Director and Executive Compensation - Global Update

Mercer survey data (Source data; This report) on Directors pay across countries between US and UK has the following findings.

a)Base pay comparison:

US base pay- £99,900
UK base pay- £ 90700
German base pay- £ 88,400

Peers in Asia pacific still seem to have the cost advantage over their counterparts. The average pay for Director in India was quoted £29,346.

b) Survey data also reveals that HR directors are paid less than their marketing and finance counterparts.

c) The average base pay for the finance directors in different markets are:

US - £130,800
UK - £106,000
Germany- £85,400

Another report on Executive compensation has the following findings. (Source data: Report)

Base Salary

- Average base salary levels in the majority of European markets still fall within 20% of the European average. Base salaries in the Nordic countries are generally lower than comparable jobs in other countries.

- Base salary levels are highest in Ireland (with salaries 10-20% above the European norm) and the UK (with salaries 10-25% above the European norm).

- US salary levels are about 20% below the European standards.

- Median base salary increase in Europe of 3.5% for executives who stayed in the same job during the survey year. A quarter of executives had salary increases of more - than 8.1% but one in four had no increase.

- Highest paying sectors across Europe are banking/finance and service companies when comparisons are made on the basis of job size. Transportation and industrial companies tend to pay below-average executive salaries.

Annual incentives:

Europe-wide, median bonus payments ranged form 40% of base salary for the smaller executive jobs to 100% of base salary for chief executives of major companies.

- Plan, design and operation vary greatly, thought some form of profit measure is usually the main driver. Cash flow measures are used by 20% of companies.

- German companies paid the highest bonuses in Europe as a percentage of base salary, commonly 100% to 200% of base salary.

- Bonus levels in the Nordic countries are significantly lower than in other countries, with typical bonuses paid in the range of 15% to 40% of base salary.

- Bonus levels paid in Europe were generally below US levels as a percentage of salary. The exception was Germany, where bonuses were significantly higher than in the U.S.

- Bonus levels were higher than in 2005 for the lowest executive levels, moving form 35% to 40% of base salary. Actual bonuses paid remained stable at the higher job levels in 2006 with respect to our 2005 study in most European countries.

Total cash

- Total cash levels in Europe are similar to US levels for the bigger executive jobs. For the smaller executive jobs, European market levels are above the US market by about 15%.

- Within Europe there are wide variations; the highest levels are in Germany (up to 90% above the European average) and, with the exception of the highest job levels, in France and the UK. The lower levels are in Nordic countries.

Long-term incentives

- Stock options are still the most common plan type in most countries. Across, Europe 55% of the companies use stock options.

- Performance conditions for exercise apply to 67% of stock option plans; this is an increase form 56% in 2005. Performance conditions for the grant of options are used in 26% of companies.

- On average, the difference between 75th percentile of expected value of long-term incentive and the 25th percentile is almost three times for comparable jobs.

- European long-term incentive levels are below US, especially for chief executives. As a percentage of their base salaries, US chief executives would typically receive grants three times the size of those awarded to their European counterparts.

Total Direct compensation

Total direct compensation in the US is above typical European levels - up to 50% higher for the largest jobs - as a result of the much higher long-term incentive awards.

Talenthunt - 2007

War for talent seems to be the common thread running across major job markets. According to Manpower employment study for first quarter 2007, employment prospects are strong in Peru, India, Argentina and Singapore. (Report: Manpower).

Talent optimisation and skill acquisition will continue in the year to come. In order to expand and grow talent, companies will continue to make strategic decisions such as offshoring/nearshoring. As per the study by Careerbuilder, about 23 percent of US employers who will hire most workers in China and 22 percent will hire the most in India.

Having been close to the process, here are my thoughts on the subject:

Offshoring/Nearshoring could be critical decisions that the company would have to make, Keeping in mind it would be operating out of the market where business is held. Some of the critical factors that need to be evaluated for job migration decisions are:

a) Contribution factor: This translates into having clearly defined long and short terms objectives for talent zones outside the headquarters and their alignment with the business objectives. The second step of the same process is the effective communication of these objectives at all virtual work areas.

b) Skill factor: Key ingredient of the strategy is right assessment of skills, education and training available in the market. Companies are moving from cost criteria to offshored product development (OPD) - a growing phenomena where independent software vendors ship out product engineering work. Global teams are moving up the value chain and are today an integral part of mission critical product decisions.

In operating market of fast changing dynamics: Supply/Demand can vary significantly. Assessment of the talent region is a key determinant for progress of the business. for eg. : India's pool of young university graduates (those with seven years and less work experience was estimated at 14 million according to Mckinsey Global institute) and at the same time analysing shortage in skills areas will enable business to re-direct to other global talent pools. Another report by Manpower indicates that in acute talent shortage supply markets (Peru -46% , Mexico -41%, Japan -45%), these conditions result in wage inflation.

c) Localisation factor: This factor encompasses infrastructural, economic policies and GDP growth of the chosen operating market. Looking into the example of Eastern Europe, the new EU member states continue to enjoy robust economic growth of an average of 6% , as EU membership brings influx of EU infrastructure building funds, and inward investment as western industry continues to relocate eastward. Countries such as Czech republic, Poland and the Baltic states should continue to do well, with growth expectations of 6%.(News: Goldseek).

d) Risk factor: As with any business, more so with growing economies, companies need to be vigilant of volatile transitory talent movements. One of the recent reports of Hewitt Asia Pacific 2006, illustrates that the banking and finance sector saw the greatest employee turnover at 25%, which is likely brought on by stable economies, growing markets and increased retail investor confidence. At 23%, attrition was also high in the outsourcing industry, which has experienced unprecedented levels of growth in recent years. The lowest turnover was recorded in the manufacturing sector at 11%. (Hewitt 2006 Asia Pacific data),

Example of such quick turnover rate is the recent exit of 6 top executives at Dell in Asia Pacific moving to Lenovo group ( China daily report).

With ever changing market conditions, organisations need to keep themselves abreast of local conditions and continue to explore creative measures in acquiring human capital to their balance sheets.