Asia is waking up to the value of aligning executive pay to a company’s long-term performance, offering a greater voice to employees and raising the bar on corporate governance.
Asset Benchmark Research (ABR) finds leading corporates in Asia are actively linking a greater proportion of their CEO’s pay to performance, over the past three years. Data from the region’s listed companies that participated in a survey linked to The Asset Corporate Awards reveal that the proportion of corporates correlating up to 100% of their executives’ pay to company performance surged 12% from 2014.
Moreover, Asian corporates are realizing that the right checks and balances within the business strengthen decision-making and accountability. In 2016, the majority (84%) of corporates in the study, at varying degrees, linked performance to their CEO’s pay.
The Asset Corporate Awards are Asia’s premier awards on ESG (environment, social, governance) and are the longest-running in Asia. This year’s awards open for submission today.
General public dismay over the perceived excess of executive pay made headlines in the last year driving regulators to take action. In the UK, trade unions and investors have encouraged the government to take a tougher line on corporate governance reforms. This came following a November 2016 government green paper that found that CEO pay in FTSE 100 companies over the last decade-and-a-half has not been aligned with index performance or the long-term value of the companies they run.
In the US, discussions on whether companies should publish ratios comparing CEO pay to the wider company workforce are ongoing. Proponents have argued that this would enable shareholders, employees and the wider public to judge how executive pay compares across companies within their sectors.
Data from the latest ABR study on ESG show that 21% of corporates have linked 75% to 100% of their executive pay to performance. That was a leap from 2014 when just 9% of corporates engaged in this practice.
However, the study finds that some 16% of corporates are choosing to ignore links between performance and pay. It is understood that the boards of directors at these companies make the decisions on the level of CEO pay based on known metrics such as industry levels of pay and overall responsibility.
While a positive trend between pay and performance is encouraged, the indicators used to track performance and the period over which it is measured, are just as important. Industry leaders have been encouraging the practice of implementing long-term incentive plans that align executive incentives with the long-term interest of their companies. That includes offering stock options and share awards that executives must hold over a set number of years. There is evidence that greater equity ownership by top executives over a longer time frame can encourage better company performance in the long-run.
A PwC survey of Dutch-listed companies conducted in March 2016 found that among long-term incentive-based awards for executives, 88% were linked to financial performance conditions. These are widely seen as being objective and correlated to value creation. However, the findings also point to a global trend towards incorporating non-financial performance conditions into incentive plans. The study finds that performance conditions relating to governance, sustainability, the environment as well as employee wellbeing and client satisfaction are also gaining ground globally.
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About the research
The research was conducted as part of The Asset Corporate Awards, the longest-running ESG awards in Asia, bestowed annually by leading research house, Asset Benchmark Research (ABR). The Platinum, Gold and Titanium awards offer a rigorous benchmarking service for the region's listed firms and enables them to join an exclusive circle of top corporates. Since 2001, our winners have found this opportunity to be valuable in bolstering their credentials in the ESG space.
The assessment is based on the online questionnaire submission made by the company and the supplementary information they provide. Factors that are taken into consideration range from an evaluation of financial performance, management, corporate governance, social and environmental responsibility and investor relations.
