The strange effect of CNY on hiring in Taiwan
By: Alan Mcivor
Tags: Headhunting, Job Search, Recruitment, Business, Taiwan

Written by Alan McIvor from Paul Wright Group

Hello everyone, your friendly neighbourhood recruiter here, Alan McIvor. I trust that everyone here in this part of Asia enjoyed their Chinese New Year (if you prefer the term Lunar New Year apologies now), seeing family and friends and eating as much as possible. I certainly put on the clichéd extra pounds, the coach from my gym messaged me this morning to say well done for coming in last night but he also wants to see me again two more times this week…sigh

Anyway, I want to talk a little bit about the strange effect that Chinese New Year (CNY) has on the hiring market in Taiwan and maybe speculate a little bit about the pros and cons.

So, we all know that lunar new year usually falls around the end of January or early February, depending on the year and the government’s decision regarding how much holiday we get. In Taiwan, as well as some other major markets in Asia, salary is not a simple calculation of one’s (base $) x (12 months of the year). Whereas it can be common for jobs around the world to compensate strong sales performers with a commission bonus, the average white-collar office worker has no difference in their paycheck month to month. Not so in Taiwan!

In Taiwan, salary is often split up into far more than 12 or even 13 yearly payments. Having worked as a professional recruiter/headhunter (now with Paul Wright Group, shout out!) for several years, I’d estimate that the average salary in Taiwan is split into 15 months. This means that on top of your monthly base salary there is usually an extra month “guaranteed” bonus, which by all accounts falls under base salary, alongside a “variable” bonus that can be anything from nothing to 10 months extra salary. These variable bonuses are paid in two instalments by some companies, but normally the whole amount is paid around Chinese New Year. So why does this happen and what effect does this Taiwan norm have on the economy?

Good question Alan! Firstly, I should address why I think this happens. CNY is the biggest holiday of the year in Taiwan’s calendar and the cultural practices around the celebration strongly affect the average worker here. The history of an employer paying extra money to their employees at this time probably goes back hundreds of years. For workers, there is an expectation to give out red envelopes or hong baos, not just to your kids and younger relatives but also to your parents and grandparents. To be seen as the filial pious member of the family that you are, the more generous you are with these red envelopes, the better.

This goes some way to explaining the Taiwan bonus system although, of course, this is not the whole story. As mentioned, the CNY bonus can be anything from 0–10 months’ salary. What accounts for the difference in bonus payout? Well, this is where things get a bit interesting. The only company in Taiwan I have ever seen pay salary over 12 months (no extra bonus) was an excellent Swedish hardware company that I worked with. The highest bonuses are typically paid out by the large Taiwanese hardware companies. What might you be able to read into this? It could be argued that this difference is predominantly about cash flow.

If you are the Chairman of a large Taiwanese hardware company, as opposed to the owner of the Swedish hardware company, what is the difference between doing this:

Swedish: 120,000 NTD x 12 months = 1,440,000

Taiwanese: 80,000 NTD x 14 months guaranteed + 4 months variable bonus = 1,440,000

The example I give above is a very real example from the job market in Taiwan. I would argue that the benefit to the Taiwanese owner is fiscal protectionism. The Taiwanese owner is able to keep more cash in the business during the year by paying lower monthly salaries to all employees, then he can see how much profit margin can be spent on the CNY bonuses. The Swedish owner doesn’t have this luxury, regardless of business performance, he is paying 1.44 million to his employee as stipulated in their contract. In a good year, the Taiwanese owner can pay 6 months’ salary bonus and look like a saint, but in a bad year pay 2 months’ and save some of the business loss.

Having negotiated hundreds of contracts I can tell you that salary is everything. Although candidates will tell you in a meeting that their motivations range from work-life balance to company culture to direct manager style but at the end of the day, money always talks. I can also tell you that employees want more of their salary in their base pay rather than as a variable bonus. With a variable bonus you have much less control over your final annual salary. As an example, I know VPs and DGMs in Taiwanese companies whose base salary is the same as a 27-year-old in an average multi-national company here, but the former’s bonus can be over 1.5 million NTD. So, is this something the more traditional Taiwanese companies need to change?

To put it bluntly, yes, large Taiwanese companies should come in line with the rest of the market. You can make the argument that Chinese New Year bonuses should be scrapped altogether but realistically I don’t see that happening. As previously mentioned, the average salary in Taiwan is broken down into around 15 months’ pay, with 13 months being paid automatically and 1–3 months’ extra depending on individual and company performance. I think this is the best scenario for employees and more importantly, will help Taiwanese companies attract the best talent in the market.

I have waffled a bit without actually touching too much on the title of my article, the strange effect that this has on the job market here. As I’m sure many people reading this will know, the bonus in CNY has an absolutely massive effect on the hiring market in Taiwan because people are reluctant to leave before receiving this money. If you split the average year of a headhunter into the four quarters, Q2 and Q3 tend to be great while Q1 and Q4 can be a real struggle. It is difficult to persuade someone to change jobs in December if they know they have 320,000 NTD waiting for them in their January pay slip (obviously). However, this also means that a lot of employees every single year will wait till they’ve received their bonus and then quit.

Human resources know this, so HR will also plan their hiring around CNY because they need to wait to see who leaves after receiving their bonus to know who to replace and where to put the extra headcount. All of this means that mass hiring in Q2 becomes a self-fulfilling prophecy. Candidates will wait for this time to look for jobs and HR will wait for this time to release the roles they want to hire. Ok, so tell me this, as an owner of a company that has 100 staff, would you prefer to lose 1 person a month for 12 months or lose 10 people at exactly the same time? The point I’m making is that this CNY bonus system is creating instability in the market itself. Companies can be running along smoothly until CNY bonus is paid (sometimes the amount is little below people’s expectation) and then you lose several significant people at the exact same time causing the business to suffer massively as a result. The Swedish company I referred to previously in the article paid salary exclusively over 12 months precisely to stop this from happening. The owner wanted both resignations and new hiring to be done gradually throughout the year, not all in Q2. He is the only owner I know who has taken this approach in Taiwan (one-year contract workers being an exception).

I have to admit that I can be guilty of perpetuating the cycle as well. As a headhunter you have hundreds of potential candidates that you have relationships with, and these people will periodically “check in” with you to see how the job market is. Often around Q4 I will tell these people, “I think the market will open up much more after CNY, let’s have a chat then and hopefully there will be some interesting jobs for you to consider.”

I’ve always found this to be an interesting influence on my job and one quite specific to the market here in Taiwan and other historically Chinese cultures. The CNY effect is not all-consuming however and does influence hiring numbers to various degrees year on year. Of course, there are always companies hiring at all times of the year, with some peaks and troughs at various points. However, it is something to think about!

What are your thoughts on the pros and cons of the salary and bonus system here? I’d be intrigued to hear people’s opinions.