· Ratio caps driving more guaranteed fixed pay
· 2016 base pay increases projected between 2.0-2.7% in Europe and North America;
Asia and Latin America average at 4.3%
· Overall, 2016 pay to be static: lower variable pay matched by fixed pay increases
A new report by Mercer highlights that 2015 saw the world’s financial services organizations continue to respond to regulatory developments by increasing fixed pay, decreasing variable pay (bonuses), and increasing the emphasis on non-financial performance. While processes to penalize misconduct and non-compliance are widespread, rewarding positive risk behaviors continues to be a challenge.
The data comes in the 11th edition of Mercer's Global Financial Services Executive Compensation Snapshot Survey, which was conducted in October and November of 2015. The survey reviews the pay practices of 71 global financial services companies — banks, insurers, and other financial services — based in 20 countries in Europe, North America, Asia, and South America.
According to Vicki Elliott, Senior Partner and Leader of the Global Financial Services Talent Network at Mercer, "The focus for financial services firms is firmly trying to set the right tone from the top with strong governance and high involvement of risk management. Overall, total compensation levels remain broadly the same compared to levels prior to regulated bonus caps. However, banks, particularly in Europe, have significantly increased fixed pay levels, improving the certainty of pay delivered to key risk-takers."
The report found that 61% of organizations had increased their employees’ fixed pay by more than 5% while 58% percent had reduced variable pay by more than 5%, marking a shift in pay mix. Total compensation levels are expected to remain relatively unchanged in 2016 — within plus or minus 5% (92%) — and most organizations are not planning further changes to their pay mix.
Overall, 2016 projected base salary increases for the sector are modest with average forecasts globally expected to be between 2.0% and 2.7%. Latin America, South America, and Asia are projecting higher average salary increases (4.3%) while North America and Europe are forecasting lower average salary increases of 2.4% and 2.3%, respectively. The banking industry is generally projecting slightly lower salary increases than the insurance industry. The majority of organizations predict 2016 annual incentive levels to be similar to those in 2015; those expecting change predict that levels will decrease.
“There continues to be a concern that increasing the focus on fixed guaranteed pay breaks the link between pay and performance, and may actually be counter-productive for aligning pay with risk” said Dirk Vink, Mercer Principal and Financial Services Project Manager. “We have concluded that the most positive impact on sound risk-taking behaviors and decision-making has come from significantly improved governance and increased involvement of risk management in the performance management and compensation process.”
Fostering a sound risk culture
When asked how their organization is fostering a strong risk culture, the most prevalent response was penalizing misconduct and non-compliant behaviors (93%) followed by the role of risk management in performance expectation setting and evaluation (89%). Setting the right tone at the top of the organization, for example, through top management leadership, communications and real consequences, was also highly cited (88%), as was training and coaching managers on sound risk culture (87%).
Intriguingly, with all parts of the business impacted by these risk management efforts, the report highlights that some organizations, particularly in North America, are finding it more difficult to attract and retain staff in the crucial functions that oversee these processes, the control functions (risk, legal and compliance).
To learn more about the findings of Mercer’s Global Financial Services Executive Compensation Snapshot Survey and the latest information on changes and emerging trends in pay practices in the current economic and regulatory environment please join our free webcast on February 2. You can register here http://bit.ly/23vTtOl.
Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @Mercer.
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