Executive Compensation in Asia to fall in 2009, sentiment one of caution bordering on pessimism
HONG KONG, March 31 /PRNewswire-Asia/ -- Hewitt's Topic Survey on Executive Compensation & Long Term Incentives 2008/09 reveals that Asian companies are being cautious to pessimistic in their approach to Executive Compensation. The survey, which studied 312 local and multinational organizations across Asia, further revealed that the fall in executive compensation is due to lower bonuses and reduced valuation of long term incentives.
The survey, which was conducted over December 2008 and January 2009, revealed that organizations have been severely hit by the Financial crisis, with nearly 9 out of 10 respondents reporting that their stock price was lower on December 31, 2008 than on December 31, 2007 and as many as a third of the respondents further reporting that this dip was 50% or higher.
Base pay revisions are significantly lower than those in the past few years, showing drops of 25-50% and more across Asia. Worst affected are Singapore & Australia, where average increases are in the range of 0-3% with around 30-40% of the companies reporting a salary freeze.
Says Shekhar Purohit, Hewitt's APAC Leader for Executive Compensation and Corporate Governance, "With deflation looming large, base pay freezes and even cuts are on the rise and likely to increase unless the economy turns around soon."
The message on bonuses is even bleaker, with 15% of the respondents declaring that no bonuses would be paid and nearly 4 out of every 5 respondents saying that their payouts would be below target. A fifth of the respondents reported that bonuses would be less than half of the target. Moreover, nearly 30% of the respondents are likely to redesign their incentive plans, in view of their changed business strategy.
Though over 30% of the participants reported that more than 50% of their existing options were under water, the vast majority of the respondents (84%) are choosing to let them run their course, rather than re-pricing their options or replacing the value 'lost' through cash or other means. "This is in line with the broader philosophy of pay for performance and aligning employee interests with shareholder value," says Shekhar.
A cross-industry analysis shows that the Manufacturing industry has been the worst affected, followed by the Financial Services sector; the impact on the Hi-Tech sector is comparatively lower.
The survey also showed that value of Long Term Incentives to be granted in 2009 will reduce significantly, as more than half the participants reported that either plan eligibility or value of LTI or both will be lower. Most organizations will either not replace the value 'lost' or at best, will replace it partially. In addition, there is a definite shift towards building performance-based grant or vesting criteria into long term incentive plans.
In conclusion, the survey showed that executive pay in Asia will show a significant reduction in 2009, with the brunt of the reduction being borne by the short and long term incentives.
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt consults with companies to design and implement a wide range of human resources, retirement, investment management, health management, compensation, and talent management strategies. As a leading outsourcing provider, Hewitt administers health care, retirement, payroll, and other HR programs to millions of employees, their families, and retirees. With a history of exceptional client service since 1940, Hewitt has offices in 33 countries and employs approximately 23,000 associates who are helping make the world a better place to work.
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