IWS Documented News Service
Institute for Workplace Studies-----------------Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
16 East 34th Street, 4th floor--------------------Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
This service is supported, in part, by donations. Please consider making a donation by following the instructions at http://www.ilr.cornell.edu/iws/news-bureau/support.html
Press Release 29 January 2015, London, UK
Global Financial Services Pay Survey: No major jump in base pay after financial services bonus cap
• Base pay rises of between 2-3% anticipated
• 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 materialise 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.
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 organisations 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. Over two-thirds of the organisations are not planning to change their target annual incentive levels for 2015 although at least 15% 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 emphasise 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 organisations 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 organisations 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 stabilising 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 organisations, of which 49% were banks, 37% insurance firms, and 14% other financial services organisations (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).
Graph 1: 2015 forecasted base salary increases in global financial services
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.