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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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Mercer

 

Global Financial Services Executive Incentive Plan Snapshot Survey [2011]

http://www.imercer.com/uploads/Europe/pdfs/2011_eips_report.pdf

[full-text, 48 pages]

 

Press Release 12 March 2012

Base pay increases highlight regional differences in financial services

http://www.mercer.com/press-releases/1452410

 

 

Asia
Asia, 12 March 2012

 

  

§  Globally, executives set to receive average base pay rises of 2.5%, but great disparity by region with executives in Asia-Pac receiving 5%

§  Asia Pacific financial institutions continue to make changes to their bonus programs to create better alignment between compensation and long-term performance

§  Risk management and control functions continue to get larger pay increases at 3%, but with corresponding reductions in annual incentive opportunities

 

Base pay increases in the world's financial services sector continue to be markedly different depending on region, according to new data issued by Mercer. The data shows that pay rises for employees in Asia-Pacific (Asia-Pac) are twice as high, and more, compared to employees in Europe, Middle East and Africa (EMEA) or the Americas. Forecasted base pay increases in Asia Pacific are anticipated to be 5%, with no companies expecting base salary freezes.   In EMEA, however, base pay increases for most executives are set to average a comparatively sluggish 2% with some executive groups, like CEOs expected to experience another year of base salary freezes. Increases in the Americas are expected to be 2.5%.

 

The data comes from Mercer's Global Financial Services Incentive Plan Snapshot Survey which reviews remuneration practices and base pay increase data from 63 financial services organizations in Asia-Pac, EMEA and the Americas. The report provides insight into remuneration trends amongst banks and insurance companies across the world.

 

"Pay trends for financial services organizations in Asia have been more positive than in the Americas and Europe," says Dr. Hans Kothuis, Asia Pacific rewards consulting leader.  "But there are substantial differences between the established and developing markets in Asia.   In the more established Asia Pacific markets such as Australia, Hong Kong, Japan and Singapore, we are seeing initiatives to reduce expense, although primarily through restructurings rather than through reductions or freezes in pay packages to existing staff; while in emerging Asia, such as in China, Indonesia and Vietnam, compensation budgets continue to grow substantially."  Reflecting on the regulatory landscape for financial organizations in Asia, Dr Kothuis commented that "Banks and other financial firms continue to make changes to their compensation programs due to increased regulatory scrutiny."

 

The report highlights three main trends.  The first trend concerns base pay increases and shows that on average, globally, most employees in the sector will receive limited salary increases of around 2.5%. Regionally, however, the report highlights large discrepancies within the sector caused by differing economic circumstances. This sees base pay increases in Asia-Pac continuing to outpace the other two main regions of EMEA and the Americas.

 

The second trend is the continuing development of pay levels and the changing pay mix for the so-called 'control roles' within financial services. Globally, this employee group will receive an above average pay increase of around 3% in 2012. In parallel, their pay mix is changing in direct response to regulatory pressure to put more emphasis on fixed salary. The final trend is the changes to bonus design taking place.

 

Base salary increases

For 2012, globally, across all organizations executives in general are forecast an average 2.5% increase. Broken down regionally, the figures provide evidence that the momentum of executive salaries in Asia Pacific continues to grow. "The significant base pay increases in Asia reflect strong growth over the last few years in the size of these financial institutions," says Dr Kothuis. 

 

"However, there are substantial differences between the more established Asian markets which are seeing some pay constraints, and developing Asia where pay budgets continue to increase at approximately the same rate as we have seen since 2010" said Dr Kothuis.

 

Changes to control roles

In line with greater regulatory scrutiny of compensation practices for key risk-takers, the largest base pay increases appear to be directed towards 'Control roles', such as risk management, legal, internal audit, compliance, finance and human Resources. Respondents were predicting base pay increases over 3% for these groups but this may reflect the changing nature of the pay mix for this group. For these roles, the proportion of annual cash bonuses has been continually reduced in favor of a higher base salary and Long Term Incentive (LTI) compensation. 

 

Changes to bonus design

In regards to bonus plans in Asia Pacific over half of respondents stated that their organizations are planning to make changes to bonus plan design in 2012.  "Financial institutions in Asia are increasingly seeking to better align compensation with long-term, risk-adjusted performance.  Increasingly, organizations are introducing bonus malus conditions and making changes to their performance measures.

 

Two thirds of companies (60%) surveyed are not planning to make any changes to their long term incentive plans (LTIs) but for those firms that did, many (30%) were looking to revise their plan design. A smaller proportion plan to introduce a forward looking LTI (6%) and revise performances measures (6%).

 

Respondents were also asked what the impact of higher capital requirements on compensation programs might be but most (57%) seemed to anticipate no impact. Some organizations expect limited overall changes (22%). Changes to performance measurement are expected by a few companies (15%)

 

"Many companies currently don't feel that their remuneration practices and policies will be affected by increasing capital requirements, " added Dr Kothuis, "but we feel that this is not likely to be the case for much longer as more stringent capital requirements will inevitably lead to operational adjustments, including compensation. In future, executives will be judged on appropriate measures, taking into account capital and liquidity requirements, so remuneration committees will be increasingly setting the bar higher."

 

Notes for editors

The term 'bonus-malus' (Latin: good-bad) is used to describe remuneration that can reward or penalize depending on whether performance criteria are met.

 

The survey was conducted in December 2011 and involved 63 financial services organizations of which roughly two thirds were banks and the remainder, insurance companies. Respondents were based in 21 different countries with 45% in EMEA, 41% in Americas, and 14% in Asia Pacific.

 

 

 

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