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London, 9 January 2007

• Banking chief executive officers received median bonus payments of 121% of base salary in 2006, while insurance chief executives received 101% of base salary
  
• Over half (52%) of the organisations surveyed have no maximum bonus for executive positions. Over 70% of compensation for financial services chief executives is paid through bonuses and long-term incentives
  
• Pronounced shift in Europe from options to restricted stock and performance related shares
  
• Demand for chief risk officers and heads of treasury, communications and human resources fuelled above-average salary increases in 2006
  
• Financial companies take a pan-European approach to executive remuneration as they expand across Europe
  

Strong performance meant banking chief executive officers received median bonuses of 121% of base salary in 2006, taking their median annual total cash compensation* to £1.9 million, according to a new survey by Mercer Human Resource Consulting. Insurance company chief executives received median bonuses of 101% of base salary, bringing their median total cash compensation to £1.6 million, the survey found.

“Companies across Europe are strengthening links between their remuneration policy and business strategy, to ensure rewards closely reflect performance,” said Mr Cahill, worldwide partner at Mercer. “If executives exceed their targets they can receive exceptional bonuses because the payments are more justifiable to shareholders.” Over half (52%) of the organisations surveyed have no maximum bonus for executive positions.

Banking chief executives receive only 25% of their total direct compensation as base salary, while insurance chief executives receive 29% as base pay. The remainder is paid through bonuses and long-term incentives, highlighting the emphasis on variable pay and its linkage with company performance within total compensation packages.

Among the survey respondents, 39% reviewed their long-term incentive plans during the last 12 months, or are currently reviewing them. Restricted stock and performance share plans are the most popular forms of long-term incentives, followed by incentive stock options, and the most common performance measure is total shareholder return relative to peer group. Insurance chief executive officers received median long-term incentives worth 210% of base salary compared to 170% of base salary for banking chief executives.

“The shift from options to restricted stock and performance-related share plans is more pronounced in Europe than the US,” said Mr Cahill. “Increased interest in share plans with performance criteria has been driven by greater focus on pay for performance, the need to retain key executives and the introduction of share option accounting requirements.”

Base pay

Median salary increases for financial sector executives across Europe ranged from 3.5% to 4% of base pay in 2006 and are expected to remain at similar levels for 2007 and 2008, the survey found. However high demand for certain executive positions fuelled some above-average pay rises during the past year.

Chief risk officers received average salary increases of 14% during 2006, demonstrating they have become highly sought-after as their roles have widened to make them increasingly accountable for corporate governance. Other positions that received above-average salary increases included heads of treasury (12%), communications (10%) and human resources (9%).

“Offering increased guaranteed compensation through higher base salaries can help attract and retain executives in the competitive financial services employment markets,” said Mr Cahill. He added: “Human resource executives are making a more strategic contribution to business decisions in financial services organisations, leading to higher compensation.”

Pan-European approach

Among survey participants, 36% reviewed their pension provision for executives in last 12 months or are currently reviewing it, with an obvious move towards defined contribution pensions. According to the survey, there has been a renewed focus on a more harmonized approach to benefit provision across financial services executive population in Western Europe.

“As financial sector companies expand across Europe, it matters less where an executive is based. As a result, organisations are taking a more pan-European approach to determining executive compensation,” said Vicki Elliott, worldwide partner and Mercer’s global financial services industry leader.

The research is part of Mercer’s Pan-European Financial Services Executive Compensation Survey, which provides total compensation information for all key board positions in the banking and insurance industries. The survey also covers pay for the next three executive tiers, which is not disclosed in company reports.

Notes for Editors:

*Annual total cash refers to the total of annual base salary plus any guaranteed cash plus the actual annual short-term incentive amount.

The effective date of the pay and benefits data analysed in this study is 1 June 2006. The survey covered 49 job positions and some 1,000 employees at 33 top multinational banking and insurance companies.

Mercer Human Resource Consulting is a global leader for HR and related financial advice and services, with more than 15,000 employees serving clients in more than 180 cities and 42 countries and territories worldwide. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago, Pacific and London stock exchanges. For more information, visit mercerHR.com.

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