Financial Institutions in Hong Kong and China will increase salaries by 5% and pay bonus equivalent to 6 months salaries despite cost-cutting. These findings are according to a recent study conducted by independent management consulting firm, Pretium Partners Asia Limited titled, “Pretium Year-end Reward and Human Resource Trends Study – 2015.”
The study shows that the financial services industry is planning to increase pay by 5% in Hong Kong and mainland China, and pay bonus equivalent to 6 months salaries despite belt tightening. Regional and local firms are more aggressive than their international counterparts in terms of pay increase and bonus payouts to retain staff.
The study examines the actual results and expectations on business performance, salary review budget, bonus pool movements, headcount changes, long-term incentives, benefits and performance management practices among financial institutions. It covers 76 international and Asian investment banks, asset management and private equities firms as well as insurance companies with multiple offices in Asia.
Cost cutting is the main theme among global banks in Asia due to unsatisfactory business performance, so caution is applied to compensation budget.
This echoes with the slowdown of the Chinese economy which has marked the end of explosive growth among Chinese firms. Albeit the tightening of the purse string and relatively low inflation across Greater China, salaries in Hong Kong and mainland China are expected to increase by 5%, more than their counterparts in Singapore (3.7%) and Taiwan (3%) in 2016.
Other developed markets, like South Korea, Japan and Australia, projected a 2.8% to 3.3% salary increase next year according to the study. Over 40% of the surveyed firms indicated 2015 performance will be better than last year. However, bonus levels will slightly decrease due to tightening of purse string.
Across the financial services industry, the median bonus payout will be 6 months of salaries next year, slightly lower than 6.2 months a year ago. “Chinese investment banks are the frontrunner of bonus levels as some of their revenue growth have jumped more than 100% this year and they have displaced some international players on the investment banking league tables,” said May Poon, Partner at Pretium.
“Private equities firms can expect to get more bonuses due to surge in fundraising and investments but international firms in Asia are not as optimistic due to continuous restructuring.”
With a tighter pay and bonus budget, some companies rely on long-term incentive as an important retention driver. 75% of the firms have deferred bonus in 2015 due to more stringent global regulatory requirements and shareholders’ scrutiny. International firms tend to defer a higher percentage of total incentives for senior executives compared with other Asian banks and asset management firms.
However, only 42 % of surveyed firms provided additional long-term incentives (“LTI”). More financial institutions have come to realize a simple time-based deferred cash bonus is insufficient in terms of quantum and features to drive the partnership model advocated by the internet and high-tech companies.
“Partnership is characterized by meaningful ownership and emphasis on alignment of interest so that awardees, who become significant owners of the company, will act in the best interest of the company and drive their own business with passion, entrepreneurial spirit while managing risk,” said Poon. “The partnership model echoes with the value propositions of the new generation and help financial institutions cope with talent drain and shortage.”