Performance-related pay becoming a global phenomenon

Jan 13 2006 by Nic Paton Print This Article

Multi-nationals are increasingly using performance-based pay as well as customised, regionally-based reward packages, a new study has concluded.

The Towers Perrin Worldwide Total Remuneration study looked at compensation and benefit practices in 26 key locations around the world.

"Based on the success of performance pay in North America and Europe's developed economies, Asian and Latin American companies are now instituting similar practices that tie employee compensation to business results," said Martine Ferland, principal and head of Towers Perrin's HR services business.

The study also found multinational companies were applying a global framework to their pay and benefit programmes while at the same time adapting them to regional standards.

This approach helped cut costs and brought more consistency to their reward practices worldwide, yet meant they remained competitive by varying performance pay and other types of remuneration by country and region based on regulatory and cultural differences, said Towers Perrin.

"As companies continue to shift the pay mix in favour of performance pay, it implies that an HR strategy should, at a minimum, articulate the company's desired pay mix and competitive positioning against the market," said Ferland.

"It should also state whether target levels will be set locally, regionally or at a global level, and identify how performance will be measured," she added.

Performance-based pay as a share of total remuneration for chief executive officers worldwide ranged from 14 per cent in India to 62 per cent in the U.S, the survey concluded.

Bonuses were also being used more widely and to more eligible employees in global companies.

"We are seeing annual bonuses, which used to be reserved for the professional-level employee, being used more broadly in lower levels in the organizations, represented in our study by the manufacturing employee," said James Matthews, Towers Perrin principal.

"For the first time, in countries like Canada, France, Korea, Mexico and the United Kingdom, year-end bonuses for this group are the norm and not the exception," he added.

Furthermore, in Asian countries such as Taiwan, Malaysia, China (Shanghai) and Singapore, annual bonuses are in the range of 10 per cent to 15 per cent of salary at the professional level.

This is more than the 5 per cent to 10 per cent of salary that is common practice in North America and Europe for this group, it said.

CEOs in the U.S continued to enjoy the largest and most comprehensive pay packages, both in terms of base compensation and total remuneration.

Chief executives in France, Germany, Italy, Switzerland and the UK also commanded higher levels of total compensation than their peers in the rest of the world, said Towers Perrin.