Talent shortage means pay hike for Asia Pacific executives

Boards advised to look at implementing combination plans that can help companies achieve sustained growth while retaining executives.

Asia Pacific trends

The first trend is the rapid increase in executive pay in the Asia Pacific region, especially in China, India, Indonesia, Vietnam, the Philippines and Malaysia. Contributing factors include continued strong growth in Asia’s industrial production and GDP, accelerating inflation across the region, a scarcity of executive talent and difficulty filling executive positions. While average executive salaries are increasing by 7% across the region, in Europe and North America the comparable rates are approximately 2.5% to 3.0%.

For some time, western-developed economies have posted the highest average compensation, but Mercer is seeing a dramatic shift as supply and demand factors wreak havoc on compensation levels. Last year, average executive salaries in Asia surpassed those in Europe, and with an annual increase rate higher than in the US, we expect Asian executive salaries to surpass those in the US within the next two to three years. A second, not unrelated, 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.

Southeast Asia trends

Most companies in Southeast Asia are currently facing fast growth and a shortage of executive talent. In Singapore, companies are expected to continue to focus on performance-based plans, which have almost become the norm in the country. In Malaysia, stock-option plans are also being replaced by performance-based plans and share-based plans to improve retention. In both these markets, government-linked companies’ take on performance-based plans is consistently influencing market practices, as mentioned in a Mercer report.

In Thailand, there is a greater recognition of the need for long-term plans for executives to drive retention, team behaviour and performance – the key emphasis being executive retention to fuel growth. 

Recommended actions

Long-term plans are seen as the engine to help fuel growth and retain executives. Boards should look at implementing combination plans that can help companies achieve both. According to Fermin Diez, Mercer’s Senior Partner and Asia Pacific Business Leader, Human Capital business, “We have observed that stock options are losing ground in favour of performance-based share programs for motivation and restricted share programs for retention. Performance metrics are also shifting toward long-term and strategic rather than merely short-term financial measures. “