Study shows emerging pay-for-performance culture

Latest study on remuneration reveals nearly 40% of participating companies intend to increase the target level of their executive short-term incentives in 2010.

According to Mercer's Asia Executive Remuneration Snapshot Survey, individual performance is the most commonly used measure to assess performance among surveyed companies (79%), followed by profit-based and revenue/sales growth-based measures, which are factored into their STI plans.

Wei Zheng, Asia business leader with Mercer's rewards business, said, "While many companies in Asia are considering long-term structural changes to their executive remuneration programs in order to enhance the relationship between pay and performance, balance risk and rewards, and ultimately drive long-term sustainable business performance; we are clearly seeing a focus on the differentiation of individual performance for executives right now."

The survey showed approximately 30-40% of an executive's total pay package is linked to variable pay (STI plus LTI) regardless of the type of organisation. "Asian companies tend to provide their executives with more short-term incentives in the variable component of their total package, compared with their Western couterparts who tend to favor long-term incentives," said Mercer.

In terms of salary increases, 65% of survey respondents across Asia plan to provide base salary increases for executives this year, compared with only 30% in 2009. Particularly in Singapore, companies will be affording employees an increase in line with cost-of-living expenses (between 3-3.75%), demonstrating an improvement in the local economic outlook and following a year of no salary increases.

"Compared with 2009, respondents expect actual STI payouts to more than double in 2010. In addition, nearly 40% of participating companies intend to increase the target level of their executive STIs in 2010 (up from 21% in 2009); and half of the respondents say that actual STI payout amounts for executives in 2010 are likely to increase (up from 27% in 2009)," said Mercer, indicating that companies in Asia are moving towards a pay-for-performance culture.

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