A Mercer news release said financial firms have altered their compensation mix to de-emphasize short-term incentives and put additional emphasis on increased salary, deferred compensation programs, and a modified design for their incentive programs.
The government reform pressure was tied to widespread use of public bailout money to rescue financial firms from the economic downturn, Mercer said. A third of the 61 global banking and insurance companies polled got public bailout funds and most of those had to accept the money along with government-imposed pay limits.
“National regulators are attempting to make the sector consider risk more thoughtfully in their performance measurement and reward schemes so as not to encourage excessive risk-taking behaviors,” said Vicki Elliott, worldwide partner and leader of Mercer’s financial services human capital consulting network, in the news release. “Our data shows that the majority of participants are changing the nature of their pay structures and their short-term incentive schemes, including the way performance is measured and evaluated. The industry is moving in the right direction.”
In general, the majority of companies are decreasing the proportion of the annual cash bonus in the compensation mix, while increasing base salaries and mandatory deferrals. Long-term incentives are treated differently across the sector, with some companies increasing and others decreasing them, with greater attention being paid to including performance conditions beyond share price appreciation.
Mercer said its poll also found many firms, particularly those in Europe, are deferring greater portions of their bonus programs so the ultimate award can be reduced if the executive’s performance turns out to be substandard.
Another industry practice, of bonus guarantees – where companies guarantee new hires’ bonuses over a number of years with little or no performance requirement – is decreasing, Mercer said. Forty-one percent of respondents have restricted or eliminated one-year guarantees entirely, while 64% of organizations have limited or eliminated multi-year bonus guarantees.
Over half (58%) of the organizations were based in North America with the remainder (42%) based in Europe. Organizations varied in size with over half (56%) employing 10,000 employees or more. Data was collected in October 2009.