Base pay of executive salaries in Asia-Pacific will increase by an average 5 per cent this year, compared to 2.5 per cent in the rest of the world, according to new data from Mercer.
The data shows that pay rises for employees in Asia-Pacific are twice as high, and more, compared to employees in Europe, Middle East and Africa or the Americas.
In EMEA, where the economic crisis is still playing out, base pay increases for most executives are set to average a comparatively sluggish 2 per cent, while EMEA chief executives are expected to face another year of base salary freezes.
The data comes from Mercer's Global Financial Services Incentive Plan Snapshot Survey which was conducted in December 2011, and involved 63 financial services organizations. Of this, 45 per cent were in EMEA, 41 per cent in Americas, and 14 per cent in Asia-Pacific.
“Financial services organizations are responding to significant changes in regulatory requirements concerning compensation policies, incentive plan designs and their governance. In EMEA and the Americas they face keen public scrutiny,” said Vicki Elliott, senior partner and financial services industry leader at Mercer.
“The industry has been responding to this and moderation appears to be the order of the day in Europe and the Americas. In Asia-Pac, we see much more pay growth," she added.
“In the UK, we are also seeing companies move to tie executive remuneration to meet the FSA requirements in CRD3 tying pay to the capital adequacy of the organization. At least one major UK bank has done this,” said Sophie Black, partner in Mercer’s UK executive remuneration team.
Base salary freeze
For 2012, globally, across all organizations - including those freezing salaries - CEOs were generally forecast to receive no increase in base salary. But Mercer points out that due to a different compensation structure, this is not always the reality.
“Since 2010 major steps have been taken in the financial services industry to reduce risk, to tie incentives more closely to economic performance and to allow the ‘claw back’ of bonuses. To better balance the mix of fixed versus variable pay and also moderate the potential loss in their employees’ earning power, many organizations have increased base salaries significantly in the last couple of years," said Elliott.
So, while it may appear that employees in financial services companies are experiencing the same base pay restraint as other sectors of the global economy, the reality is slightly more nuanced, she pointed out.
Overhaul of bonuses
The study also pointed out changes to bonus structure taking place. In this area, a different regional approach may exacerbate the uneven playing field that exists in talent attraction between the US and EMEA.
Over half of respondents said their organizations didn’t plan to make any changes to bonus plan design in 2012. Nearly a third said that revisions would be made to performance measures and 17 per cent plan to introduce "bonus malus" (where individuals can be rewarded or penalized according to achievements) conditions on deferrals.
There were notable regional differences within these figures. While EMEA broadly matched the global findings, in the US and Asia-Pacific only a minority of respondents stated that they will be revising bonus opportunities and increasing the required mandatory deferred bonus level.
“It is notable to see companies in the Americas having limited plans to introduce bonus malus conditions. This will further aggravate the unlevel playing field issue, putting European companies at a disadvantage,” said Dirk Vink, senior executive remuneration consultant at Mercer.
Nearly two thirds of companies surveyed are not planning to make any changes to their long-term incentive plans (LTIP). A smaller proportion plan to introduce a forward-looking LTIP (6 per cent) and revise performances measures (6 per cent).
“In general, companies which are looking to change their bonus opportunities are tending to revise the maximum bonus amount down. We are seeing companies capping the upside of these awards and tying them ever more closely to performance criteria,” said Black.
Changes to control roles
The report also highlighted the trend of the continuing development of pay levels and the changing pay mix for the so-called "control" roles within financial services.
In line with greater regulatory scrutiny of compensation practices for key risk-takers, the largest base pay increases appear to be directed towards control roles, such as risk management, legal, internal audit, compliance, finance and human resources.
Respondents were predicting base pay increases over 3 per cent for these groups, but this may reflect the changing nature of the pay mix for this group. For these roles, the proportion of annual cash bonuses has been continually reduced in favour of a higher base salary and LTI compensation.
While this decreasing of annual bonus weighting is prevalent across all regions, the change was most marked in EMEA where 48 per cent of respondents stated that they had decreased this type of weighting and 35 per cent had increased the LTI weighting.