Article: Startups in SEA pay less than in the US, but the gap will narrow: Aon survey

Compensation & Benefits

Startups in SEA pay less than in the US, but the gap will narrow: Aon survey

Startups in Singapore and Southeast Asia offer slightly better pay than other, more mature companies in their respective industries. But most of them also pay much less than their counterparts in the US, according to the findings of a new survey by Aon.
Startups in SEA pay less than in the US, but the gap will narrow: Aon survey

Is working for a startup in Southeast Asia a lucrative job? Yes, according to new research from Aon. The 2021 Private Market Compensation Survey, a first-of-its-kind survey that gathered responses from over 100 startups in the region, found that base salaries in startups are 6 percent higher, on average, for professionals and individual contributors than in the broader industries.

Speaking at a roundtable presenting the survey findings earlier this week, Ravi Nippani, Associate Partner at Aon Human Capital Solutions, said that the numbers on the base salary came as a surprise.

“A lot of times, the myth is that startups don't pay well. But the data shows that startups are being fairly competitive, and provide an individual contributor with better pay as compared to the broader tech industry and the general industry.”

The base pay differential goes in the opposite direction for managers, however. Startups pay their managers 5 percent less than the rest of the industry would offer, and this, said Nippani, is due to the breadth and complexity of the role—larger organisations, especially those with regional operations, present more demanding roles and pay accordingly.

How does this compare to startup pay in the US?

The highly advanced startup ecosystem in the US is a reference point for many other startup ecosystems globally, according to Nippani, and on top of this, many startups that reach a global growth stage and want to go public will usually targe an IPO in the US. Furthermore, many venture capital firms and other investors have parent companies in the US, and are interested in understanding how Southeast Asia talent practices stack up against US practices.

With that in mind, Aon's study compared the findings from Singapore startups to pay scales in the US—and found distinct differences. To begin with, the majority of Singapore startups have a significantly lower base pay than US startups. At managerial levels, the base salary in Singapore is 12 percent lower than in the US; at professional and individual contributor levels, it is 32 percent lower.

On the other hand, Singapore startups pay much higher cash performance bonuses—20 percent at managerial levels and 15 percent at professional and individual contributor levels. In contrast, bonuses in the US are 13 percent and 10 percent respectively.

The reason for the high bonuses may simply be that equity compensation, which is very common in the US, simply does not have traction in Singapore or around the region, Nippani said. He identified three reasons for that: unfamiliarity, low lucrativeness, and risk.

“In a lot of our markets, we've never been exposed to equity as a form of compensation,” he observed. “A second thing is probably the lack of success stories where people have made money from equity, as compared to the West. The third is the amount of time and tenure that you have to invest to be able to realise that gain. And there's always this huge element of risk associated with it.”

Unsurprisingly, the survey found that 90 percent of startups in Singapore extend equity compensation mainly to managerial roles and above, with professional roles and below left out. In contrast, all the US startups surveyed offer equity to all executive, managerial, and professional levels, and 90 percent even offer it to entry-level and support roles.

So which form of compensation actually draws people to startups?

The startup sector tends to draw people with a certain mindset—and it's not so much about the compensation, although that does need to be fair and equitable, said Juliana Lim, Executive Director of Talent Networking at SGInnovate, who was speaking at the Aon roundtable.

“What's most pressing for any young person joining a startup would be: is the compensation fair?” she noted.

In any case, Lim pointed out, compensation in the form of equity is not for everyone, nor is it a major draw. Instead, people who join startups, particularly deep tech startups that are working with new and potentially revolutionary technology, come more for the promise of the impact they can make.

“You can see that translation of your work into something that impacts the organisation, makes it or breaks it. And there is the idea of creating something together: the teams typically are smaller and have this culture of working together in collaboration to build something in the future for a global market. The excitement of that, I think, is what attracts most people to want to start talking to a startup,” she said.

One thing is clear, though: startups cannot assume that excitement, or the passion of the work, will be sufficient to draw and retain talent. Startups in the tech industry are exceptionally prone to talent churn, and it has already been happening for several years, Nippani said:

“There is actually a huge talent war happening for the good tech talent. Everybody's competing, from the biggest brands out there to financial services, manufacturing setups, FMCGs, to the startups themselves. So the tech talent needs a very differentiated approach in terms of how they're being compensated.”

Furthermore, panellists predicted that the base pay gap between Singapore—and Southeast Asia in general—and the US will eventually narrow. One potential driving factor might be the ability to work from anywhere, which tech firms have been particularly quick to embrace. Ray Everett, CEO, of Aon's Human Capital & Reward Solutions business in Asia Pacific and the Middle East & Africa, observed: “Many of the US tech firms now say you can work from anywhere and keep on with a San Francisco pay rate. That's obviously going to have a big impact in terms of making pay rates much more uniform across the US, and I think that'll transfer over globally as well.”

The risk, Everett said, is that as more firms begin to adopt the idea of having a global rate for all their locations, the talent cost will shoot up for startups, and startup firms in Southeast Asia in particular will lose their current cost advantage.

But on the bright side, the panellists also estimated that the narrowing of the gap would not be drastic, and would not happen at any time within the next five to seven years. In other words, startups in the region still have a long window remaining to consider their talent strategies and figure out how to remain competitive without affecting their own attractiveness to investors.

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Topics: Compensation & Benefits

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