Short-Term Incentive Trends Indicate Declining Business Confidence in Asia-Pacific

by CFO Innovation Asia Staff, 12 June 2012

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business confidence Mercer Short-Term Incentives

Pay data released by Mercer on the use of Short-Term Incentives (STIs) indicates a weakening in confidence for companies in Asia-Pacific and other regions.

“An STI is remuneration based on annual performance against set criteria and STIs form an important part of the remuneration package for key employees and senior executives,” explains Mark Quinn, Partner in Mercer’s and Reward specialist.

“A key criterion for the funding of bonus awards is successful company performance. So, if a company is predicting that it will pay out less to executives in 2012 than it did in 2011 - as our data shows is happening in certain regions – it indicates that companies expect their financial performance to be worse in 2012 than in 2011. The reverse is also true.”

The percentage of executives receiving STIs is increasing in New Zealand and Australia from 56% of executives in 2009 to 67% in 2011. The longer, three-year trend from 2009 to 2012 on STIs as a percentage of base salary across Asia-Pac and Australia/New Zealand is upwards, with awards increasing by 2.3% and 2.6% respectively.

However, the data suggests that in the short-term confidence is dipping. In 2010, companies in Asia-Pacific predicted STI payouts for 2011 of 22.2% yet actual payments were higher (23.3%). This reflected the economic confidence of the region.

In contrast, predicted payouts in 2012 are expected to be 22.1% suggesting a more cautious outlook.

Employers in New Zealand and Australia are an exception here, anticipating a marginal increase in 2012 of 21.9% compared to the 21.6% paid out in 2011.

“STI predictions for 2012 are a good reflection of business confidence,” he adds. “Based on our data, there is better confidence in Western and Eastern Europe but evidence of a weakening in confidence in the Americas and Asia Pacific. However, as we know - and are currently experiencing in Europe - business sentiment and economic conditions change rapidly so we anticipate significant changes in the actual amounts distributed.”

Outside the executive suite, the report highlights that companies are looking at adjusting their use of variable pay to help manage the cost of labour which is a major factor for most organisations.

While the high unemployment rate has brought down hiring costs, the soaring cost of training and educating new talent restrains employers from “buying talent” rather than “building” their own.

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