Industry Surveys
Financial Services Executives Expect Pay Increases In 2013 - Data
Executives in the global financial services sector expect base salary increases of 2.2-2.5 per cent this year - down slightly from 2.9 per cent in 2011, according to data from Mercer.
Regionally - and excluding those who are predicted to have pay freezes - executives in emerging markets (Asia and South America) should receive the biggest salary increases in 2013 of between 4 and 5 per cent, followed by North America at 3 per cent and then European executives.
However, it should be noted that nominal pay increases can be eroded away, depending on the inflation level.
The figures stem from Mercer’s Financial Services Executive Compensation Snapshot Survey, which looked at pay data for senior executives provided by 63 banks and insurance companies operating in 21 countries across Asia, Europe and North America.
Mercer’s data suggests that those in control roles - risk management, legal, internal audit, compliance, finance and human resources - will receive slightly higher increases (2.5 per cent) this year.
“This is a direct response to regulatory pressure as banks use pay as a means of improving risk management by attracting and engaging talented, experienced staff,” the firm said.
Pay freezes, incentives
Pay freezes “remain common” for chief executives and those reporting directly to them in banking, with 49 per cent and 38 per cent respectively expected to have pay freezes in 2013. However, less than 20 per cent of organizations anticipate freezing salaries for the other executives.
As a broader trend, salary freezes are more common in Europe and are rare in emerging markets. They are also projected to decline more among North American CEOs.
Meanwhile, among the 30 per cent of organizations expecting 2013 bonus pools to be smaller than in 2012, European organizations are the most pessimistic.
Banks are also more likely to have lower predictions than insurance companies, reflecting the latter’s “stronger business confidence,” Mercer said. It is also interesting to note that according to most companies, employees in risk-taking roles are more likely to receive smaller bonuses this year.
“The design of the bonus program is a key area of focus for US and European regulators and the emphasis is on the use of the incentive scheme design to improve risk management and reduce short-termism,” said Dirk Vink, a senior consultant at Mercer. “It is a reflection of the progress that has been made in this area over the last two years that most organizations are not planning to make changes to their incentive design in 2013.”
“Malus” and “clawback” conditions
The majority of organizations (74 per cent) also have a “malus” policy, which cancels deferred or long-term incentives when performance conditions are not met. Deferral reductions due to “malus” conditions are more prevalent in banks than in insurance organizations, Mercer found.
Similarly, over half (53 per cent) of the sample organizations have a “clawback” policy that recoups vested amounts when individual, firm-wide or business unit performance conditions are not met.
“It is clear that banks, in particular, have made many changes to their compensation structures to be more aligned with regulator expectations and better protect themselves against unexpected developments in business outcomes over a multi-year time frame,” said Vicki Elliott, a senior partner at Mercer.
The firm said this includes a shift away from cash bonuses to a portion of bonuses typically deferred over at least three years and paid partially in shares or related vehicles. While the overall governance of compensation has also improved - internally as well as at board level - total compensation levels are not yet back to those seen pre-financial crisis.
“Perhaps the time has come to let the dust settle to see how effective the regulated structures are in helping to discourage excessive risk-taking in financial services,” Mercer said.