Financial services companies look for ‘ideal pay mix’

August 22, 2015

More than three-quarters (78 per cent) of financial services companies are overhauling their executive pay programmes as they seek to adapt to difficult market conditions.  

Mercer’s latest Financial Services Executive Compensation Snapshot Survey underlines the changes being brought in as companies seek to make sure they are getting value for money from their employees. 

As well as a strengthening of bonus-malus and clawback conditions (48 per cent), firms are also looking to align performance management and compensation (44 per cent) and increase the use of non-financial measures when reviewing performance (31 per cent). 

This shows how there is a willingness within HR departments to keep a close eye on pay and rewards, as organisations try to make sure they are not overextending themselves in what is still a hugely competitive business landscape. 

Getting pay structures right 

Vicki Elliott, senior partner at Mercer, believes the biggest challenge facing HR teams at the moment is finding ways “to structure pay to engage, motivate and retain high-performing staff while being mindful of regulatory requirements and public pressure”.  

The financial crisis of 2007-08 damaged the credibility of the sector, so organisations have to make sure they adapt to this changed market if they want to attract and retain top talent. This has seen a change in approach, as rewards are now being more closely tied into risk and multi-year performance. 

By doing this, companies can encourage longer-term thinking among its employees, eschewing the short-termism that used to be the go-to strategy for the investment arms of banks.  

Mandatory bonus deferral is also becoming increasingly popular, as nearly all banks and almost half of insurance companies have plans in place. But while they play a major role in the European market (86 per cent), they are not being used as much by North American companies (42 per cent).  

Long-term planning 

A truly forward-looking incentive plan is one of the best ways to incentivise employees to behave in a way that will boost a company’s reputation and its bottom line. And this message is clearly being heard, as nearly three-quarters of organisations have introduced such a plan. 

“It is crucial to maintain a forward-looking long-term incentive plan to link top executives to the accomplishment of long-term performance goals, rather than relying on a mandatory deferral plan,” said Ms Elliott.  

Non-financial metrics are also being used by businesses, as they are seen as a really good indicator for determining the right level of compensation. The most popular measures are compliance/risk management (85 per cent), employee data (60 per cent) and customer information (52 per cent).  

With the European Banking Authority introducing bonus caps – they already apply to over 100 of the biggest UK financial groups – there has been an increase in the weight of base salaries in this region, although North America has far refused to follow suit.  

Getting the pay mix right is not an exact science, so financial services companies have to cast their net wide in order to properly assess the performance of staff. But HR departments will continue to look for the silver bullet as they look to properly incentivise employees.