How much, for what, and in what form. As Singapore seeks to be a talent hub, these basic issues in executive pay - a potential flashpoint in many constituencies worldwide - are increasingly coming under review as remuneration practices here take their cue from global norms.

For all the talk and focus on paying for performance, there is still, particularly in the US, significant misalignment between pay and performance, as evident in controversies over excessive compensation and golden parachute packages for non-performing chief executives.

Executive pay in Singapore is generally lower than in the US and the more developed markets of the Asia-Pacific (Japan, Australia, Hong Kong, China, Korea and possibly Taiwan), but overall pay practices here are moving in line with global trends in terms of pay mix, and ahead of most in Asia, said Mercer Human Resource Consulting.

"Singapore is relatively close to US practice, except that the variable pay quantums are much lower," said Derek Berry, Mercer's Asean head of human capital. "The US has been influenced by there being no tax deduction on pay that is above US$1 million that is not performance-linked. There are more plan variations, and they have been experimenting with variable pay for longer."

His colleague, Michael Keppler, head of human capital for Asia, reckoned Singapore is somewhat behind global practices in terms of remuneration vehicles used and performance metrics to determine payouts. "Singapore tends to provide greater amounts of variable pay (in the total pay mix) than most other countries in Asia. However, Singapore has tended to rely heavily on LTI (long-term incentive) stock option plans. We would suggest that Singapore companies look into restricted stock and/or performance-based LTI plans as a desirable alternative to simple vanilla stock option plans," he said.

Concurring, Mr Berry, who is based in Singapore, said: "In general, there has been a reliance on option plans and there is pressure to change." But, he added, the leading companies here are strong users of advanced financial metrics such as economic profit and have been progressively implementing performance hurdles for share and option plans.

According to Mercer, short-term incentives (STI), typically performance bonuses, are the most popular remuneration tools here, covering nearly all executives in listed companies, multinational corporations (MNCs) and the public sector. Standard options are the most common LTI plans, which feature in most listed companies and often in MNCs. A key challenge for all organisations is to build good links between performance and pay, and typical performance measures include profit and return measures such as return on equity (ROE) and economic profit for STIs.

"While economic profit is generally accepted as an accurate measure, it is generally hard to communicate in a company," Mr Berry noted. "Relative total shareholder return (RTSR) is the most common measure for LTIs, but the challenge is finding an appropriate peer group. Companies are increasingly looking at this issue to see if the focus can be improved."

Indeed, driven by concerns over inadequate alignment of generic option plans with shareholder interests, as well as the accounting costs of the plans, companies here are reviewing the effectiveness of both short and long-term incentive plans.

"Singapore is progressing to the next generation of remuneration design," said Mr Berry. This includes implementing performance measures that are clearly and directly performance-linked, well understood by executives, appropriate to the industry, and integral to financial and management reporting. "For example, RTSR is a popular measure with some shareholders, but the thin market of comparable companies and the range of factors outside of the executives' control mean that it does not have a strong direct motivational impact. Another example is the difficulty of making techniques such as economic profit an integral part of management reporting and cascading it down to other levels in a company."

Companies with multiple businesses would also want to create more than one remuneration plan to focus their executives on the particular drivers for each business, he said. And given the hot demand for talent these days, remuneration plans must encourage retention of critical talent. This calls for using different-sized LTIs based on the executive's potential, or the selective use of restricted or deferred shares for individuals deemed to be of high potential or at high risk of leaving, and whom the organisation would be loathe to lose.

All said, the 'right' performance measures and remuneration plan differ from company to company and need to be designed to be 'best fit' for a specific organisation.

"Singapore is a relatively easy place to live, so the push for growth in international markets, when combined with shortages of leadership talent, will continue the upward pressure on executive pay," said Mr Berry. "A challenge for companies is to develop a stronger pipeline of internal talent and retain a good proportion of that talent."

Mr Keppler too expected senior executive pay raises in Singapore to continue to outpace wage increases for other employees for the foreseeable future. But what's key for each organisation is to find the right pay-performance matrix and ensure that it optimises its payouts, so that the right people get the right quantums.

"While we would generally recommend that organisations place greater emphasis on variable pay, taking into account local market conditions and industry dynamics, it comes at a 'price'. Specifically, the greater the emphasis on variable pay, the greater the need to have well developed KPIs (key performance indicators) and supporting performance management systems to ensure that variable pay is appropriately allocated amongst employees."