Bonus caps impact pay mix more than total pay as Banks and Insurers continue to embed sound risk culture

  • 1 February 2016
  • United Kingdom, London

Bonus caps impact pay mix more than total pay as Banks and Insurers continue to embed sound risk culture

  • Ratio caps driving more guaranteed fixed pay
  • 2016 base pay increases projected between 2-2.7% in Europe and North America;
    Asia and Latin America average at 4.3%
  • Overall, 2016 pay to be static: lower variable pay matched by fixed pay increases

A new report by Mercer highlights that 2015 saw the world’s financial services organizations continue to respond to regulatory developments by increasing fixed pay, decreasing variable pay (bonuses) and increasing the emphasis on non-financial performance. While processes to penalize misconduct and non-compliance are widespread, rewarding positive risk behaviors continues to be a challenge, says the consultancy.

The data comes in the 11th edition of Mercer's Global Financial Services Executive Compensation Snapshot Survey, which was conducted in October and November 2015. The survey reviews the pay practices of 71 global financial services companies — banks, insurers, and other financial services — based in 20 countries in Europe, North America, Asia, and South America.

According to Vicki Elliott, senior partner and leader of the Global Financial Services Talent Network at Mercer, "The focus for financial services firms is firmly on trying to set the right tone from the top with strong governance and high involvement of risk management. Overall, total compensation levels remain broadly the same compared to levels prior to regulated bonus caps. However, banks, particularly in Europe, have significantly increased fixed pay levels improving the certainty of pay delivered to key risk-takers".

The report found that sixty-one percent of organisations had increased their employees’ fixed pay by more than 5% while 58% percent had reduced variable pay by more than 5%, marking a shift in pay mix. Total compensation levels are expected to remain relatively unchanged in 2016 — within plus or minus 5% (92%) — and most organizations are not planning further changes to their pay mix.

Overall, 2016 projected base salary increases for the sector are modest with average forecasts globally expected to be between 2.0% and 2.7%. Latin and South America and Asia are projecting higher average salary increases (4.3%) while North America and Europe are forecasting lower average salary increases of 2.4% and 2.3%, respectively. The banking industry is generally projecting slightly lower salary increases than the insurance industry. The majority of organizations predict 2016 annual incentive levels to be similar to those in 2015; those expecting change predict that levels will decrease.

"There continues to be a concern that increasing the focus on fixed guaranteed pay breaks the link between pay and performance and may actually be counter-productive for aligning pay with risk” says Dirk Vink, Mercer principal and financial services project manager. “We have concluded that the most positive impact on sound risk-taking behaviours and decision-making has come from significantly improved governance and increased involvement of risk management in the performance management and compensation process”.  

Fostering a sound risk culture
When asked how their organization is fostering a strong risk culture, the most prevalent response was penalizing misconduct and non-compliant behaviours (93%) followed by the role of risk management in performance expectation setting and evaluation (89%). Setting the right tone at the top of the organization, for example, through top management leadership, communications and real consequences, was also highly cited (88%), as was training and coaching managers on sound risk culture (87%).

Intriguingly, with all parts of the business impacted by these risk management efforts, the report highlights that some organisations, particularly in North America, are finding it more difficult to attract and retain staff in the crucial functions that oversee these processes, the control functions (risk, legal and compliance).

Notes to Editors

About Mercer

Mercer is a global consulting leader in talent, health, retirement and investments. Mercer helps clients around the world advance the health, wealth and careers of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 43 countries and the firm operates in over 140 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC) a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. Marsh is a leader in insurance broking and risk management; Guy Carpenter is a leader in providing risk and reinsurance intermediary services; Mercer is a leader in talent, health, retirement and investment consulting; and Oliver Wyman is a leader in management consulting. With annual revenue of $13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies provides analysis, advice and transactional capabilities to clients in more than 130 countries. The Company is committed to being a responsible corporate citizen and making a positive impact in the communities in which it operates. Visit for more information and follow us on LinkedIn and Twitter @MMC_Global.