Before you rush to increase this year’s salaries in line with the last 5-10 years, you might want to consider the logic of increases in what is still an economic downturn.

Pay attention to the trends but hold off on those salary increases.

The challenge that many companies in China have right now is that they must maintain their skills base for when orders start to come in again. They will do whatever is necessary to keep capable employees on board, and this is the feedback I get from the majority of General Managers in China. Staff reductions might keep the business profitable for the current QTR but the long-term effect might be to set the seeds for destruction later in the year.

The internal momentum is definitely in favor of higher salaries, simply because staff will expect to see increases that are in line with previous years (9%). This needs to be resisted because the external situation may not have really sunk in for your staff. You know the way things are, even if they are still enjoying the buzz from the success of the Olympics.

The hard part is explaining to staff why you are only offering a salary increase of 4% or even 0% this year. Many will never have seen this low an increase before, and in a bizarre way some will regard 8-9% as a kind of ‘right’.

Thankfully, support for a push-back comes from no less than Hewitt Associates, who in September surveyed 2,200 foreign, locally-owned, and joint-venture companies in Asia. The focus was on top executives, senior management, middle management, junior manager/supervisor/professional, general staff, and manual workforce.

The results are clear cut and will provide you with some of the back-up that you need to justify lower-than-expected salary increases. You can also emphasize that this report was written before much of the current troubles. Things are worse now. Later reports indicate a much more serious slowdown in salary increases. Automotive has gone down to zero, and many staff in that industry regard keeping their job as a victory.

In China, 63% of Hewitt respondent companies said they would change their previously approved salary increase budget policies. The average increase in salary for 2009 in China stood at 8.6%. This is already down 1.6% from 10.2% in another survey done in June-September period. The average increase includes those companies who did not make changes to salary increase budgets(37%), and if you take those companies out the salary increase projection for 2009 is even lower, at only 8.0%.

The main reasons for changes to salary planning budget were concerns about the broader economy (69%) and cost reductions (66%).

Interestingly, hiring freezes were already in place for many company but 50% of them planned to hire strategically when there was a need to do so. This acknowledges the fact that qualified, experienced staff are still a scarce commodity in China.

Top performers are likely to always have a full employment economy in front of them.