Towers: Global Pay Trends Converging

November 18, 2003 (PLANSPONSOR.com) - Compensation trends across the globe are moving toward convergence, driven in large part by the use of long-term incentives in senior positions across the world.

Whereas variable pay makes up 63% of a US-based Chief Executive Officer’s (CEO) total compensation package, it now accounts for 59% of the same position’s total pay in Singapore, 52% in Canada and South Africa, and 51% in Germany , according to the Towers Perrin 2003 – 2004 Worldwide Total Remuneration study. “In the last two years, the use of variable pay has grown worldwide as companies recognized the value of tying pay to performance and results,” said Leon Potgieter, Principal and head of Towers Perrin’s Global Consulting Group.

“The use of variable pay has helped employers manage their cash outlay in a tough business environment while laying the foundation to share success with employees when the business results are there,” Potgieter continued.

Multinational companies that are now applying a singular compensation philosophy across their global organization may also have driven much of this trend, Towers found. Companies are moving toward this strategy, not only as a way to bring more consistency to company reward practices, but also as a cost cutting mechanism.

Even with the convergence however, other countries are tailing the United States in terms of total remuneration. CEOs make US$2,249,080 in the US, compared with US$1,190,567 in Switzerland, the next nearest country in terms of compensation. On the other end of the spectrum, CEOs total remuneration came in at US$249,075 in Taiwan, US$222,894 in India and US$99,795 in China.

Blue-collar employees in the United State were not so far above their global peers. Whereas the total remuneration figure was US$51,121 for a US manufacturing employee, their Swiss counterpart made US$60,193. However, these totals were much higher than the US$3,928 earned annually by an Indian factory worker.

Even as the multinationals try to bring about a new world order in compensation, the study found that the degree of reliance on variable pay and other types of remuneration still changes considerably from one country to another because of cultural and regulatory differences.

“We expect the changes underway in US and international accounting will require employers to recognize options as an expense and lead to a shift toward other forms of compensation,” said James Matthews, a Towers Perrin senior consultant. “Companies now will make a more measured assessment of the relative strengths of different incentive plans.”

Towers Perrin’s 2003 – 2004 Worldwide Total Remuneration study highlights various compensation and benefit practices in 26 representative locations around the world. English-language sections of the full report can be found at www.towers.com/towers/webcache/towers/United_States/publications/Reports/2003_04_Worldwide_Remuneration/WWTR_2003_English.pdf

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