Long-term Incentives to Drive Partnership rather than Manage Risks
Pretium study finds maximizing long-term incentives can serve multiple purposes of a partnership model to drive exponential growth
HONG KONG, July 17, 2015 -- Asian firms are set to maximize long-term incentives to drive partnership instead of risk management according to independent management consulting firm, Pretium Partners Asia Limited ("Pretium").
Pretium Long-Term Incentive Practices Study (2015) shows long-term incentives (LTI) penetration was still relatively low among major investment banks, asset management firms, diversified financial institutions, commercial banks and insurance firms in Asia. With the relaxation of regulatory requirements for share based incentives in China and increasing popularity of the partnership model spreading from the internet companies, more Asian firms especially the Chinese ones plan to strengthen LTI plans to reinforce alignment of interest, ownership and sense of participation rather than risk management.
The study examined the features of more than 80 long-term incentive plans in 53 international and Asian financial services firms. This included deferred bonus plans and additional long-term incentive plans in the United States, United Kingdom, Europe, Hong Kong, China, Singapore, Malaysia and Australia.
Deferred bonus is highly prevalent (92%) among surveyed international firms as risk management is the key theme in driving years of changes in deferral following the global financial crisis. Some firms have made minor adjustments such as extending the vesting period and revising the deferral table, but few have made significant changes in 2014. “Long-term is in fact the keyword among international banks, which is reflected from the emphasis of sustainable performance and risk mitigation over a long-term horizon” said May Poon, Managing Partner at Pretium. Although deferred bonus is not as prevalent among Asian firms, they tend to have lower deferral threshold. With similar bonus levels, more employees are caught by the deferral net in Asian firms than that of their international counterparts.
Due to more stringent global regulatory requirements and shareholders’ scrutiny, international banks tends to defer a higher percentage of total incentives for senior executives compared with other Asian banks and asset management firms. Some senior management in international firms could see as much as 80% to 100% of their total incentives to be deferred as restricted shares for better alignment of interest and risk management. Nonetheless, emphasis on risk management would inevitably have an adverse impact on pay competitiveness, so striking the right balance between the dichotomy is the key issue to address in bonus deferral.
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. “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 Ms Poon. Additional long-term incentives are as such introduced, on top of deferred bonus, among a small team of senior executives to enable substantial ownership among the top team while avoiding unnecessary dilution. “Most of the additional LTI plans (93%) were in form of share based incentives, and with performance conditions (53%) as these could serve multiple purposes of a partnership model in terms of ownership, alignment of interest, performance linkage, retention and risk management to support exponential growth.” Ms Poon added.
About the Pretium Long-Term Incentive Practices Report (2015)
Pretium Long-Term Incentive Practices Report (2015) examines the key incentive features of more than 80 long-term incentive plans in 53 international and Asian financial services firms. These include investment banking / securities firms, asset management firms, insurance firms, commercial banks and diversified financial institutions in the United States, United Kingdom, Europe, China, Singapore, Malaysia and Australia. The Report covers mandatory deferred bonus plan and additional long-term incentive plans that are granted on top of annual bonus.
About Pretium Partners Asia Limited
Pretium Partners Asia Limited ("Pretium") is an independent management consulting firm that helps accelerate clients' growth and increase profitability through unique spectrum of management consulting services which includes incentive plan review and design, organization transformation, benchmarking, performance management, IPO corporate governance as well as mergers and acquisitions integration.
Pretium study finds maximizing long-term incentives can serve multiple purposes of a partnership model to drive exponential growth
HONG KONG, July 17, 2015 -- Asian firms are set to maximize long-term incentives to drive partnership instead of risk management according to independent management consulting firm, Pretium Partners Asia Limited ("Pretium").
Pretium Long-Term Incentive Practices Study (2015) shows long-term incentives (LTI) penetration was still relatively low among major investment banks, asset management firms, diversified financial institutions, commercial banks and insurance firms in Asia. With the relaxation of regulatory requirements for share based incentives in China and increasing popularity of the partnership model spreading from the internet companies, more Asian firms especially the Chinese ones plan to strengthen LTI plans to reinforce alignment of interest, ownership and sense of participation rather than risk management.
The study examined the features of more than 80 long-term incentive plans in 53 international and Asian financial services firms. This included deferred bonus plans and additional long-term incentive plans in the United States, United Kingdom, Europe, Hong Kong, China, Singapore, Malaysia and Australia.
Deferred bonus is highly prevalent (92%) among surveyed international firms as risk management is the key theme in driving years of changes in deferral following the global financial crisis. Some firms have made minor adjustments such as extending the vesting period and revising the deferral table, but few have made significant changes in 2014. “Long-term is in fact the keyword among international banks, which is reflected from the emphasis of sustainable performance and risk mitigation over a long-term horizon” said May Poon, Managing Partner at Pretium. Although deferred bonus is not as prevalent among Asian firms, they tend to have lower deferral threshold. With similar bonus levels, more employees are caught by the deferral net in Asian firms than that of their international counterparts.
Due to more stringent global regulatory requirements and shareholders’ scrutiny, international banks tends to defer a higher percentage of total incentives for senior executives compared with other Asian banks and asset management firms. Some senior management in international firms could see as much as 80% to 100% of their total incentives to be deferred as restricted shares for better alignment of interest and risk management. Nonetheless, emphasis on risk management would inevitably have an adverse impact on pay competitiveness, so striking the right balance between the dichotomy is the key issue to address in bonus deferral.
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. “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 Ms Poon. Additional long-term incentives are as such introduced, on top of deferred bonus, among a small team of senior executives to enable substantial ownership among the top team while avoiding unnecessary dilution. “Most of the additional LTI plans (93%) were in form of share based incentives, and with performance conditions (53%) as these could serve multiple purposes of a partnership model in terms of ownership, alignment of interest, performance linkage, retention and risk management to support exponential growth.” Ms Poon added.
About the Pretium Long-Term Incentive Practices Report (2015)
Pretium Long-Term Incentive Practices Report (2015) examines the key incentive features of more than 80 long-term incentive plans in 53 international and Asian financial services firms. These include investment banking / securities firms, asset management firms, insurance firms, commercial banks and diversified financial institutions in the United States, United Kingdom, Europe, China, Singapore, Malaysia and Australia. The Report covers mandatory deferred bonus plan and additional long-term incentive plans that are granted on top of annual bonus.
About Pretium Partners Asia Limited
Pretium Partners Asia Limited ("Pretium") is an independent management consulting firm that helps accelerate clients' growth and increase profitability through unique spectrum of management consulting services which includes incentive plan review and design, organization transformation, benchmarking, performance management, IPO corporate governance as well as mergers and acquisitions integration.
