Flat pay and bonuses give way to compliance awards: Mercer

The 42 banking, insurance, investment/asset management and other financial services companies canvassed for Mercer’s Global Financial Services Executive Compensation Snapshot Survey, conducted in October/November 2016, found companies projecting “modest” base pay rises of on average 1.9–2.4 per cent this year.Explaining the moderate average growth rate overall, Mercer cites the impact of continued low economic growth, low inflation and that meaningful increases in fixed pay due to regulation have already occurred, particularly in the banking industry.The greatest average increases in base salary are projected in growth markets. India is expected to see the highest rise at 6 per cent with Asia (3.8%) and Latin America (3.5%) following. These findings echo a recent Aon Hewitt survey, which suggested a global market for top talent is emerging and greater localisation of pay incentives, as well as new research from the London School of Economics. 

Bonus pool trends

More companies also report significantly lower incentive pools than last year, although overall for most the levels remain similar. Approximately two-thirds of organisations predict actual corporate incentive pools for 2017 will be comparable to (within +/- 5% range) or unchanged from 2016 levels.Almost a quarter of companies surveyed predict the actual 2017 incentive pool to be significantly lower than 2016 levels. Around in ten (11%) predict it to be significantly higher – a trend similar to last year.

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Repackaging pay and incentive programmes

Alongside changes to incentive programme design, the trend now is seemingly to stabilise plans previously put in place, Mercer suggests. Nevertheless, some companies are still planning changes to annual incentives in 2017.Mercer notes a continued emphasis on improving pay differentiation based on performance. Non-financial performance measures of conduct, compliance and risk management are increasingly being allowed to override financial outcomes, according to its research.With the UK government’s green paper on corporate governance reform currently testing stakeholder views on whether executive pay is properly aligned with long-term performance, it is interesting to see 38 per cent of organisations globally allow non-financial measures to override financial measures in their annual incentive plans and 32 per cent for their multi-year incentive plan. This practice is more common in banks (55%) than insurance (15%).Dirk Vink, Mercer principal and project manager for the study, said: “Allowing non-financial measures to override financial performance measures provides greater emphasis on risk management, compliance and conduct, and thus puts a lot more teeth into their effectiveness as performance criteria.”

Finance and fairness

Moreover, with the present focus on greater transparency and fairness for companies mobilising employees over national borders, an increasing number of organisations are also investing in job evaluation/global leveling as a major tool to help in workforce management.Indeed, the most prevalent changes in remuneration policy and practices planned by organisations in the next 12 months are job evaluation/global leveling (63%), parental leave policies company-wide (38%), and flexible benefits (33%).Again, with a regulatory and business community focus on pay equity, policies focused on this remit remain an area for change, particularly in European firms. Here, 40 per cent say they plan to make changes to their formal pay equity policy company-wide in the next 12 months.

Adding value through pay

With pay and incentive pools anticipated to remain stable, this presents opportunities for companies to revisit their employee brand in order to further build employee engagment. “With compensation remaining relatively flat, firms are challenged to go beyond pay and emphasise their broader employee value proposition to continue to motivate and retain people,” remarked Vicki Elliott, senior partner and financial services leader, at Mercer Career.“To protect key talent, companies should also put more focus on recognising and differentiating high performers.”

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