More money, more problems

One of the toughest challenges for private equity firms looking to break into new territories is finding management teams of the requisite calibre to run the businesses they acquire. So any groups eyeing up new deals at the moment in Asia – where this has long been an issue, according to some managers – will have been interested to see a new report on executive compensation from management consultancy Mercer this month.

According to Mercer, the average executive salary in Asia has increased by 7 percent this year to $189,808, with China, India and Malaysia seeing the biggest rises. That’s already well above the $167,424 average salary for top execs in Europe. And although it still lags behind the US average – currently $202,067 – Mercer reckons that Asia will be the highest-paying of the three regions within just three years.

That’s not all. As Hans Kothuis, leader of Asia Pacific at Mercer, points out, larger pay packages are just one of several factors making Asia an increasingly attractive destination for many executives.  US and European markets look set for years of negligible growth, while the financial sector is likely to bear a much larger tax and regulatory burden as the powers-that-be look to exact punishment for the banking crisis. These pressures don’t exist in the same way in Asia.

So will this mean that top executives – who, as we’re constantly reminded, are far more mobile and global in their outlook than ever before – start fleeing to Asia in ever greater numbers? If so, it would be a mixed blessing for private equity. On the one hand, it should make it easier to attract top management talent to their Asian portfolio companies, thus boosting value creation and driving higher returns. On the other, it will increase the cost of doing business in Asia – and possibly even make it harder to find good people in the developed but stagnant markets of the West.

Then again, moves like these are not just about the money. Top business executives will have to make their decision based on various lifestyle factors, weighing up the potential financial rewards against the potential drawbacks (a ‘cost-benefit analysis’, as lawyers would say). After all, if higher wages and lower taxes were all that mattered, the entire City of London would have decamped to Switzerland by now.