan
compensation packages are now cheaper than those of many countries
in the region - and in the case of management and executive staff,
even cheaper than those in China. Although this may bode well for
Taiwan's competitiveness, many of Taiwan's best are still looking
overseas for employment, and more and more Taiwan professionals find
themselves working for Chinese bosses. End summary.
Salaries in Taiwan Basically Flat
---------------------------------
2. (U) Over the past seven years, Taiwan salaries have barely kept
pace with inflation. According to official statistics, in the
period from 2000 through 2007, average Taiwan salaries increased
only 1.53% after inflation. This does not represent an average
annualized number, but the entire cumulative increase over a
seven-year period. Without adjusting for inflation, average
salaries increased by 7.57%. The number clearly masks variations
between business sectors. Those in the real estate industry, for
example, did even worse, with average pay falling 12.9% before
taking inflation into account. Salaries in the financial sector, on
the other hand, saw the greatest increases, rising 24.9% before
adjusting for inflation. Taiwan's average monthly wage, which
includes employees across all sectors and measures salary, prorated
bonuses and overtime payments, stood at NT$45,112 (or about US$1480)
in 2007.
3. (U) Taiwan's stagnating salaries contrast with its respectable
economic growth rates during the same period. Excluding 2001, when
Taiwan's real GDP dropped 2.2%, real GDP growth ranged from 3.5 to
6.2% per year. During the period from 2000 to 2007, productivity,
in real terms rose on average 3% per year in the service sector and
just over 4% in the industrial sector, according to official
statistics.
Vastly More College Grads in Workforce
--------------------------------------
4. (U) As salaries in general have stagnated, the number of college
graduates in the Taiwan workforce has risen significantly. The
percentage of the workforce with a four-year college degree or
higher level of education nearly doubled from 11.8% in 2000 to 22%
by the end of 2007. According to official figures, last year,
Taiwan's four-year colleges and universities produced more than
280,000 graduates, triple the number graduating in 1997. Perhaps
because of the dramatic increase in numbers, entry-level salaries
for college grads have actually fallen in recent years. The average
starting base salary, excluding bonuses, overtime and variable
payments, for new college grads dropped 2.8% from 1999 to NT$26,700
(about US$880) in 2006, the most recent data available. Those with
advanced degrees do slightly better, with an average starting salary
of NT$31,567 (about US$1040).
HR Consultant Reality Check
----------------------------
5. (SBU) A Taipei-based consultant with a multinational human
resources consulting firm confirmed that Taiwan salaries, especially
for new hires, had not budged for years. She stated that bank
management trainee starting salaries in Taipei, for example, have
not risen in about ten years and are low in absolute terms - about
NT$45,000 per month, or less than US$1500. Separately, human
resource consultants at a local Taiwan firm told AIT that salary
news will continue to be bleak this year. According to their own
Taiwan salary survey, one third of Taiwan companies do not plan to
increase salaries in 2008. Another 44% said they will not grant
across-the-board increases, but would selectively adjust
compensation based on performance of individual employees. The
salary outlook, they said, was most positive for sales, R, and
management personnel, and most bleak for manufacturing,
administrative and back office staff.
6. (SBU) The multinational consultant pointed out that the jump in
college graduates has come mainly from expanding the rolls at
private schools, many of which had been converted from technical
schools, but have yet to establish academic bona fides, and, in what
she described as a commonly-held view, have largely debased the
value of a local college education. Multinational and other top
Taiwan firms target graduates from Taiwan's top four universities
only, she said. Some will also consider top students from second
tier public universities, but graduates of private colleges, which
do not typically have strong academic reputations, are not normally
sought after by employers.
7. (SBU) She also noted that Taiwan's stagnant salary levels also
mean that staff in Taiwan has become relatively cheap for her
multinational clients compared to other locations in the region.
Taiwan salaries are already lower than in Japan, Korea and Hong
Kong, for example. Taiwan is even cheaper than Mainland China for
executive and management talent, she said. At current salary rates
for talent recruited by multinational firms, Taiwan is on par with
Singapore, but Singapore salaries, she noted, are beginning to
surpass those in Taiwan due to increasing competition for staff
there. According to the local consultants, however, Taiwan
entry-level employees still typically earn two to three times their
China counterparts.
8. (SBU) Not all of Taiwan's employees are doing badly, however.
According to surveys of multinational employers, executive and
management pay increases have been rising faster than that for
general staff, which follows worldwide trends. This year, for
example, one survey indicates firms are planning to grant salary
increases to executives and management ranging from 6-8%, while
general staff can expect raises of between 4-5%. Firms are also
moving more to increased amounts of variable pay based on some sort
of performance indicator. These arrangements are customarily
provided for management and executive-level employees and allow for
significant increases in compensation.
If Only I Worked in High-tech
-----------------------------
9. (SBU) Taiwan's high-tech companies, particularly integrated
circuit design firms and semiconductor, PC, and TFT/LCD
manufacturers have, in addition to providing basic cash compensation
packages, also make sizable stock grants to virtually all employees.
These grants are typically based on a firm's overall performance.
These grants have been particularly attractive because they did not
need to be reported as expense on a firm's balance sheet and were
attractive to employees because shares were taxed at par value,
which is typically well below the actual market value of the
security. This year, however, new regulations took effect that
require firms to expense stock grants and also phase out the tax
benefit for the grantee. It is not yet clear how firms will react
to this change, but these firms are still expected to continue to
provide substantial variable compensation to their employees in some
form. One reason is that there is still a shortage of qualified
engineers and other technical staff. Turnover, according to survey
data from a local human resources consultant, is very high, with
about 35% of high-tech sector employees actively considering
changing jobs.
Brain Drain and Mainland Bosses
-------------------------------
10. (SBU) The multinational HR consultant also noted that if Taiwan
employees wanted to be promoted into roles with regional
responsibility, it is very likely they would have to relocate
elsewhere in the region, typically to Singapore, Hong Kong, or
somewhere in China, because, as she put it, very few regional
offices were based in Taiwan. In addition, she said, Taiwan
employees are more likely to be working for Mainland China
counterparts as part of a "Greater China" operation. The good news,
however, is that Taiwan employees are seen as competitive in these
regional positions. She also stated that Taiwan firms, particularly
construction firms, are expanding their operations in the region and
are willing to allow Taiwan staff with regional and/or China
responsibilities to be based out of Taipei. She expected that this
practice would become more common if staff have access to regular
direct cross-Strait flights in the future.
11. (SBU) Local HR consultants told AIT that many of Taiwan's best
and brightest are leaving Taiwan, typically for China, where
opportunities and responsibilities are greater. One described the
situation as "a serious brain drain." The head of a large foreign
bank called it "the thinning of the local talent pool." Both said
best applicants, he said, do not usually remain in Taiwan. Taiwan
firms, in particular, like to hire Taiwan staff for positions of
trust in Mainland China, but the consultants point out that as
China's own talent pool develops there may be less opportunity there
for Taiwan employees, especially those without relevant experience
or highly sought after skills.
COMMENT
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10. (SBU) It is worrying that salaries have stagnated at the same
time as the number of college degree-holders in the workforce has
doubled. It is no surprise that many of Taiwan's best and brightest
are seeking opportunities overseas or enrolling in advanced degree
programs. On the positive side, Taiwan's relatively cheaper labor
costs, especially for management and professional staff, may lead to
more firms placing activities here or at least not moving them out.
Having access to direct flights to China will be another important
factor. In the meantime, and probably for the foreseeable future,
ambitious Taiwan professionals aspiring to regional responsibilities
will be moving off island and are increasingly likely to have
Mainland Chinese bosses.
WANG