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Article | Executive Pay Memo Asia Pacific

Unanswered questions about executive incentives in 2020

Asia Pacific insights from the Actions to Restore Stability Survey

Executive Compensation|Future of Work
COVID 19 Coronavirus

By Trey Davis | September 24, 2020

Upcoming year-end remuneration committee meetings promise to be long and complicated as Boards tackle a number of complex and potentially controversial topics.

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About the survey

The COVID-19 Actions to Restore Stability Survey explored how organisations are reprioritising business performance and people objectives to achieve a sustainable reset of their business models.

The survey findings are based on responses from 299 organisations across Asia Pacific, reflecting 2.1 million employees from 14 markets. The survey fielded in the region between July 13 and July 27, 2020. This article is based on the responses from 128 organisations which answered the Executive Incentives section of the survey.

In their initial reactions to the COVID-19 pandemic, many Asia Pacific based organisations have focused on human capital, particularly with regard to employee wellbeing and the safe continuation of operations. Most HR teams around the region have also had to address a number of immediately pressing issues such as employee furloughs, physical workplace changes, and the treatment of historically high accrued paid-time off and vacation days.

As such, many organisations have yet to fully address issues relating to executive incentives. Some organisations made annual and long-term incentive awards before the onset of COVID-19, while others proceeded on a business-as-usual basis in making such awards, but with an eye to adjusting performance metrics and goals when more information was available. Regardless of the approach taken, upcoming year-end remuneration committee meetings promise to be long and complicated as Boards tackle a number of complex and potentially controversial topics.

Annual incentives

A slight majority of survey respondents (56%) are proceeding with an annual incentive plan for their executives which is broadly consistent with last year’s, with one-fifth (20%) indicating they have made more substantive changes and nearly as many (18%) indicating they have suspended their annual incentive plan for executives.

These responses indicate that many companies are treating their executives differently than for their broad-based incentive plans, which are less likely to be suspended and more likely to be operating relatively normally (perhaps at reduced funding levels reflective of business results).

Among those respondents operating annual incentive plans for executives, one-third report they have taken action, and two-fifths are planning or considering changes.

The most common responses include delayed goal setting, adjusting previously approved goals, planning for discretion at year-end, and changing performance metrics (Figure 1).

Long-term incentives

Long-term incentives (LTI) represent a significant investment for organisations — LTIs offer a way to deliver meaningful value while aligning recipients’ interests with those of shareholders and focusing executives on key performance priorities.

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Generally speaking, organisations have a limited appetite for adjusting the terms of already granted LTI awards, reflecting the fact that these awards are targeted at a select group of individuals and the significant disdain among investors for such actions.

When comparing proposed actions on performance-based LTI plans to actions for annual incentives, we see much less appetite for change. Just 7% of organisations have taken action on their performance-based plan (and another 6% are planning action), while 43% say they are neither planning nor considering action – although 26% are undecided. For those that have already made a change, it is most common to delay goal setting.

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Leader, Executive Compensation, Asia Pacific

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