Base pay rises of between 2-3 percent anticipated; Salary increases are highest in Emerging Markets and lowest in Europe; Almost a quarter of banks plan to increase non-financial measures in annual incentive plans; Few plan to eliminate role based allowances despite. 

Dramatic increases in base salary amongst executives and professionals in the financial services sector have failed to materialise according to new research issued by Mercer. According to the data, projected base salary increases for 2015 remain modest, running on average between 2.3 to 3.2 percent. Regionally, 2015 salary increases are expected to be between 5 percent and 8 percent in Emerging Markets, 2 percent and 3 percent in North America, and 1.5 percent and 2 percent in Europe. The data comes in the tenth edition of Mercer’s Global Financial Services Executive Compensation Snapshot Survey which was conducted in November 2014 with responses from 63 global financial institutions.

The report provides an update on key changes and practices in compensation programs allowing companies within the sector to review and compare their own plans with those of their peers. The survey looks at projected salary increases and predicted bonus pool movements, as well as changes in annual, deferred and long-term incentives, pay mix, and role-based allowances. “The weighting of base pay compared to other forms of pay within financial services has increased. However, the magnitude of base pay increases planned is less than expected.” says Vicki Elliott, Senior Partner at Mercer.  

Base Salary Increases

The report says that forecasted base salary increases (including salary freezes) in 2015 will be modest, averaging 2.3 – 3.2 percent for all executives and 2.3 percent for senior corporate management. The banking industry is generally projecting lower salary increases than the insurance industry.  Most organisations expect average employee pay in 2015 to be similar to 2014 levels although expectations in Europe and Emerging Markets are more positive than in North America. There is divergence within the sector too, with more than a quarter of insurance firms expecting average employee compensation to rise, while the majority of banks (85 percent) expect it to remain fairly stable.

Annual Incentives (Bonus) 

Around 60 percent of companies predict 2015 annual incentive levels will be similar to 2014 although 20 percent expect levels to increase from last year. Increases are most expected in private banking, private equity, investment banking, and property & casualty insurance roles. In contrast, incentives are expected to be lower in fixed-income and staff positions. Over two-thirds of the organisations are not planning to change their target annual incentive levels for 2015 although at least 15 percent are planning to increase levels in their private banking, commercial banking, equities and investment banking businesses. While most companies are not planning to make changes to their incentive design in 2015, 25 percent of banks plan to increase the weight of non-financial metrics in their annual incentive plans.

“Increasing numbers of banks are measuring customer satisfaction, employee engagement, quality of risk management and other performance areas that are not financial”, says Dirk Vink, senior compensation consultant and survey manager at Mercer. “These measures emphasise specific actions needed to achieve strategic objectives, which ultimately should improve profitability.”

Mandatory Deferrals and Clawbacks

Most banks and two-thirds of insurance firms have mandatory deferral programs already in place. Over 25 percent of North American organizations plan to increase the use of clawback (after vesting) and nearly 14 percent plan to increase the use of malus in 2015 further strengthening their ability to respond to problems that surface over a multi-year timeframe.

Role-Based Allowances 

Over 40 percent of banking organisations have role-based allowances in place for 2014 and an additional ten percent – particularly those in North America – are planning to introduce them soon. Role-based allowances are not common outside the banking industry. Following the publication of the EBA Opinion Report, which found that role-based allowances may be considered variable pay (and will be a year for stabilising compensation programs after several years of changes in large part due to regulatory requirements since the financial consequently subject to the so-called bonus cap), very few organisations who implemented role-based allowances are now planning to eliminate them. “Based on the findings from Mercer’s survey, it seems 2015 crisis,” concluded Vicki Elliott.