Long-term pay incentives 'increasingly local' finds Aon Hewitt study

A new survey reports the number of global companies offering long-term incentive (LTI) packages differentiated by specific territories has doubled in almost a decade.

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Aon Hewitt's Global Long-Term Incentives Policies and Practices survey of 191 global companies found that LTI programmes are increasingly local and performance-based. More than 60 per cent of respondent companies "tier" or design awards across global regions and countries to differentiate participant award sizes. Almost half (48%) also differentiate by specific regions or countries; a figure that was 24 percent a decade ago."With moderate salary increases and limited bonus pools, LTIs have become an increasingly important part of total compensation," said Derrick Neuhauser, leader of Aon Hewitt's global long-term incentive and executive compensation practice. "Companies understand that modifying approaches by country and region make these awards more meaningful and competitive, which is critical as they look to recruit and retain talent internationally."The findings tie in with other recent sector surveys that show greater mobility policy flexibility as companies seek to do more with less and tailor packages to mobile workers.

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Global talent pools and executive pay

However, the survey also finds that companies are taking a different approach when designing LTI programmes for the most senior executives. Close to three-quarters (73%) report treating senior executives as a single tier, where grants to executives are homogeneous regardless of global region or country. This suggests a global market for top talent."As the world becomes more global and mobile, executive responsibilities are increasingly extending beyond a single geographic region," said Kavita Maharaj, senior consultant in Aon Hewitt's global long-term incentive and executive compensation practice."Companies expect a senior executive in Asia Pacific to be assigned and relocated to European operations, and they have designed their LTI awards in a way that can be easily aligned with worldwide business goals."

Mobile workers, tax regimes and trust in business

Aon Hewitt's survey further revealed that many of the 191 companies surveyed are also seeking to modify long-term rewards that maximise tax advantages for local participants similar to long-term capital gain rates for equity holders in the U.S.Almost a third of those surveyed are "making modifications to their award for tax-favoured compliance for their participants," it said, up from seven per cent almost a decade ago.In the UK, the government's green paper on corporate governance addresses the issue of incentives and fairness in executive pay packages. Speaking of the need to reduce short-term inducements, Clare Chapman, non-executive director of Kingfisher, and Heidrick and Struggles, and member of a high-level taskforce responding to the consultation, said: “We support the government's objectives of rebuilding trust in executive pay, ensuring it is linked to long-term performance, and giving shareholders the right powers. Radically rethinking how pay can support long-term behaviour is now the imperative."

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