We hate to say this, but employees have no bonus to expect
Better start saving a little money each month as your boss begins to tighten his belt.
Incentives as a percentage of base salary in Singapore slumps in 2011 and the downtrend is expected to continue moving forward amid declining business confidence.
Pay data released by Mercer on the use of Short-Term Incentives (STIs) has highlighted surprising indications of nascent business confidence in Western and Eastern Europe, Australia, New Zealand and the Middle East. The data, taken from 21,000 companies in 62 countries also indicates a weakening in confidence for companies in Asia, Latin America and North America.
For this release, Mercer analyzed STI data from Executives / Top Management to gain insights into company confidence that their financial targets will be met.
"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 Hans Kothuis, Mercer's Asia Pacific Rewards Leader. "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."
"STI predictions for 2012 are a good reflection of business confidence", he added, "Based on our data, there is better confidence in Western and Eastern Europe but evidence of weakening confidence in the Americas and Asia Pacific. Business sentiment and economic conditions can change rapidly so we'd anticipate seeing some difference in the actual amounts distributed."
The longer, three-year trend from 2009 to 2012 on STIs as a percentage of base salary across Asia Pacific shows upward movement, with awards increasing by 2.3% and 2.6% respectively.
"However, the data suggests that in the short-term, confidence is dipping," said Fermin Diez, Asia Pacific Business Leader for Human Capital Consulting business. "In 2010, companies in Asia Pacific predicted STI payouts of 22.2% for 2011, yet actual payments were higher (23.3%). - reflecting the region's confidence in the economy. In contrast, payouts in 2012 are expected to be 22.1%, suggesting a more cautious outlook."
Specifically in Singapore, incentives as a percentage of base salary dropped from 29% in 2011 (actual) to 25% in 2012 (target). Malaysia also saw a slight drop; Thailand and Indonesia saw no change, while the Philippines saw a marginal 1% increase. "Trends in Southeast Asia suggest a guarded and prudent approach amid global economic uncertainty".
Despite a generally cautious outlook in Asia Pacific, employers in New Zealand and Australia are an exception, anticipating a marginal increase in 2012. They are targeting STI payout of 21.9% compared to the 21.6% paid out in 2011. The percentage of executives receiving STIs has increased in New Zealand and Australia, from 56% of executives in 2009 to 67% in 2011.
Outside the executive suite, the report highlights that companies are looking at adjusting their use of variable pay to help manage the cost of labor which is a major factor for most organizations. 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. The size of potential awards and the eligibility for them are directly related to an employee's job level and role within a company. As with other types of remuneration, STI size and eligibility differ by region and country.
"While some industry sectors like Financial Services are reducing their use of STIs in response to regulatory pressures, they remain an essential part of the wider remuneration mix," he said. "STIs can be used at all employee levels to focus employee behavior and performance on metrics that relate to a company's success. This is affordable from a company's perspective because awards are typically tied to specific, measurable, agreed-upon financial performance goals - often related to incremental revenue or profits".