SEA startups enjoy huge talent cost arbitrage over US counterparts: Survey

The base salary of startups in Singapore compared to the US is, on average, 12% lower across managerial levels and 32% lower across professional IC levels.

Aon’s 2021 Private Market Compensation survey finds that, among the startup landscape, for a similar role in the US, companies are paying almost three times the costs, compared to markets like Singapore, Thailand, and the Philippines, where the cost is far lower. 

Distilled into Singapore data, this implies that from an employer's point of view, the cost of comparable talent in Singapore is significantly lower at both levels - among individual contributors (ICs, or professionals) as well as managerial levels. The base salary of startups in Singapore compared to the US is, on average, 12% lower across managerial levels and 32% lower across professional IC levels.

The survey, which was conducted in collaboration with SGInnovate, sought participation from startups of various sizes in Southeast Asia, and covered key compensation elements, such as fixed pay, cash incentives, and equity awards – across a selection of jobs focused specifically on the private market sector.

In a session attended by Human Resources Online, we uncovered the following key trends from the survey:

1. Singapore startups are more selective in awarding equity

US startups have traditionally used equity for wealth creation, with a long-term perspective, for employees, across all levels. In fact, 100% of the US start-ups surveyed reward equity to all levels - executive, managerial, and individual contributors. A majority (90%) of them also extend equity awards to entry and support-level roles.

In contrast, Singapore startups have been a lot more selective about who they award equity to. "Startups in Singapore are focused on rolling out very cash-based compensation plans, whereas in the US, it's a lot more about equity," noted Ravi Nippani, Associate Partner, Asia Pacific and the Middle East & Africa for Human Capital solutions, Aon.

The data shows that 90% of startups in Singapore tend to have equity plans predominantly for roles that are at managerial levels and above. Only 6% of startups in Singapore with less than USD 25mn invested capital have structured equity plans.

Having said that, interestingly, over the past two-three years, startups in Singapore seem to be expanding the eligibility criteria for equity ownership to more levels within their organisations - a trend to watch.

2. SEA start-ups are more aggressive with their target performance bonus (cash) plans

At the managerial level, target bonus for startups in Singapore is at 20% compared to 13% in the US. At the professional IC level, target bonuses were also reported to be higher in Singapore (15%) than in the US (10%). Overall, the data shows that startups in Singapore are more inclined toward cash-based incentives than their US counterparts - and, this links to how the two economies have evolved culturally. 

Ray Everett, CEO, Asia Pacific and the Middle East & Africa for Human Capital solutions, Aon, explained: “The rapidly evolving business environment is compelling entrepreneurs to look for low-cost geographies that support ease of business and fast track the development of their solutions. Substantial talent cost arbitrage coupled with availability of strong technical talent makes Singapore a preferred destination for startup founders and investors.”

This trend is evident across other nations in Southeast Asia too, whereby Indonesia was found to award the highest target incentive (20% of base salary) to its individual contributors across the markets surveyed - a function of the relatively lower availability of the talent the companies are looking for, thus the willingness to spend more on it. 

In comparison, Singapore & Thailand offer target incentives of 15% of base salary, the Philippines is pegged at 13%, while the lowest is US at 10% - when it comes to bonuses for professional ICs. 

3. Start-ups don't pay well? That's a myth (for non-managerial roles)

Nippani shared: "The data shows that start-ups are paying fairly competently, especially to individual contributor profiles, as compared to the broader tech industry. However, this trend changes when you look at managerial compensation. The base salary catches up at big organisations, purely because of roles of regional status, complexity, and so on."

Breaking this down into numbers, it was found that base salaries at Singapore startups pay more (6%) than those in the broader tech and general industries, across professional individual contributor levels. The playing field levels out at managerial levels, with startups paying 5% less than companies within the general and broader tech industries.

Whilst base pay quantum is quite similar across the three categories of companies (startups, broader tech, and general), variable pay (cash and equity) tends to take up a significant proportion of total compensation in larger organisations, as compared to startups.

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