There are significant differences in executive pay practices between Asian and western firms operating in Asia, according to a recent report by Mercer.
Annual variable pay tends to be higher at Asian firms compared to western companies, found Asia Executive Remuneration Snapshot Survey, which polled 200 firms.
“Asian companies prefer more flexible pay structures which can be adjusted based on business performance,” said Hans Kothuis, Asia Pacific rewards consulting leader at Mercer.
The performance metrics on which these bonuses are based are more equally balanced between the top and bottom line measures at Asian firms versus at western firms which tend to place a greater emphasis on profit based metrics (83 per cent at western companies versus 61 per cent at Asian firms), found the report. Asian firms also give more importance to a bonus determination process that is less formulaic and more discretionary
While long-term incentive (LTI) plans are more prevalent at western firms in Asia (63 per cent versus 45 per cent of Asian firms), the survey shows that more Asian firms (36 per cent) expect to make changes in the design of their LTI plans and to increase the target pay-outs of these awards.
“Asian companies are very active in the redesign and re-evaluation of their long-term incentive practices,” said Kothuis. “One of the biggest changes in the LTI landscape is the decreasing popularity of stock options which has fallen from 58 per cent to 48 per cent.”
Asian companies are also much more likely to pay irregular, ad hoc awards, outside of the annual grant cycle (32 per cent of Asian companies versus eight per cent of western firms), for purposes of retention, recognition and promotion. This highlights the fact that retention is one of the top three talent challenges, particularly among Asian firms that are in growth mode, said Mercer.
The survey also revealed that Asian companies have an increased awareness of hot-button compensation issues and the need for more engagement and transparent communication with shareholders.
“Almost half (48 per cent) of the Asian companies surveyed indicate to us that they plan to explain the rationale for their pay decisions with greater clarity, not only the ‘what’ of compensation but also the ‘why’ and ‘how’,” said Kothuis.
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