When evaluating job offers, one of the most important considerations for candidates in Indonesia is the salary package. With the country’s dynamic labour market and evolving economic landscape, salary increases play a critical role in attracting and retaining top talent. For recruiters, understanding these dynamics can offer a competitive advantage when negotiating offers and keeping employees motivated.

In 2022, employees in Indonesia received an average salary increment of 5.8%, and projections for 2023 show a further increase of 6.1%, as reported by Mercer. This positive trend reflects Indonesia’s steady economic recovery post-pandemic and signals a return to more stable growth patterns​ (Mercer, 2022). Meanwhile, data from Salary Explorer indicates that most Indonesian employees typically receive an average salary increment of 8% every 18 months, which is notably higher than the global average of 3% every 16 months​​.

This article delves into the factors that influence salary increases in Indonesia, governing regulations, regional variations, and strategies recruiters can use to offer competitive compensation packages.

Governing Regulations: The Role of UMP

Salary adjustments in Indonesia are largely influenced by the Provincial Minimum Wage (Upah Minimum Provinsi or UMP), which is set by the Ministry of Manpower. The UMP is reviewed annually and varies by province, taking into account inflation, cost of living, economic growth, and productivity levels within each region. Provinces with higher costs of living, like Jakarta, tend to have a higher UMP, reflecting the financial demands on residents compared to less urbanised areas.

For example, Jakarta has one of the highest UMP rates in the country, set at IDR 5,267,076 for 2024. In contrast, provinces like Central Java have lower UMP rates, such as IDR 2,291,514, reflecting the more modest cost of living. For recruiters, these variations are important when setting compensation packages, especially when hiring talent from different regions within Indonesia.

Moreover, the UMP acts as a baseline salary, meaning companies cannot legally pay below this rate. However, many companies, particularly those in competitive sectors, often offer salaries well above the UMP to attract and retain skilled workers.

Key Factors Influencing Salary Increases

Understanding the factors that drive salary increases in Indonesia is crucial for ensuring that compensation packages remain competitive. Several factors contribute to how and why salaries are adjusted, including annual evaluations, job roles, industry demand, and work settings.

1. Annual Evaluations and Promotions

In many Indonesian companies, salary increases are closely tied to annual performance reviews. Employees who meet or exceed performance expectations are often rewarded with promotions or salary increments. This practice helps maintain employee motivation, align individual career growth with company objectives, and create a merit-based environment.

A Mercer study shows that high-performing employees in Indonesia receive salary increases at a faster rate than average performers. For recruiters, incorporating performance-based increments into salary packages can be a compelling way to attract talent who value career progression.

2. Work Setting: Remote and Hybrid Models

Since the COVID-19 pandemic, work-from-home (WFH) and hybrid work models have become more prevalent in Indonesia. As a result, work settings have begun influencing salary packages. In some cases, companies offer different salary packages for employees based on whether they work remotely or are required to work on-site.

For instance, remote workers may receive fewer travel-related benefits but might enjoy additional allowances for home office setups or flexible work hours. Conversely, on-site employees may be offered higher base salaries to compensate for commuting and other workplace-related costs. For recruiters, understanding these differences is key when negotiating salary packages with remote talent.

3. Job Titles and Responsibilities

Salary increases also vary significantly based on an employee’s job title and responsibilities. Employees in managerial or specialised roles, such as IT specialists or marketing managers, typically see larger salary increases compared to administrative roles, reflecting the complexity and value these positions bring to the organisation.

A professional in a senior position, like a project manager in Jakarta, can expect a higher base salary and more frequent salary adjustments compared to entry-level positions in the same industry. By factoring in job responsibilities and their impact on the company, recruiters can better tailor salary packages to meet expectations.

4. Educational Background and Experience

Education and experience are also significant factors influencing salary levels in Indonesia. Employees with higher educational qualifications, such as a Master's degree, typically command higher salaries than those with only a Bachelor’s degree. Data shows that professionals with a Master’s degree earn approximately 29% more than those with only undergraduate qualifications. Similarly, employees with over 15 years of experience can expect significantly higher salaries than their less experienced counterparts​ (Salary Explorer, 2022).

For recruiters, targeting candidates with advanced education or significant experience may require offering higher salaries, but these candidates often bring specialised skills and deeper expertise that can benefit the organisation in the long run.

5. Industry and Market Demand

The industry in which a company operates can also significantly affect salary increases. Certain industries, like healthcare, technology, and finance, are experiencing high demand for skilled professionals, and companies in these sectors tend to offer larger salary increments to attract and retain talent. In contrast, industries like construction or retail may see more modest salary increases due to lower demand or tighter profit margins.

For recruiters, it is essential to stay informed about industry-specific salary trends and adjust compensation packages to reflect the demand for talent in each sector.

Regional Variations in Salary Increases

Indonesia’s vast geography and diverse economy mean that salary standards and increases can vary widely depending on the region. Major cities like Jakarta, Surabaya, and Bandung generally offer higher salaries due to higher costs of living and more industrialised economies. For instance, employees in Jakarta might expect a 6-8% annual salary increase, while those in smaller cities like Yogyakarta or Makassar may see more modest increments.

These regional differences are important for recruiters, especially when hiring remotely. Offering location-based salary adjustments that reflect the cost of living and economic conditions in each region can help maintain fairness and competitiveness in salary offerings.

Reasons for Salary Increases in Indonesia

Several reasons drive salary increases for employees in Indonesia, and recruiters need to consider these when negotiating compensation packages:

• Inflation and Cost of Living Adjustments: Regular adjustments are made to keep up with inflation and rising living costs. In high-inflation environments, companies must increase wages to help employees maintain their purchasing power.
• Performance-Based Increments: Exceptional employee performance is often rewarded with salary increases or bonuses. Including clear performance-based incentives in compensation packages can help motivate employees and ensure retention.
• Market Competitiveness: In competitive industries, companies may offer higher salaries to stay attractive to top talent. Offering salaries that are on par or exceed industry averages can set a company apart in a competitive labour market.
• Legal Requirements: Companies must comply with annual UMP adjustments, which necessitate salary increases to meet legal standards. However, exceeding the minimum wage can help position a company as a preferred employer.

Strategies for Attracting Talent with Competitive Salaries

Recruiters can adopt several strategies to attract and retain top talent by offering competitive salaries that reflect market conditions and employee expectations:

• Offer Competitive Base Salaries: Ensure that salary offerings are above the UMP and reflect industry standards, educational qualifications, and experience.
• Incorporate Performance-Based Bonuses: Including performance-based bonuses in compensation packages is an effective way to motivate employees and reward top performers.
• Adjust for Regional Variations: Offering salary adjustments based on the cost of living and economic conditions in each region helps ensure fairness and competitiveness, particularly when hiring remote workers.
• Stay Updated on Salary Trends: Regularly reviewing industry salary trends and making adjustments based on market demand ensures that salary packages remain attractive to potential employees.

Conclusion

Understanding salary increases in Indonesia requires a comprehensive view of various factors, from regulatory wage adjustments and regional variations to performance-based incentives and industry trends. For recruiters, staying informed about these dynamics is essential for crafting competitive compensation packages that attract and retain top talent. By aligning salary offerings with local laws, economic conditions, and employee expectations, companies can build a workforce that is both motivated and loyal, ensuring long-term success in Indonesia’s evolving labour market.