North Asia overview: compensation trends 2024/25

North Asia, except for Japan, experienced a challenging 2024. Between 20% – 40% of organisations reported their salary budgets for 2024 cycle were lower than the previous year. As employers report that a period of high resignations and turnover has passed and organisations maintain headcount, employers are more conservative with their salary budgets as they took to longer term stability in their employee base.

Hong Kong:

1. Some Real Estate organisations are repositioning their core business away from asset-heavy development into real estate investment funds and, as a result, their executive compensation structure areas moving towards co-investment and carry plans which are comparable with hedge fund incentive plans

• Shift Towards PE/Private Fund and Hedge Fund Styles: Real estate funds in Hong Kong are increasingly adopting strategies commonly associated with private equity (PE) and hedge funds. This includes co-investment opportunities and carry-based performance incentive plans.
• Co-Investment: This allows investors to directly invest alongside the fund in specific projects, aligning interests and potentially increasing returns.
• Incentive Plans: These are typically performance-driven, where fund managers earn higher fees based on achieving specific benchmarks or returns, similar to the “2 and 20” fee structure in hedge funds (2% management fee and 20% performance fee).
• Rationale: This shift is likely driven by the need to attract more sophisticated talent from the hedge fund and investment banking sector

2. Pay Transparency for All Listed Companies

• Increased Scrutiny on Executive Compensation: There is a growing demand for transparency in how much executives and key personnel are paid, especially in listed companies. This is part of a broader global trend towards greater corporate governance and accountability.
• Regulatory Pressure: Hong Kong’s regulatory bodies may be pushing for more disclosure to ensure that executive pay is aligned with company performance and shareholder interests.
• Investor Demand: Investors are increasingly focused on Environmental, Social, and Governance (ESG) factors, and executive compensation is a key component of governance.

3. Investors Applying More Pressure on Long-Term Incentives (LTI) and Performance-Driven Pay

• Focus on Long-Term Incentives (LTI): Investors are pushing for compensation structures that reward long-term performance rather than short-term gains. This could include stock options, restricted shares, or other equity-based incentives that vest over several years.
• Performance-Driven Pay: There is a clear move towards tying executive compensation to measurable performance metrics, such as Total Shareholder Return (TSR), Earnings Per Share (EPS) growth, or other key performance indicators (KPIs).
• Rationale: This aligns the interests of executives with those of shareholders, ensuring that management is focused on creating sustainable, long-term value rather than pursuing short-term gains that may not be in the best interest of the company or its investors.

4. Broader Implications

• Increased Competition for Talent: As compensation structures become more performance-driven and transparent, companies may need to compete more aggressively for top talent, especially in the real estate and financial sectors.
• Greater Accountability: With more transparency and performance-based pay, executives will be under greater pressure to deliver results, which could lead to more disciplined investment and operational decisions.
• Investor Confidence: These changes could boost investor confidence, as they indicate a more aligned and transparent approach to managing companies and funds.

China:

From February 2025 China is set to impose a 1 million yuan cap on annual income of staff at government owned banks and 6 leading insurers. The cap is in line with the government’s “common prosperity” drive launched in 2021 to address social and income inequality as growth slowed in the world’s second-largest economy.