Financial services executives expect smaller pay rises

In 2013, base salary increases in the sector are anticipated to increase by just 2.2%-2.5% compared with 2.9% on the previous year, suggesting that the current economic climate is continuing to force pressure and uncertainty on financial services organisations.

The data comes from Mercer's Financial Services Executive Compensation Snapshot Survey which analyses pay data for senior executives provided by 63 banks and insurance companies operating in 21 companies across Asia, Europe and North America.

Global financial services talent leader at Mercer Vicki Elliott explained the lack of growth in salary increases: "Financial Services organisations continue to face economic and regulatory uncertainty. Regulators are watching their compensation policies and decisions with great interest."

New analysis from XpertHR also revealed that pay awards in the three months to the end of January 2013 were up by just 2.5% at the median.

Yet those in control roles - risk management, legal, internal audit, compliance, finance and HR - are set to receive slightly higher increases of 2.5%, as witnessed in previous years. Mercer explains that this is a direct response to regulatory pressure as banks use pay as a means of improving risk management by attracting and engaging talented, experienced staff.

In contrast, pay freezes remain common for CEOs and their direct reports in banking, with 49% and 38% respectively, expected to have pay freezes in 2013. However, less than 20% of organisations anticipate freezing salaries for the other executives.

Broader regional trends show that salary freezes are almost unheard of in emerging markets and more common in Europe. While North American CEOs expect to see a decline in pay freezes for the year ahead with just 38% planning to do so, compared to 65% in 2012.

Mercer senior consultant and snapshot survey project manager Dirk Vink said: "Banks are acutely aware that large pay rises for their senior staff during a time of austerity would attract attention, and this underpins the evident restraint on CEO pay."

The majority of organisations predict 2012 annual incentive levels will be similar to 2011 results. A significant proportion of organisations look set to reduce their bonus pools with 30% of respondents planning to do so, with the most pessimistic plans being forecast by European organisations.

Business confidence appears to be stronger among insurance companies, as they report higher predictions than those in the banking industry. In addition, a third of banks expect to reduce corporate incentive pools, while one third of insurance firms expect to see them increase.

The size of the annual bonus is frequently reflective of a mixture of individual, team and company performance - there were mixed views on the size of the corporate and line of business/function incentive pools with most predicting the corporate pool to be similar to 2011 levels.

Vink commented on the bonus movement predictions: "The design of the bonus programme is a key area of focus for US and European regulators and the emphasis is on the use of the incentive scheme design to improve risk management and reduce short-termism.

"It is a reflection of the progress that has been made in this area over the last two years that most organisations are not planning to make changes to their incentive design in 2013."

In addition, most organisations do not plan to make changes to their pay mix as changes have been made over the past three years. A large minority (35%) - typically banks and European organisations - are reducing the weight of annual incentives for 2013, while increasing multi-year compensation, which relates to mandatory deferrals and forward looking long-term incentives.

"It is clear that banks, in particular, have made many changes to their compensation structures to be more aligned with regulator expectations and better protect themselves against unexpected developments in business outcomes over a multi-year timeframe," Elliott concluded.