A new chapter begins
Tackling rising costs through total rewards and workforce skills
Across markets in Asia, organisations are faced with the pressures of increased financial burdens which can hinder organisational growth. Several key factors are driving this:
-
Escalating medical trend ratesIn many Asian markets, medical trend rates are projected to reach 12.5% in 2026 —close to six times the inflation rate. In fact, Asia is projected to have the highest medical trend* rate globally. This surge impacts organisational healthcare costs and puts a strain on budgets.
-
Rising salary expectationsAccording to Mercer Asia’s 2025 APAC Total Rewards Trends and Insights webinar, eight out of ten Asian markets expect improved merit salary forecasts in 2026 versus 2025, with overall increases around 4.7%. While modest, this growth strains organisations striving to stay competitive in talent attraction and retention. Plus, with the rise of an ageing workforce, the use of age-based compensation schemes continues to inflate costs. In South Korea, for instance, age is the second-most influential factor that drives compensation following job level ¹.
-
An ageing workforce and shrinking talent pipelinesAPAC is the world’s fastest ageing region, with 60% of the global population aged 65 and above projected to be in the region by 2060². This leads to a shrinking talent pipeline resulting from fewer younger workers replacing retirees. Plus, a widening skills gap causes loss of critical expertise. Organisations face higher costs competing for scarce talent and must invest more heavily in upskilling and training. Without strategic workforce planning, these challenges can strain budgets and limit organisational growth.
How can employers manage costs effectively while remaining competitive and fostering long-term growth?
Balancing cost and growth: Here are two key strategies to transform total rewards
1. Offer flexible, tailored benefits
One-size-fits-all benefits aren’t resonating with today’s multi-generational workforce particularly as employee priorities evolve over time. Offering flexible benefits aligned with different life stages — whether early career, mid-career, or pre-retirement — boosts satisfaction, engagement, and retention. Tailored incentives, such as wellness support and caregiving assistance, help employees better manage their personal circumstances, enabling them to more effectively balance work and family needs. Creating an environment that addresses these unique needs reduces turnover costs and supports a stable, experienced workforce.
-
ChallengeA leading private bank in Asia faced rising costs, underutilised benefits, and a lack of perceived value of its benefits programme. For instance, younger employees wanted preventative care and wellness support — not just catastrophic coverage.
-
Actions
The bank partnered with Mercer to:
- Review benefit offerings and redesign flexible benefits programme, enabling employees to customise coverage.
- Introduce annual funding into flexible spending accounts for personal well-being choices.
- Introduce wellness sessions to target cost drivers.
- Redirect new benefits investments into flexible spending accounts. This introduced many new benefit categories tailored for younger employees without the bank needing to purchase costly insurance products for the entire workforce.
-
Outcome
In the year of introducing flexible benefits:
- Projected cost increase was reduced by 5% compared to the period before the plan design and strategy changes.
- More than half of the employee cohort actively selected their benefits, demonstrating meaningful engagement with new benefit options aligned to personal needs, and the new system.
- Employee survey results showed a 5% increase in satisfaction with the bank’s rewards offering.
By re-allocating spend from costly and underutilised benefits programmes to flexible, employee-directed benefits, the bank boosted engagement, maintained protection for higher-risk groups, and achieved better value overall.
Control costs with real-time benefits data and insights
To combat rising costs and shifting employee needs, you will need comprehensive benefits data and insights to analyse cost trends and identify areas where efficiencies can be gained. With Mercer BenefitsMonitor™, you can now access benefits data and compare trends across markets and industries in real-time.
2. Align compensation with longevity, skills, and life stages
In today’s fast-changing business environment, traditional age- or tenure-based compensation is no longer effective. But aligning rewards with skills, longevity, and life stages helps address talent shortages and manage long-term costs effectively. Aligning compensation with skills and life stages reduces recruitment and training expenses, strengthens employee loyalty, and boosts productivity — ultimately delivering clear business value.
Forward-looking employers are designing total rewards strategy that:
Forward-looking employers are designing total rewards strategy that:
-
Promote continuous upskillingInvest and reward ongoing learning to close skills gaps, reduce external hiring, and build a resilient internal talent pipeline.
-
Design rewards addressing different life stagesOffer flexible rewards like phased retirement to lower turnover and retain experienced employees.
-
Establish fair pay for skillsReward critical skills over tenure with transparent pay structures that attract and retain top talent while driving business growth.
A leading Singapore tech firm with over 3,000 staff teamed up with Mercer to switch from traditional pay-for-job to pay-for-skills, with the aim to boost upskilling and reskilling. Mercer worked with the client to design a fresh framework where employees are rated on KPIs and competencies. KPI scores decide performance bonuses, while competency assessments drive promotions, raises, and access to special salary bands.
The client set up three salary ranges: a general one for all roles, a premium band for niche tech skills like data analytics, and a higher premium for critical skills such as cybersecurity. These bands are benchmarked against market data, and only employees who prove competency can earn raises and move into premium ranges.
This pay-for-skills model rewards continuous learning and links pay to both performance and real capabilities, building a more agile, future-ready workforce.
This demonstrates that a tailored and inclusive total rewards scheme benefits both organisations and employees. It supports talent attraction and retention, manages costs, encourages workforce productivity, and drives business growth — creating a true win-win for all.
Why Mercer
Mercer provides access to the world’s largest and most comprehensive workforce rewards dataset. Leveraging our extensive experience and data-driven insights, we empower companies to navigate the challenges and seize the opportunities of a changing landscape and workforce, helping them transform rigid, age-based reward systems into adaptable, future-ready frameworks.
*The medical trend represents the year-over-year increase in per-person claims costs under the medical scheme, driven by factors such as medical inflation (rising unit costs for the same services or supplies), changes in treatment mix toward more expensive options, evolving utilisation patterns like increased demand for mental health treatments due to greater awareness, and regulatory changes.
Related products for purchase
Related Solutions
Related Insights