| Building a balanced incentive portfolio |
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With a balanced incentive strategy, you can determine the optimal
mix of cash, options, restricted stock, and other incentives that best
meet your goals and match your strategy and culture.
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The bull market in many parts of Asia has been declining
with a suddenness that has left management and
investors confused and reeling. After almost two years
of market exuberance when just about any strategy
worked, companies are again facing the challenge of certain
Asian economies beginning to show signs of slight reductions
in GDP growth.
Are we headed towards a maturing growth mode versus
an historical "growth only" mode?
In India, for instance, the month of January 2008
produced an increase in industrial production of just over five
percent. However, in January, India produced an increase of
11 percent in industrial production.
With the increased volatility of the stock markets, each
correction (up or down) in stock price adds another element
of mystery into how the markets value organizations in many
corporate boardrooms.
As a result, many organizations have concluded that, over
the long term (which in Asia is typically defined as 12 to 18
months), the primary business strategy will be to execute
on the lofty promises made to the markets and investors. In
this environment, strategy execution is ever more precarious,
demanding talented, experienced managers and visionary
leaders.
But the challenge becomes how to retain these executives,
motivate them to achieve new strategies, and reward them for
their success?
The challenge is even greater, given that the use of long-
term incentives is still in its infancy stage in many parts of Asia.
Long-term incentives are what each executive wants: they
have seen their Western counterparts get rich through such
incentives in the similar growth phase of the mid to late 1990s.
Executive pay in Asia is changing by the minute.
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Long-term incentives and in particular stock options have been the
incentive vehicles of choice for the past several months for
most private and public companies.
However, many investors are questioning the alignment
of stock options with the operational performance of the
business as all of them have a strong pay for performance
mindset. With this mindset, companies are beginning to look
at alternatives on how they assess and reward performance.
What incentives will best motivate executives and other
employees? The answer is a balanced incentive portfolio.
By offering a combination of incentives, each tied to
specific goals, you can tailor compensation packages that put
the right amount of pay at risk in order to motivate people.
Rather than rewarding only an increase in the stock price,
a balanced portfolio seeks to align people with company goals
and with the interests of shareholders. It engages people's
commitment by specifying what they have to gain if the
company achieves specific targets, and what they stand to
lose if it does not.
With a balanced incentive strategy, you can determine
the optimal mix of cash, options, restricted stock, and other
incentives that best meet your goals and match your strategy
and culture.
Whatever the choice, equity-based incentives will play a
key role. The chance to earn a stake in the company remains
a powerful incentive. An equity interest ties an individual's
wealth directly to the company's fortunes. When something
is earned, not merely given, there is a greater emotional
connection. Equity interests offer a reward for what is done
and an incentive for innovation that makes the company grow.
We have identified six incentive imperatives that should
be evaluated relative to your company's culture and strategy,
and built into a balanced combination of incentive vehicles.
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Hewitt Quarterly Asia Pacific
is made possible through the combined skills and experience of Hewitt consultants from across the Asia-Pacific region.
For further information please contact:
Hewitt Associates
2601-05 Shell Tower
Times Square
Causeway Bay
Hong Kong
Tel: (852) 2877-8600
Fax: (852) 2877-2701
editor-hqap@hewitt.com
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