The strange effect of CNY on hiring in Taiwan

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

In Taiwan, as well as some other major markets in Asia, salary is not a simple calculation of one’s base salary 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 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 installments by some companies, but normally the whole amount is paid around CNY.

So why does this happen, and what effect does this Taiwan norm have on the economy?

Firstly, I should address why I think this happens. CNY is the biggest holiday of the year in Taiwan and the cultural practices around the celebration strongly affect the average worker. 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 Chairperson 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, 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 GMs 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 CNY 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.