A SERIES OF ARTICLES FRoM THE 2011 EMEA CoMPENSATIoN ...

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COMPENSATION AND BENEFITS IN ASIA PACIFIC the attraction of top talent, the retention of top talent and the development of that talent. Because they are typically regarded as the preserve of HR, such factors normally drive less than 10% of managers’ variable pay. But regardless of who is primarily responsible for attracting, developing and retaining talent, a company’s compensation strategy should support these activities, not work against them. So a typical compensation structure for a growth market might look something like the following: Base salary – focus on the development of new skills and competencies. This differs from the mature market approach in that it carries less emphasis on performance. Growth expectations in China mean that the best people have lots of opportunities – and they know it, and have high salary expectations as a result. But there is a shortage of talent, particularly leadership talent, and managers are often over-promoted. What’s more, compensation is unstructured and the benefits landscape is immature. Here Western firms, with their sophisticated talent management and compensation approaches, have a huge advantage over their developing market competitors. They can capitalise on the rapid and often chaotic growth in emerging markets by using structured development programmes, targeted benefits and performancerelated rewards to attract and retain good people. However, they wil succeed only if they adapt their approach to the particular nature of and challenges in any given market. Trying to impose on developing markets an approach that was designed for developed markets will fail to deliver a return on investment. Overall, Western compensation programmes tend to focus on driving and rewarding individual and financial performance, but in developing markets, where the key risk is a lack of talent, the compensation strategy should focus more on leadership development and the ability to lead, develop and retain others. So in addition to the usual financial and operational performance metrics, other factors should be given a bigger weighting than they have currently – namely, Short-term incentives – focus on short-term nonfinancial achievements. This differs from the mature market approach in that it places greater emphasis on talent management objectives. LTIs – focus on retention – more so than in mature markets. Cash – in general, cash is king – so be careful not to get the pay mix too geared towards variable pay. Pay multiples in different emerging markets are very different from those in mature markets, too – although again, there is a range. At one end of the Asia-Pacific spectrum, a manager in Australia will generally earn three and half times what a new graduate earns, and at the other end, a manager in India generally earns 15 times what a new graduate earns. There is a whole spectrum of different country multiples in between. These very different multiples carry clear implications for salary progression: low percentage rises are not sufficient in developing markets. For example, in a developed market a graduate in the third year of development might typically receive a 20% rise. The equivalent rise in a developing economy is 40 %. But the absolute salaries are very different – £46,656 in the developed market, compared with £14,400 in the developing market. Similarly, in year seven of the developed-market graduate’s career, the individual might get a 20% promotional pay rise to a salary of £64,812, and a developing-market graduate would get a 30% promotional rise to £28,323. 26
COMPENSATION AND BENEFITS IN ASIA PACIFIC So the broad pay bands with narrow ranges that are typical of Western pay schemes do not work in developing markets. Companies need to use broader ranges – often double the amount between the minimum and maximum salary in a grade or role. Also, people need to be promoted more quickly and have more frequent pay rises than are common in developed markets. Talent development When using compensation and reward programmes to help develop talent in developing markets, companies need to start from the bottom up and must understand the nature of the market in which they are operating. Most global leadership and talent development programmes start from the wrong place, focus on the wrong “gaps” and focus on the process rather than the intent. For example, competency models tend to assume individuals at the same level will share a common profile. But people of equivalent level in different countries may have very different strengths and weaknesses. A key requirement of a manager in China, for instance, is the political nous to deal with local government officials – a skill way beyond the ken of a typical UK manager. Likewise, a UK manager might be adept at doing employee evaluations, but the Chinese equivalent would struggle to have challenging discussions with his or her direct reports. What’s more, employees in different countries place different values on different elements of reward. In India, for example, career advancement takes precedence, followed by base pay and then training opportunities. In Australia base pay comes first, and then type of work and a flexible work schedule. In China employees are most concerned with career advancement, with base pay and retirement savings plans ranked second and third. And in both Hong Kong and Singapore the order is base pay, bonus/other incentives and career advancement. Companies have to understand and accommodate such differences rather than taking a Western perspective and forcing “global” practices on local markets. If they don’t, their compensation and benefits programmes in developing markets won’t deliver a return on investment. They need to be designed from the bottom up and take account of the facts of the individual market concerned. Paul O’Malley leads Mercer’s Information Products Solutions business in Asia Pacific. Based in Singapore, he can be reached at +65 6222 5792 or paul.o’malley@mercer.com. 29 27
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Page 4 and 5: Mercer’s 2011 EMEA Compensation a
Page 6 and 7: THE PAY AND THE CRISIS Other countr
Page 8 and 9: THE PAY AND THE CRISIS remuneration
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Page 20 and 21: OPTIMISING HUMAN CAPITAL INVESTMENT
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Page 28 and 29: STIMULATING ENGAGEMENT THROUGH DIFF
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Page 37 and 38: ABOUT THE AUTHORS Piia Pilv, Mercer

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