Rapidly increasing wages, high demand for qualified workers, and high turnover rates have made recruiting and retaining talent one of the top challenges multinational companies face in China year after year. But there’s another issue making employee recruitment and retention even more difficult: China’s air pollution.

Julian Ha, a partner at executive search firm Heidrick and Struggles, said that pollution is having an impact on companies’ ability to fill executive positions. “Companies are noticing that their employees, when they’re offered positions in China, are thinking twice,” Ha said at the US-China Business Council’s (USCBC) annual meeting. (USCBC is the publisher of the China Business Review.)

Companies are noticing that their employees, when they’re offered positions in China, are thinking twice.

Surveys of foreign multinationals in China in recent months say that air pollution is driving up human resources costs and making it more challenging for companies to recruit talent. The American Chamber of Commerce in China’s 2014 Business Climate Survey reported that nearly 48 percent of respondents have had difficulties recruiting or retaining senior executives in China because of air pollution.

Nearly one-third of respondents to the EU Chamber of Commerce in China’s annual business confidence survey said that air pollution was contributing to higher HR costs. Two-thirds of respondents said they have taken steps to address air pollution concerns, including installing air purifiers at the office, providing masks for employees, and implementing work from home policies.

While additional “hazard pay” for posts in China’s polluted cities is not widespread, 6 percent of respondents to the EU Chamber’s survey said they have increased employee pay in response to concerns about air pollution.  And In March, Japanese electronics company Panasonic announced that it would offer a more generous compensation package to its expat employees in China in response to hazardous levels of air pollution.

According to Ha, concerns about air pollution and its effects on health have forced some foreign executives to withdraw their applications for China-based positions. He said one candidate his firm recruited found out that she had a coal allergy and had to drop out of the running for an executive position in China.

Ha noted that candidates with families—especially families with small children—or with health problems such as asthma are often not able to take assignments in China. Some expat employees with families choose to leave them behind in their home countries. “It’s not a long-term solution, but it’s happening more frequently,” Ha said.

Even local candidates are being more selective about where they live, preferring cities with better air quality like Qingdao, Ha said.

Policy initiatives to combat pollution and revisions to China’s Environmental Protection Law (EPL) may ease air pollution over the long run. According to China Environment Forum Director Jennifer Turner, China has pollution regulations on the books, but “in actual practice…you see from the air quality that something isn’t working.”

So far China’s environmental agencies have lacked the resources to enforce regulations already on the books, Turner said at the USCBC event. China has “institutions in waiting” that can tackle pollution problems if they have enough resources, but results will be long in coming, she said.

“We are in a shift right now,” Turner said. “It’s going to take a long time… but the writing is on the wall.”

[author] Christina Nelson ([email protected]) is editor of the China Business Review. [/author]

(Photo by Gus Greeper via Flickr)

Posted by Christina Nelson