・Salary increases are highest in Emerging Markets and lowest in Europe
・Almost a quarter of banks plan to increase non-financial measures in annual incentive plans
・Few plan to eliminate role based allowances despite EBA Opinion Report
Dramatic increases in base salary amongst executives and professionals in the financial services sector have failed to materialize according to new research issued by Mercer. According to the data, projected base salary increases for 2015 remain modest running on average between 2.3 to 3.2%. Regionally, 2015 salary increases are expected to be between 5% and 8% in Emerging Markets, 2% and 3% in North America, and 1.5% and 2% in Europe. See Graph 1.
The data comes in the tenth edition of Mercer’s Global Financial Services Executive Compensation Snapshot Survey which was conducted in November 2014 with responses from 63 global financial institutions. The report provides an update on key changes and practices in compensation programs allowing companies within the sector to review and compare their own plans with those of their peers. The survey looks at projected salary increases and predicted bonus pool movements, as well as changes in annual, deferred and long-term incentives, pay mix, and role-based allowances.
“The weighting of base pay compared to other forms of pay within financial services has increased. However, the magnitude of base pay increases planned is less than expected.” says Vicki Elliott, Senior Partner at Mercer.
Base Salary Increases
The report says that forecasted base salary increases (including salary freezes) in 2015 will be modest, averaging 2.3 – 3.2% for all executives and 2.3% for senior corporate management. The banking industry is generally projecting lower salary increases than the insurance industry. Most organizations expect average employee pay in 2015 to be similar to 2014 levels although expectations in Europe and Emerging Markets are more positive than in North America. There is divergence within the sector too, with more than a quarter of insurance firms expecting average employee compensation to rise, while the majority of banks (85%) expect it to remain fairly stable.
Annual Incentives (Bonus)
Around 60% of companies predict 2015 annual incentive levels will be similar to 2014 although 20% expect levels to increase from last year. Increases are most expected in private banking, private equity, investment banking, and property & casualty insurance roles. In contrast, incentives are expected to be lower in fixed-income and staff positions. More than two-thirds of the organizations are not planning to change their target annual incentive levels for 2015 although at least15% are planning to increase levels in their private banking, commercial banking, equities and investment banking businesses. While most companies are not planning to make changes to their incentive design in 2015, 25% of banks plan to increase the weight of non-financial metrics in their annual incentive plans.
“Increasing numbers of banks are measuring customer satisfaction, employee engagement, quality of risk management, and other performance areas that are not financial,” says Dirk Vink, Senior Compensation Consultant and Survey Manager at Mercer. “These measures emphasize specific actions needed to achieve strategic objectives, which ultimately should improve profitability.”
Mandatory Deferrals and Clawbacks
Most banks and two-thirds of insurance firms have mandatory deferral programs already in place. Over 25% of North American organizations plan to increase the use of clawback (after vesting) and nearly 14% plan to increase the use of malus in 2015 further strengthening their ability to respond to problems that surface over a multi-year timeframe.
Over 40% of banking organizations have role-based allowances in place for 2014 and an additional 10% - particularly those in North America - are planning to introduce them soon. Role-based allowances are not common outside the banking industry. Following the publication of the EBA Opinion Report, which found that role-based allowances may be considered variable pay (and consequently subject to the so-called bonus cap), very few organizations who implemented role-based allowances are now planning to eliminate them.
“Based on the findings from Mercer’s survey, it seems 2015 will be a year for stabilizing compensation programs after several years of changes in large part due to regulatory requirements since the financial crisis,” concluded Vicki Elliott.
Notes to Editors
* The survey was completed by 63 financial services organizations, of which 49% were banks, 37% insurance firms, and 14% other financial services organizations (e.g., investment and asset management, credit cards, stock exchange). Survey participants are based in 18 different countries with 47% in Europe, 37% in North America, and 16% in Emerging Markets (which combines Asia and Latin and South America).
* According to Dr. Hans Kothuis, Executive Rewards Practice Leader – Asia & Middle East, Mercer, although salary increases in the financial services sector are likely to be highest in Emerging Markets, base pay rises in Asia will remain modest. “Compared to previous standards, we will see a moderate uplift in basic pay in key financial services markets across the region. For example, in Japan, we can expect to see salary rises of between 2-3%, with slightly higher rises of 4- 5% forecast in Hong Kong and Singapore,” he said.
“Incentives will remain the key driver of growth in total compensation in financial services across Asia. An upturn in bonus pool funding will boost the total pay in the sector by more than 10% in Hong Kong and with high single-digit increases in Japan and Singapore. These increases will be concentrated mainly in Investment Banking, Equities, and in the Control Functions such as Risk Management and Audit,” he added.
Mercer is a global 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 42 countries and the firm operates in more than 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With over 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights. In the UK, Mercer Limited is authorized and regulated by the Financial Conduct Authority.
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