Average executive salaries in Asia increased by 7 per cent in 2011 while those in Europe and the US increased by 2.5 and 3 per cent respectively, according to Mercer.

Salaries for executives in Asia have surpassed those in Europe and are likely to beat paychecks in North America by 2013, a new report by Mercer shows.

Average executive salaries in Asia increased by 7 per cent in 2011, particularly those in China, India, Indonesia, Vietnam, the Philippines and Malaysia. Contributing factors include strong GDP growth, accelerating inflation, and scarcity of executive talent, said the report titled: Global Executive Pay Trends.

By comparison, executive salaries in Europe rose by an average of 2.5 per cent in 2011, Mercer said, while those in the US and Canada increased by around 3 per cent.

"Historically, executives in Western economies have been paid the most but the centre of gravity is moving inexorably East. The trend has spread across many emerging economies; in the Middle East, for example, salaries have already caught up with those in Europe," said Dr Hans Kothuis, the Asia Pacific leader for rewards and human capital at Mercer.

This dearth of executive-grade candidates has resulted in aggressive ways of attracting and retaining staff in Asia, with some companies even offering long-term incentive plans over 10 to 20 years and even up to retirement. This may prove unsustainable in the medium term but in the meantime, it is leading to the use of innovative methods of attracting and retaining staff, said the report.

Only the struggling Japanese economy is suppressing pay, said the survey. 

Pay scales rising aside, Mercer warned that inflationary drivers behind remuneration in Asia risk the creation of a bubble and might blur links between pay and performance and distort company salary structures.

"Companies in Asia should review their remuneration policies to ensure that they can maintain sustainability and capitalize on rapid changes in technology, trade and financial conditions, as their share of the world economy increases," added Kothius.

US and Europe

But the outlook is darker in the US and Europe, where pay is hampered by poor economic growth and greater regulation and scrutiny.

The worldwide economic crisis has led to new regional and national rules and regulations that have curbed executive pay inflation. Large organisations in the West are turning away from short-term incentives towards deferrals, long-term incentives and improved leadership development.

The intense pressure in countries such as the UK, Spain, Portugal and Germany, from regulators, the media, the public and shareholders are resulting in executive remuneration plans with closer ties to business performance and value creation," said the report.

There have been widespread reviews of, and reductions in, severance pay packages in Italy, for example. In Canada and the US there is also intense scrutiny of executive pay. Shareholders, corporate governance advocates, legislators and regulators are demanding increased transparency in executive compensation programmes and stronger alignment of pay and performance.

Management and compensation committees are under pressure to be responsive and accountable to stakeholders. More emphasis is being placed on rigorous pay-for-performance benchmarks, longer term equity holding requirements, claw-backs, and deferred bonuses in the financial sector, said Mercer.