This article is brought to you by Willis Towers Watson.

From ideas on the most innovative rewards programmes to understanding the psychology of pay in making better C&B decisions, Shai Ganu, Executive Compensation Global Practice Leader, Willis Towers Watson, tells all in this interview.

Q A lot of research points to employees being unable to understand their rewards fully, and thus not being able to appreciate the company investment in them. Why do we continue to face this challenge, and what's the way out?

Indeed, companies spend a lot of money on different reward programmes, yet the perceived value by employees tends to be quite low. We’ve had several conversations with very seasoned and financially-numerate business leaders who claim that their rewards plans are too complex, or that they don’t understand all the incentive plans. By definition, incentives are meant to encourage achievement of goals and specific business outcomes; how can that happen if people do not understand the plans to begin with?

The cause, and solution, to this issue may sound obvious, yet is not easy to implement. All the research we have done comes down to three fundamental questions that every employee wants the answers to:

  • Communication - “Am I paid fairly for what I do?”
  • Motivation – “How can I earn more?”
  • Flexibility – “What is right for me and my family?”

Most companies spend a lot of time on design and modeling of incentive arrangements. Whilst that is important, progressive companies spend as much if not more effort, on active engagement with employees to address these issues.

Willis Towers Watson has partnered with several of our clients to effective pay communications – from individualised total rewards statements, to software-enabled dashboards that track value of different pay plans, to nudges related to pay and benefits related elections, to application of behavioral economics in providing flexibility in incentive plans.

Q This leads us nicely into the psychology of pay - you've previously said that most of us tend to make economically irrational decisions. How does this affect pay programmes?

Psychology of pay is an important research topic for us globally and across the region. We have conducted studies in Singapore and 15 other countries, and across board members, CEOs, executives, and HR teams – and cultural/socioeconomic differences notwithstanding the findings are fairly consistent: human beings often make economically irrational choices.

For example, we asked people whether, all other things being equal, would they would prefer to get (a) $1 million today; or (b) $1.5 million in 24 months? As you can imagine, the economically rational option would be (b) — after all, there aren’t too many risk-free investment options that would yield returns of 22.5% each year. However, nearly two-thirds choose the $1 million today. Although this is not the economically rational option, it suggests that employees discount heavily for time.

Understanding these employee attitudes may have strong implications on compensation models. For example, would a company achieve stronger performance and retention with a long-term incentive plan that could deliver a large payout after five years, or with a plan that delivers smaller payouts each year?

At Willis Towers Watson, we apply these behavioral economics concepts, and our research findings to rewards consulting assignments. In our engagement with clients, we run experiments within different teams in a company to study impact of different compensation models of performance and behavioral outcomes.

If executed properly, the application of psychology of pay could prove very motivational an engaging to employees and can provide a unique competitive advantage to companies.

Companies are increasingly beginning to challenge conventional wisdom, and adopt bespoke practices tailored for their context. Indeed, ‘best fit’ is more important than ‘market practice’ or ‘best practice’.

Q What are some of the innovative rewards programmes that you've seen in the industry?

While all reward programmes need to be market competitive, innovative plans can help provide a competitive advantage in hiring, engaging, and recruiting key talent. Key themes tend to be around segmentation, customisation, productivity, career rewards, new instruments, and risk-reward trade-offs.

Below are some (non-exhaustive) examples that Willis Towers Watson has successfully implemented with our clients in the region:

  • Choose your own pay mix – Allow flexibility within set total compensation levels for executives to choose their preferred incentive mix, in line with their risk-reward appetite; the intent is to tailor models that will motivate executives the most.
  • Pay for productivity – This helps to balance compensation with affordability; by determining ROI of incentive plans and market benchmarking of compensation as a % of financial returns;
  • Total compensation funding – Rather than set a bonus pool funding, consider total compensation funding as a preset % of profits. The model gives more autonomy to managers to balance base pay, STI, LTI; but may lead to more volatile outcomes.
  • Bonus banking – Each year, the bonus ‘declared’ amount go into a notional bank, and executives can withdraw only one-third of the bank (rest carries forward to next year’s opening balance). This reduces volatility of bonus payouts; in good years bonus payouts are not very high, and in bad years bonus outcomes are not very low.
  • Token-based incentives – Cryptocurrencies are used as the incentive instrument. All parties are incentivised to increase the value of underlying tokens; while employee performance is judged and their reward based on reputation points.
  • Individual reward programmes – Employees are allocated points, with a fixed points-conversion table for additional base salary increase, leave, benefits etc. This allows each colleague to create a unique reward basket based on their specific life requirements (i.e. mass customisation).

Companies are increasingly beginning to challenge conventional wisdom, and adopt bespoke practices tailored for their context. Indeed, ‘best fit’ is more important than ‘market practice’ or ‘best practice’.

Q Let's move into executive compensation - could you share with us some key developments that you anticipate as we enter a new decade?

Populism, stagnation of global economy, media and political unhappiness, are putting pressure on governments to legislate on executive pay matters and causing shareholders to be more active. In this macro-economic backdrop, how executive pay is set, managed and communicated is becoming increasingly sensitive. Executive pay programmes have become more complex and have also come under closer scrutiny than before.

To help balance talent and governance risks, and drive business performance, Willis Towers Watson’s executive compensation team provides expert, research-driven executive compensation advice to our clients. The evolution of corporate governance models around the world behooves us to support boards and management teams to navigate complex issues related to:

  • Increased transparency and disclosures;
  • Stronger shareholder oversight, accountability, and voting power;
  • Shareholder vs stakeholder primacy;
  • Push for stronger evidence of pay-for-performance alignment and rewarding value creation;
  • Stricter boundaries on executive pay quanta and shareholding requirements;
  • Change in pay-mix and institutional deleveraging of pay;
  • Defensibility of pay programmes and risk of homogenising practices;
  • Stronger linkage to sustainability and ESG measures;
  • Risk-based compensation models, including ex-post adjustments;
  • Greater comparison of pay in comparison to wider workforce.

Closer to home, key focus will be on equity and incentive plans. Companies spend millions of dollars on share plans, yet their perceived value to executives remains very low. When incentive plans fail, it is usually because of sub-optimal communication, or lack of proper target setting. If targets are too easy, the risk is that incentives end up becoming an entitlement; if they are too stretched, then risk it that they become a disincentive.

If targets are too easy, the risk is that incentives end up becoming an entitlement; if they are too stretched, then risk it that they become a disincentive.

To help our clients we developed a proprietary tool that takes a probabilistic view when setting targets. This allows companies to select the right KPIs for short and long-term incentive plans, and to set appropriate threshold-target-stretch levels of performance. We also work with clients to better communicate incentive plans, prepare quarterly tracking statements, combine short and long-term plans into a single scheme, have more differentiated (e.g. quarterly) vesting, select appropriate KPIs, etc. All of which are designed to increase the perceived value of incentives, and achieve stronger alignment with business goals, and between management and stakeholders’ interests.

Q On that note, where do you see remuneration committees headed, in terms of their focus on human capital management?

Human capital is one the most vital assets of any organisation. If you ask any chair or CEO about their top priorities, invariably most would say ‘people’. From the shareholders’ perspective, it then follows that organisations should have similar levels of emphasis and transparency regarding investments in human capital, as they do with financial capital.

Willis Towers Watson conducted a global meta-study that reveals a compelling and predictive link between human capital management and company’s superior financial performance. covering over 500 companies, close to 50 years of data, and a total database approaching 250mn employees, we found that companies demonstrating a strong employee experience consistently beat their sector on average by a clear margin of 2-4% across all key financial metrics. In contrast, companies delivering less effective employee experience consistently underperformed peers by up to 10%.

Progressive boards actively monitor and disclose key human capital metrics as part of their environmental social governance (ESG) and sustainability reporting – with particular focus on inclusion & diversity, gender pay equity, talent management and retention, health and safety, training and education, jobs creation, and skills for the future. Similarly, progressive remuneration committees (RC) have risen to the challenge and have expanded their remits and terms of reference to include broader human capital management and ESG issues.

Our executive compensation and governance consultants work closely with clients, locally and globally, to include next-generation human capital goals in executive pay programmes, and provide intelligent dashboards and software to boards, RCs, and the C-suite. This is an important business and social imperative that warrants strong attention from the most senior levels in an organisation.

To get in touch with Shai Ganu, or the team at Willis Towers Watson, for advice on your rewards and executive compensation strategies, please write to him at This email address is being protected from spambots. You need JavaScript enabled to view it., or contact the team here.