More than three quarters of companies are making changes to their executive pay programmes as a result of difficult market conditions, according to Mercer’s latest Financial Services Executive Compensation Snapshot Survey. The most common planned changes are the strengthening of bonus malus and clawback conditions, strengthening the link between performance management and compensation and increasing the use of non-financial measures in reviewing performance.
The survey reviewed the pay practices of 55 global financial services companies—banks, insurers and other financial services companies—based in 15 major countries in Europe, North America, and Asia. The report is intended to provide an update on key global changes and practices in financial services compensation programmes.
Vicki Elliott, Senior Partner, Mercer commented, “Financial services HR teams and remuneration committees are being challenged to find ways to structure pay to engage, motivate and retain high-performing staff while being mindful of regulatory requirements and public pressure. Since 2008, we’ve seen a steady change in approach as companies actively tie rewards more closely to risk and multi-year performance.”
Broadly, most organisations have a mandatory bonus deferral in place with nearly all banks, and almost half of insurance companies have these plans as well. Interestingly, 42% of North American organisations do not have a mandatory deferral program in place, whereas EU regulation has been more prescriptive on the issue.
Enter HR. Most organisations link non-financial performance to incentive compensation. Compliance/risk management is the most prevalent non-financial metric used, especially among banks. Employee metrics are also widely used across the sector both in banking and insurance, according to the report. Customer metrics are prevalent in banks at 67%, but less so in insurance companies, where only 36% of respondents named it as an important metric. Other metrics include achievement of strategic initiatives, business expansion, corporate social responsibility, leadership metrics, corporate citizenship and people management, to name a few.
Dirk Vink, a Mercer consultant specializing in executive remuneration and manager of this survey explained, “The clearest trend since the EU bonus caps is the increase in fixed compensation. However, reducing the amount of variable incentive pay weakens the link between performance and pay. As a result, there will also be less pay that can be deferred and aligned with the risk time horizon of the business.
Paul Arkwright
Publisher
