This article was featured in The Business Times' (BT) on Jun 1, 2010 and is reprinted in this issue of Asia Connect with BT's permission.

Singapore Companies Find Themselves Stronger

Forward-thinking Singapore companies that started a fundamental review of their compensation and talent practices during the global financial crisis find they are now well prepared for the upturn.

By Na Boon Chong
Director, Consulting, Southeast Asia

Pro-active companies that continued to plan long-term, even during the depth of the global financial crisis, now find themselves well prepared to catch the current wave of growth. Those who applied the insights they learned from previous business downturns are especially well positioned.

During the Asian crisis of the late 1990s and the dotcom bust 10 years ago, many Singapore-based companies exacerbated the crisis through knee-jerk reactions or inertia. Some downsized and cut pay across the board without reference to their future staffing needs. Others reacted slowly and took action late when the economy was already starting to turn around.

However, this time around, Singapore companies responded faster and more strategically. They quickly gathered the "low hanging fruit" and cut travel expenses, among other measures.

Surprisingly, cuts in management compensation also happened quickly. By the first quarter of 2009, many companies had already made cuts at the top. Singapore Airlines and Singapore Press Holdings, among others, took management pay cuts early on. Some companies' pay cuts extended down further into the middle and lower ranks. In most cases, senior management took large pay cuts, while the lower ranks took a lower percentage reduction.

Many Western multinationals responded differently to the financial crisis, especially in terms of bonuses. Because 2008 performance was good for many of these firms (with the exception of the last quarter when the crisis hit), many multinational subsidiaries tended to take the position that they would pay according to plan, despite the dismal outlook for 2009.

Local Singapore companies, which are apt to be owner-managed or under owner influence, took a different position. Local firms often took the hard decision to not pay according to plan, despite the good 2008 performance. This position necessitated a bit of convincing as some employees felt they deserved their full bonus. For many local companies, the decision to hold back in order to preserve their cash flow was a matter of survival.

Some firms also took the opportunity to raise funds through the capital market to shore up their coffers, in anticipation of a drying up of liquidity.

The crisis abates and the preparation begins

In the first quarter of 2009, the widespread uncertainty in the marketplace led to inertia. Few companies wanted to carry out major initiatives during a period of such turmoil. However, by the middle of the year, when they began to see a glimmer of hope for an upturn, they began to act. Some forward-thinking Singapore companies initiated a fundamental review of their compensation and talent practices in order to prepare themselves for the eventual anticipated upturn.

The review focused on several elements: retention programs for key professionals, incentive plan redesign, and performance measurement.

Retention programs. With the lower level of uncertainty in mid-2009, companies started to seriously look at the retention of high performing professionals. The impetus behind these reviews was based on thoughtful self-reflection: 'How do we best position ourselves after having gone through two very rough quarters?'

Accountants are a good example. Even during the global financial crisis, there was still considerable demand for audit, compliance and risk management professionals. When the demand for accounting talent was dampened, many accounting firms reduced their salaries early on in the downturn, but restored them very quickly during the year as soon as vital signs of a recovery appeared.

Rebalancing the compensation mix. For most companies in Singapore, rebalancing compensation is more about the balance between short-term and long-term variable pay, rather than a rebalancing of variable vs fixed pay. In general, through years of wage reform, Singapore companies have achieved a good balance between fixed and variable compensation. In view of the low inflation environment, it does not make much sense to increase base pay rates significantly, especially for senior ranks.

Companies are using several different vehicles to make the shift toward long-term performance-based incentives. The simplest way to derive a long-term measure is to observe an employee's pattern of performance over time, instead of within a single year.

Another approach that companies have put into effect is to defer a portion of the annual bonus to the future, usually for three years. But, this approach only makes sense in situations where there is a significant upside on bonus opportunity. Delaying a portion of the bonus also helps to retain people, since they need to stay on in order to obtain the bonus.

Performance measurement. Many firms felt it was a good time to take a second look at incentive programs to encourage employees to look forward, rather than to dwell on what they had lost. The incentive review did not necessarily culminate in a new direction, but rather reflected a trend that had been building over the past five years.

Coming out of the crisis now, many companies are backing away from an entirely formulaic approach to measuring performance. Singapore employers still want structure in their incentive plans but they now want to pay more attention to behavior and values, in order to avoid excessive risk taking. Companies want to focus more on how senior managers behave during times of turmoil, even though they may not be able to measure the outcome of their actions for many years to come.

For those organizations that have a results-driven culture, employees may resist the change towards a less formulaic incentive plan that has fewer hard and fast rules. They may query: 'How do we play the game, if we don't know the rules?' What it boils down to is the credibility of the leaders who are dishing out the awards and how much trust the employees have that the management will make fair and unbiased judgments. Without trust and credibility, it is difficult for management to employ behavior assessments, as well as hard numbers, to justify their bonus and reward allocations.

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Conclusion

The experience of the past 15 years has certainly shown that steady, uninterrupted economic growth is a thing of the past. Thus, coping with volatility has become a critical success factor for businesses in Singapore. Forward-thinking, thoughtful Singapore companies have shown that practice makes perfect. By learning from the experiences of past crises, they have become far more adept at managing this current one.  

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Contact

For more information on how Aon Consulting can help you with human capital challenges, please contact Na Boon Chong, Director, Consulting in Southeast Asia at boon_chong_na@aon-asia.com

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