2012 Short-term incentive predictions

2012 Short-term incentive predictions

Pay data: 2012 short-term incentive predictions highlight patchy global business confidence

  • 31 May 2012
  • Australia, Melbourne

Pay data: 2012 short-term incentive predictions highlight patchy global business confidence

  • STI trends indicate declining business confidence in Asia Pac, Latin America and North America; cautious optimism in EEMEA, Australia, New Zealand
  • Australian and New Zealand employers anticipate marginal increase in STI 2012 payouts compared to 2011
     

Pay data released by Mercer on the use of Short-Term Incentives (STIs) countries has highlighted surprising indications of nascent business confidence in Western and Eastern Europe, Australia, New Zealand and Middle East. The data, taken from 21,000 companies in 62 countries also indicates a weakening in confidence for companies in Asia Pac, Latin America and North America.

The data comes from Mercer’s ‘Short-Term Incentives around the World’ report which draws on annual incentive information from over 7.6 million employees across the globe. For this release, Mercer analysed STI data from Executives / Top Management to gain insights into company confidence that their financial targets will be met.

Mark Quinn, Partner and Reward specialist at Mercer, said: “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. 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. Based on our data, there is better confidence in Western and Eastern Europe but evidence of a weakening in confidence in Asia Pacific and the Americas. Business sentiment and economic conditions can change rapidly so we’d anticipating seeing some difference in the actual amounts distributed,” he said.

In Australia and New Zealand specifically, the percentage of executives receiving STIs is increasing, 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-Pac 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 Australia and New Zealand are an exception here, anticipating a marginal increase in 2012 of 21.9% compared to the 21.6% paid out in 2011, demonstrating a sense of cautious optimism.

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. The size of potential awards and the eligibility for them are directly related to an employee’s level and role within a company. As with other types of remuneration, STI size and eligibility differ by region and country.

Mr Quinn said: “To stay within tight budgets and effectively motivate their skilled workforce, many companies are shifting more employee compensation from a fixed-pay approach to one that relies more on variable compensation, but with increased linkage on tying the funding of plans to company performance, and more focus on the distribution of awards to those who truly contribute to that business performance.”

“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. STIs can be used at all employee levels to focus employee behaviour and performance on metrics that relate to its 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,” he said.

Mercer’s shows the increasing usage of STIs amongst all employee classes, as well as trends in the amounts awarded (see Table 1 below for full list of data across the various regions/countries).

United Kingdom

In the UK, the three-year trend data from 2009 to 2012 shows a small increase (1%) in the number of executives receiving STIs indicating a more positive outlook held by many businesses. The data shows that, in 2012, companies anticipate paying their executives STIs equivalent to 23% of their base salary. This is an increase from the 22% paid out in 2011.

“In 2011, a UK executive with a base salary of £100,000 would have earned an additional 22% - or £22,000 - if they met all their performance and business objectives,” says Mark Quinn. “In 2012, we are seeing companies predict that this executive will now make more – 23% or £23,000. As STI funding is increasingly tied to company performance, this tells us that companies anticipate a better performance in 2012.”

While this is the case in the UK, the picture is different across regions and between individual countries within these regions.

Americas

In 2011, eighty-three percent of executive and top management in North America received some form of STI and average actual payouts averaged 38.9% of base salary, far in excess of any other region. This was higher than the amounts predicted in 2010 (35.3%) which is indicative of the improved economic outlook during this period. For 2012, however, the outlook appears less rosy with companies predicting an average 37.5% payout. Companies in Latin America are also pessimistic, predicting an average 2012 payout of 19.7% a substantial drop from the 27.5% paid out in 2011.

Western Europe

The percentage of executives receiving STIs has remained broadly stable over the past three years hovering around the 75% mark. Companies in Western Europe tend to focus less on STIs as part of the pay mix. Predicted STI payouts for 2012 (19.7%) is broadly static compared with what was paid out in 2011 (19.6%). This small short-term increase suggests no notable increase, or drop, in business confidence, despite the Euro crisis. The longer three year trend is upwards. While actual payouts in 2009 were 17.3%, they were 17.3% in 2010 and 19.6% in 2011.

Eastern Europe, Middle East and Africa (EEMEA)

The trend on the percentages of executives receiving STI awards across 2009- 2012 is broadly static in EEME but the size of awards is gradually increasing from 17.9% in 2009 to 18.9% in 2011. Even though the 2011 payments were less than predicted (19.7%), higher payouts are still predicted in 2012 (19.5%) indicating great confidence that financial targets will be met.

Notes for editors

The data was compiled between April and October 2011 depending on the country. 'Executive / Top Management' is defined as: “The most senior employees, who generally include top executives and directors, or employees with managerial responsibilities at the top level of a business unit or company. Executives focus on defining corporate strategies”.

Short-term incentives (also known as “pay-for-performance”) provide employers with the flexibility of determining the share of fixed and variable components of an employees pay. They are referred to as STIs as they are based on annual performance - rather than stock plans that are long-term. Employee remuneration considers compensation, benefits, career development and work/lifestyle balance and STIs can also be part of the total rewards approach. Effectively designed, STI plans align employee performance objectives with those of the company. They enable employees to receive remuneration in addition to their annual fixed salary, guaranteed allowances and benefits.

Table 1: Short term incentive trends amongst Executives and Senior Management according to Region and country

Note: Actual Incentive represents the actual incentive paid out for that year. Target Incentive represents the incentive set for the coming year.
Note: While data is taken from 65 countries only a selection of the main economies are shown.

Asia Pac

Country

Year

Percentage of
employees
receiving STIs

Actual incentive
as a percentage of
base salary

Target Incentives as a
percentage of base
salary

Australia

2009

65

20

23

 

2010

68

22

24

2011

66

22

23

Bangladesh

2009

88

32

34

 

2010

90

34

35

2011

87

20

25

China–Shanghai

2009

78

19

20

 

2010

81

20

20

2011

80

21

21

Hong Kong

2009

82

23

23

 

2010

83

25

25

2011

89

27

25

India

2009

80

20

22

 

2010

75

20

21

2011

73

21

20

Indonesia

2009

80

20

23

 

2010

86

22

22

2011

84

22

22

Japan

2009

66

19

21

 

2010

65

21

21

2011

74

21

21

Malaysia

2009

80

26

23

 

2010

82

25

25

2011

84

23

22

New Zealand

2009

39

16

16

 

2010

46

23

21

2011

68

18

18

Pakistan

2009

75

15

19

 

2010

70

21

21

2011

74

17

19

Philippines

2009

54

20

15

 

2010

70

15

17

2011

72

19

20

Singapore

2009

78

23

20

 

2010

80

23

23

2011

84

29

25

South Korea

2009

75

19

22

 

2010

77

21

23

2011

81

24

23

Sri Lanka

2009

50

19

20

 

2010

65

12

20

2011

68

17

19

Taiwan

2009

76

18

20

 

2010

76

21

23

2011

88

25

23

Thailand

2009

87

23

20

 

2010

87

22

21

2011

86

22

22

Vietnam

2009

80

18

18

 

2010

84

19

21

2011

85

19

21


THE AMERICAS

Country

Year

Percentage of
employees
receiving STIs

Actual incentive
as a percentage of
base salary

Target Incentives as a
percentage of base
salary

Argentina

2009

91

28

26

 

2010

93

27

26

2011

91

28

25

Brazil

2009

86

35

34

 

2010

70

31

35

2011

92

33

31

Canada

2009

74

32

33

 

2010

72

36

34

2011

78

39

36

Chile

2009

76

22

18

 

2010

84

23

23

2011

70

24

22

Colombia

2009

47

22

26

 

2010

51

21

28

2011

63

23

24

Costa Rica

2009

87

11

7

 

2010

94

7

7

2011

73

14

18

Mexico

2009

76

23

26

 

2010

78

23

24

2011

81

25

Not available

Peru

2009

73

15

15

 

2010

88

14

13

2011

77

14

17

United States

2009

76

30

34

 

2010

80

36

36

2011

85

39

38

Uruguay

2009

94

13

17

 

2010

96

15

15

2011

91

17

14

Venezuela

2009

53

24

26

 

2010

68

26

32

2011

77

18

24


Eastern Europe, Middle East and Africa

Country

Year

Percentage of
employees
receiving STIs

Actual incentive
as a percentage of
base salary

Target Incentives as a
percentage of base
salary

Bulgaria

2009

53

20

20

 

2010

63

17

20

2011

61

17

20

Croatia

2009

64

13

21

 

2010

54

12

21

2011

62

21

25

Czech Republic

2009

85

20

20

 

2010

84

19

21

2011

76

18

19

Egypt

2009

65

20

21

 

2010

83

17

18

2011

97

18

17

Hungary

2009

82

18

19

 

2010

84

17

18

2011

72

15

20

Kazakhstan

2009

33

19

25

 

2010

73

19

23

2011

65

20

20

Morocco

2009

76

17

15

 

2010

68

18

17

2011

74

18

18

Poland

2009

80

18

19

 

2010

75

20

20

2011

74

19

20

Romania

2009

63

14

15

 

2010

66

15

19

2011

61

16

15

Russia (Moscow)

2009

73

26

24

 

2010

73

19

22

2011

64

23

22

Serbia

2009

46

13

18

 

2010

49

16

19

2011

51

16

19

Slovakia

2009

100

21

19

 

2010

84

23

21

2011

82

18

18

Tunisia

2010

78

29

29

 

2011

100

23

22

Turkey

2009

80

15

18

 

2010

75

17

18

2011

82

19

18

Ukraine–Kiev

2009

67

15

18

 

2010

70

15

20

2011

66

20

18

United Arab Emirates

2009

54

19

20

 

2011

73

26

24

 

Western Europe

Country

Year

Percentage of
employees
receiving STIs

Actual incentive
as a percentage of
base salary

Target Incentives as a
percentage of base
salary

Austria

2009

77

23

25

 

2010

67

20

23

2011

69

22

22

Belgium

2009

79

17

17

 

2010

78

18

17

2011

70

19

19

Denmark

2009

76

12

16

 

2010

77

12

14

2011

56

15

14

Finland

2009

67

9

15

 

2010

69

12

16

2011

74

15

16

France

2009

84

15

18

 

2010

87

15

18

2011

86

16

17

Germany

2009

90

25

28

 

2010

80

19

23

2011

85

27

25

Ireland

2009

62

16

19

 

2010

70

21

22

2011

61

20

22

Italy

2009

82

21

22

 

2010

75

22

23

2011

79

23

23

Netherlands

2009

67

17

20

 

2010

71

18

21

2011

61

22

21

Norway

2009

51

17

17

 

2010

58

11

13

2011

48

15

16

Portugal

2009

77

17

18

 

2010

71

16

18

2011

61

21

21

Spain

2009

67

20

23

 

2010

60

18

19

2011

84

22

23

Sweden

2009

56

13

15

 

2010

63

15

13

2011

69

15

15

Switzerland

2009

87

23

23

 

2010

83

21

22

2011

81

23

25

United Kingdom

2009

69

21

23

 

2010

62

24

22

2011

70

22

23


About Mercer

Mercer is a global leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy and human capital. With 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. Follow Mercer on Twitter @MercerAU @MercerInsights

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