Generic formulas for bonuses and overall compensation are no longer effective. In their place are data-informed, human-centred reward systems that align with both business strategy and individual contributions.

As the business landscape across Southeast Asia faces global disruption, talent scarcity, and inflationary pressures, companies are fundamentally rethinking how they approach compensation. The Aon 2025 SEA Pulse Survey underscores an important shift in how compensation is viewed and delivered.

Central to this shift is the rise of differentiated pay strategies, particularly pay-for-performance models. According to the survey, 70% of companies in the region are prioritising these differentiated models, supported by deliberate efforts to position compensation more competitively in the market, invest in high-potential talent, and tailor rewards based on role criticality and performance.

One of the most prevalent strategies revealed in the survey is the alignment of pay with market medians. A majority of organisations (61%) have opted to position fixed pay at the 50th percentile (P50) of the market, ensuring competitiveness in attracting and retaining talent. In tandem, 30% of organisations are stretching beyond this benchmark, positioning themselves between the 50th and 75th percentile (P50–P75), offering an edge in highly competitive talent markets.

When it comes to total compensation, which includes variable components such as bonuses and long-term incentives, the trend towards higher positioning becomes even more pronounced. While 55% of companies still anchor their total compensation at the median, 41% are aiming higher.

This reflects a broader compensation philosophy: fixed pay offers foundational stability, while variable pay enables strategic agility, allowing organisations to recognise and reward exceptional performance and align individual outcomes with broader business goals.

Investing in high-potential talent

The survey identifies high-potential employees – those with strong leadership trajectories – as a major focus for differentiated compensation. Nearly half of surveyed firms (47%) report that they have created distinct pay strategies for this group. These employees are typically identified through structured assessments that evaluate not only skills but also critical behavioural traits such as collaboration, empowerment, and humility.

For this cohort, fixed pay is generally positioned between P50 and P75. However, total compensation often exceeds the P75 mark due to the inclusion of performance bonuses and long-term incentives.

This layered reward structure serves dual purposes: it motivates high performance in the short term while also supporting retention and succession planning for long-term leadership continuity. Companies that proactively invest in high-potential talent are, in essence, nurturing their future competitive advantage.

Critical roles demand strategic compensation and holistic engagement

Beyond high-potential talent, organisations are also placing increased emphasis on critical roles – positions that require niche expertise and have a disproportionate impact on business outcomes. Compensation for these roles is frequently set between the P50 and P75 percentile, with some firms pushing above the 75th percentile to secure and retain these vital contributors.

However, compensation alone is no longer sufficient. The survey underscores the importance of a holistic Employee Value Proposition (EVP). For critical roles, this includes not just higher pay, but also meaningful work, personalised benefits, flexible working arrangements, and alignment with company values. This comprehensive approach helps ensure that employees in strategic roles are not only attracted to the organisation, but also motivated to stay and contribute their best.

The rise of performance-based compensation

The clearest indicator of change in compensation strategy is the intensified focus on performance-based differentiation. A full 70% of organisations are now prioritising stronger pay-for-performance mechanisms. This marks a significant cultural shift – towards meritocracy and business impact – as companies allocate a greater portion of their compensation budget to high performers.

To manage costs while rewarding excellence, organisations are using a blend of tactics:

• 43% are implementing cost-of-living adjustments in markets affected by inflation
• 43% prefer using bonuses over permanent salary increases to maintain financial flexibility
• 25% are selectively increasing pay for employees currently earning below market levels
• 18% are opting for broad-based adjustments that apply to the entire workforce

These strategies promote a culture where performance is transparently rewarded, and they help retain top talent in competitive and fluid labour markets.

Segmenting compensation across the workforce

A key insight from the Aon survey is the increasing granularity of compensation segmentation. Organisations are no longer applying uniform reward systems across their entire workforce. Instead, they are tailoring rewards to three key groups: the general population, critical roles, and top performers. Each segment receives a different mix of promotions, merit increases, special pay adjustments, and incentive structures.

• Promotions are a favoured tool for recognition, used by 72% of companies for top performers, 58% for critical roles, and 45% for the general population
• Merit increases are more evenly distributed, with 81% of companies applying them to the general population, 63% to top performers, and 57% to critical roles
• Special pay increases are used more selectively: 55% of companies apply them to critical roles and 48% to top performers, compared to just 12% for the general employee base
• Variable pay (bonuses/incentives) remains a cornerstone of reward systems, applied to 74% of the general population, 62% of top performers, and 54% of critical talent
• Long-term incentives are especially prominent in critical roles (55%) and among top performers (36%), but are less common for general staff (23%)
• Non-cash and one-time awards, while used less frequently, play a meaningful role in reinforcing culture and recognising milestone achievements

The power of differentiated pay for top performers

Perhaps the most telling measure of performance differentiation is the tangible pay gap between top performers and the rest of the workforce. Most companies report that top performers receive 1.5 to 2 times the merit increases and bonuses of average employees. This is not simply a motivational tool; it is a strategic investment.

By offering structured incentive programmes, such as short- and long-term bonuses, organisations are able to:

• Encourage sustained high performance
• Retain key contributors with significant business impact
• Align compensation with strategic priorities
• Maximise ROI from compensation spend

In this way, differentiated pay strategies reinforce a culture of accountability, excellence, and long-term value creation.

The Aon 2025 SEA Pulse Survey was conducted in the first half of 2025, during a period of continued economic volatility, talent scarcity, and rising expectations around organisational agility. Employers are responding to a host of challenges – from geopolitical uncertainty to the accelerating pace of innovation – by adopting more strategic, adaptable, and employee-centric approaches to compensation.