Firms switch bonus strategies during slump

The financial turmoil in Asia has driven more companies to switch from fixed bonuses to performance-linked discretionary plans, a management consultant said.

A survey by Watson Wyatt Hong Kong showed almost two-thirds of Asia's biggest companies tied bonus plans to business performance targets.

'Old-style compensation plans have become a liability in the current economic crisis in Asia,' Watson Wyatt Hong Kong director Hans Kothuis said.

The report looked at pay-incentive trends amid the regional economic turmoil.

The survey covered 28 multinationals and Asian firms, representing US$111 billion in sales and 118,000 employees in the region.

Of companies that responded, 61 per cent said their bonus plans were tied to target financial performance, 29 per cent were linked to growth and improvement plans, 21 per cent were linked to profit-sharing plans, and 18 per cent were discretionary.

'Until just recently, it was pretty common for top management not even to discuss the bonus amount with employees. The bonus was 'manna from heaven' and mostly discretionary,' Mr Kothuis said.

The new approach to compensation had to be more closely tied to business performance, had less of a fixed and more of a variable element, and acted as a driver of change, he said.

The report covered annual and long-term incentive practices, sales incentives, stock option and share purchase plans, and performance measures.