Performance-based Pay Reversing Compensation Trends in Asia

What do the organizations pay their employees for? Do they pay them for the time that they spend in the organization? Do they pay them for their inputs? Do they pay them for their skills? Or do they pay them for their performance? There is an argument in support of each of them and another to counter as well. However over the recent years most of the arguments have been in the favour of performance and skill-based pay.


In its global executive pay trends2011, Mercer predicted that the executive salaries in Asia may soon surpass those in the US. The top management salaries in Asia have crossed those in Europe and Mercer anticipates that by 2013, these could even cross US levels. The average pay increase across Asia, except for Japan, was 7 per cent, whereas in western Europe and North America restrained by debt crisis and weak economy the average pay hike in was barely 2-3 per cent.

The reasons attributed to narrowing of pay-gaps between Asia-Pacific regions are:

• Resurgence of equity-linked pay at mid-management levels in smaller organizations that have not yet run into dilution pressures. Although at senior levels, Mercer finds that pay has risen disproportionate to performance, and it feels that going forward this could lead to greater pay governance, increased scrutiny by boards on compensation structures and remuneration benchmarks with more emphasis on performance as a criteria for reward.

• Leadership Shortages and inflation.

The pay-gaps are narrowing between the Asia-Pacific region and what is fascinating is that more and more organizations in Asia are moving their executive compensation towards performance-based compensation. Such moves are on one hand helping companies to grow and at the same time doling better compensation to its employees. This marks a huge departure from the earlier trend of low salaries being a competitive advantage in Asia . Organizations have increasingly realized that such advantage cannot be retained for long in a region where economies are growing faster than any other economy in any other region. However the only way to effectively reverse that trend is to pay for performance.