Executive-level salaries in Asian countries have sky-rocketed by up to 7% in the past year, compare this to the more modest increases in Europe and North America of 2.5–3% and it is clear that business in Asia is booming.
This enormous surge in remuneration can be attributed to continued strong growth in Asia’s industrial production and GDP, accelerating inflation across the region, a scarcity of executive talent and difficulty in filling executive positions, as outlined by Mercer’s Executive Remuneration Perspective report.
While executive salaries in Asia are already higher than in Europe, and with an annual increase rate higher than in the US, Mercer expects Asian executive salaries to surpass those in the US within the next two to three years.
A second regional trend is a shortage of executive talent endowed with the ability to innovate, to think globally, to take risks and to move quickly. Such talent is mobile across Asia and, as a result, is driving up pay in some sectors to levels that may prove unsustainable.
Yeoh Sai Yew, Head – Rewards & People Services, Air Asia, believes that the future of compensation and benefits in Asia’s key and emerging markets will lie in simple pay packages consisting of hard cash. “Instead of giving additional perks such as housing and a car for instance, it is very likely that more companies will be going for direct cash,” says Yeoh. “However, some companies will still do some breakdown to reduce individual taxes in certain countries.”
Yeoh also predicts there will be lesser emphasis on long -term incentive plans (LTIPs) such as retirement gratuity (non-statutory). “These LTIPs not only increase administrative and operational costs, but also do not help to retain the new generation. Short- and medium-term incentives will still be popular trends in order to retain talent.”
Wage plan management
Major components of a total rewards programme can be rather varied, depending on industry, number of employees, etc… However, some basic guidelines include having a good balance of fixed cash, variable cash (to drive performance KPIs), and benefits that can be adjusted to what individuals want, according to Zarina Piperdi, Senior VP – HR, Singapore Airlines Engineering. “For more senior staff, a share plan is useful to drive mid-term performance and retention.”
At Philip Morris International (PMI), total rewards is considered a broad term – beyond traditional compensation and benefits plans. “For us, a total rewards programme is based on not just rewards and recognition; equally important components are individual employee development as well as providing enriching and challenging professional opportunities,” says Jaroslaw Pawlowski, Director – Compensation & Benefits, PMI.
PMI's total remuneration approach is designed to be competitive, promote performance, and encourage superior achievement while ensuring internal equity. The compensation and recognition programs are designed to reward employees for their capabilities and accomplishments. “Our benefits programs aim to support our employees in their short- and long-term well-being, and to address specific individual needs.” Pawlowski explains.
Air Asia also has in place a total rewards plan which includes cash and non-cash (medical, free air tickets, etc…) portions. The airline tries to keep its cash component as straight forward as possible and link it to productivity. “While their basic salary is guaranteed, staff have to earn a certain portion of the cash component,” says Yeoh.
Ultimately, regardless of the type of compensation and benefits plan implemented, clear and transparent communication is a must in ensuring employee engagement. “Employees must be clearly communicated too – so that they understand why they are getting what they are getting,” says Piperdi.
A fundamental part of the total rewards approach at PMI is also openness and transparency. “We take a lot of effort in explaining to employees key principles behind our rewards portfolio design and in highlighting the link between performance and rewards,” says Pawlowski. “We also conduct employee opinion surveys regularly, gaining valuable insight into the total rewards area and help in creating action plans further supporting employee engagement and satisfaction.”
Pay for performance
Every rewards programme HR introduces should drive productivity, says Yeoh. “If we introduce something that has no impact on productivity, why should we have to introduce it in the first place? It’s very important that whatever measure we implement, it must be achievable and produce results.”
When planning a performance-based wage plan, HR should aim to provide rewards according to visible differences in performance.
An integral part of the performance management process at PMI is not only a review of achievements but also dialogue between employees and their supervisors about career aspirations, which creates a platform for planning individual development.
HR can align performance measurement with rewards strategies through carefully thought-out bonus plans. “A good bonus plan ought to factor in financial and operational KPIs,” says Piperdi. “An ideal plan should be able to reward at three levels – the company, divisional and individual performance levels.”
While it is not easy to get the bonus design right in order to meet the needs of all parties, one way to base a bonus plan is on the level of seniority of staff.
For lower level staff, it should be a more straight-forward approach like an individual performance appraisal,” says Yeoh. “For instance, as long as a factory operator has managed to assemble required parts in good time and without defect, they have done their job. Whether the product is marketable or profitable is beyond their control.”
“As mentioned earlier, planning a compensation and benefits package is always a balancing act. If we overly pamper our children, there will be negative consequences. Similarly, any excessive rewards will surely have an adverse effect on productivity,” says Yeoh. “But how much pampering is over pampered? It’s all depends on the individual family.”
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Inflationary pressures
Inflation is hitting countries around the region hard. It is also impacting salaries. Recently, Thai grad salaries were reported to have increased by as much as 40% to help fresh graduates meet their living expenses so that they can focus fully on their work, and not seek part-time jobs.
Piperdi says employees generally look to their employer to keep them “whole”, to overcome the effect of inflation. However, even as companies try to do so to meet heightened expectations, they need to grapple with other effects of inflation on the bottom-line.
“In the long term, a company’s wage plan has to align with market forces. It can’t raise wages while the rest of the industry stays stagnant as it will hurt the company’s profits,” says Yeoh.
In the short term though, for example when crude oil hits above US$100 per barrel, companies can introduce short-term incentives to staff, especially those in the lower ranks of the workforce, to ease their daily expense burden.
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Best C&B practices
Yeoh Sai Yew, Head – Rewards & People Services, Air Asia believes to have best compensation and benefits practices is to have a balance between “the carrot and the stick”. He gives some tips below:
Each HR practitioner must understand the points below before drafting the “best practices”:
+ What’s our company’s culture? Will the management accept our idea?
» “Perfect Attendance” allowance is quite a common practice in the market (especially in the manufacturing line). However, some management executives feel that staff are already being paid a salary to come to work. So, why should the company pay extra to encourage their attendance?
+ What we want to achieve?
» If attendance is not an issue in our company, do we want to introduce “Perfect Attendance” allowance just because many companies are doing so?
+ How much can the company afford?
» If our company can’t afford to pay more, or our current total package is already on par with the market, should we still introduce new incentives? This for sure will drive up cost and affect business competitiveness.
» Instead, we can look at revamping our existing package so that the bottom line is still the same.
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