Big salary increases aren't likely across the financial sector as a whole, although countries such as India will see relatively high percentage rates, a survey finds.

Financial sector salary increases this year across all roles will come in within a modest range of 1.9 per cent to 2.4 per cent as the sector feels the effect of forces such as continued low interest rates, according to Mercer, the consultancy.

The hottest pace in percentage gains terms is in India, figures show, while Europe is relatively sluggish.

Most organizations polled by the firm predict 2017 annual incentive levels to remain similar or unchanged to 2016.

The data comes from the Global Financial Services Executive Compensation Snapshot Survey, conducted in October/November 2016. The survey reviews the pay practices of 42 global financial services companies - banks, insurers, and other businesses - based in 14 countries in Europe, North America, Asia, and South America.

Forecasted base salary increases are expected to be lower in Europe (1.4 per cent to 2.0 per cent) than North America (1.6 per cent to 2.6 per cent).

Projections for India (6.0 per cent average salary increase) are higher than any other growth market across Latin and South America (3.5 per cent) and Asia (3.8 per cent). Approximately two-thirds of organizations predict that the 2017 actual corporate incentive pools will be similar (within +/- 5 per cent range) or unchanged to 2016 levels.

Almost one-quarter of companies surveyed predict the actual 2017 incentive pool to be significantly lower than 2016 levels, while only 11 per cent predict it to be significantly higher. A similar trend was observed last year.

“With compensation remaining relatively flat, firms are challenged to go beyond pay and emphasize their broader employee value proposition to continue to motivate and retain people,” Vicki Elliott, financial services leader, Mercer Career, said.

About one-third of organizations allow for non-financial measures to override financial measures in their annual incentive plan (38 per cent) and multi-year incentive plan (32 per cent). This is more common in banks (55 per cent) than insurance firms (15 per cent).

The most prevalent changes in remuneration policy and practices planned by organizations in the next 12 months are job evaluation/global levelling (63 per cent), parental leave policies company-wide (38 per cent), and flexible benefits (33 per cent). Pay equity policies remain an area for change, particularly in European firms where 40 per cent say they plan to make changes to their formal pay equity policy company-wide in the next 12 months.

Non-financial performance measures of conduct, compliance and risk management are increasingly being allowed to override financial outcomes. Approximately one-third of organizations allow for non-financial measures to override financial measures in their annual incentive plan (38 per cent) and multi-year incentive plan (32 per cent). This is more common in banks (55 per cent) than insurance firms (15 per cent).

Dirk Vink, Mercer Principal and Project Manager for the study, said: “Allowing non-financial measures to override financial performance measures provides greater emphasis on risk management, compliance and conduct, and thus puts a lot more teeth into their effectiveness as performance criteria.”

Compensation for control functions

Organisations continue to respond to regulatory developments and talent shortages by increasing fixed pay in the compensation of control functions. Mercer’s data showed that around half (48%) of companies had increased fixed pay for control functions, one-third had decreased variable pay, and 19% showed an increase in total compensation levels. On a regional level, far more European organisations reported a shift from variable to fixed pay: about half (52%) of European organisations reported an increase in pay linkage to function performance compared to 21% in North America. One-third of both insurers and banks reported that regulatory impact decreased the link between pay and business performance.

Mr Vink said: “Compensation for control functions is usually linked to the performance of their function and overall corporate financial performance rather than line of business performance. This is to ensure there are no conflicts of interest in exercising their oversight role for specific business practices and decisions.”

Mercer’s research showed that less than 30% of banks overall report a linkage of compensation for control functions to line of business performance.