Rising employee expectations and a skills shortage mean hiring senior executives in first-tier mainland cities is now as costly as in Hong Kong, and double the rate of regional rival India, in further evidence that the mainland is no longer a low-cost economy.
"Companies earlier used to think it was very easy for a US multinational to send an expat to China to spend a few years and then find a person who can replace [them] and become a local CEO. But that model did not really work and they realised they have to start training from the ground up and it can't be one or two people, it has to be a fleet," says Sambhav Rakyan, a consultant at professional services company Towers Watson.
Suggestive that major companies have only recently begun to train middle management in earnest, the still-emergent pipeline of talented managers combined with several decades of rapid economic growth, high inflation, pollution concerns, a strong yuan, and expectations of housing and education allowances are all impacting the salary expectations of top-tier local and expatriate employees, say recruitment specialists.
However, while salary increases will be affecting the bottom line, they do not yet appear to be harming the mainland's appeal to foreign companies. Last year, foreign direct investment rose 5.25 per cent to US$117.59 billion. In 2012, FDI fell 3.7 per cent from 2011 to US$111.72 billion.
Salary data from Towers Watson shows pay on the mainland lags that of Hong Kong across most job categories, but at senior management level a Shanghai-based executive can expect US$215,000 a year, 11 per cent more than Hong Kong peers.
Statistics from headhunting firm Robert Walters show a similar convergence between first-tier mainland cities and Hong Kong, while salaries at second-tier cities like Suzhou and Nanjing are 30 to 50 per cent lower than in Shanghai.
"If you are just starting out in China now, clearly it is a lot tougher than five or 10 years ago as so many people in your industry have done it already and you have got to have the best people in your industry to make an impact," says Andy Bentote, senior managing director at recruitment firm PageGroup. Bentote says most of his clients looking to set up on the mainland are surprised at the labour costs, with many expecting salaries to be 50 per cent lower than the reality.
The biggest challenge is finding talent with the appropriate international management experience, linguistic aptitude and technical ability to help run a major company, says Robert Walters associate director Angel Lam.
"When you are looking for a CFO with 25 years' experience … the most likelihood you can find is a CFO with only 10 years' experience within a multinational corporation," she says.
The numbers are in stark contrast to India, where salaries for middle and senior management at major firms are half those of mainland China.
Rakyan says India has benefitted from a steady influx of skilled returnees and an earlier focus on middle management training, which has built a deep talent pool.
For Hong Kong employers, rising mainland salaries create greater competition for talent, so companies need to work harder to retain staff, says Bentote, adding that salary is no longer the sole motivator. In a recent client survey, he found companies are trying to offer a work-life balance and more overseas work opportunities for Hong Kong staff.