European financiers least likely to get salary increases in 2013 – Mercer study

European financial services executives will be trailing their counterparts in other regions in terms of a base salary increase for 2013, according to Mercer’s Financial Services Executive Compensation Snapshot Survey.

The report analyses pay data for senior executives provided by 63 banks and insurance companies operating in 21 countries across Asia, Europe and North America. The report covers forecasted 2013 salary movements, annual incentive movements, changes to pay mix and compensation level setting, developments on ‘Malus’ and ‘Clawback’ conditions and approaches in defining material risk-taking positions.

“Financial services organisations continue to face economic and regulatory uncertainty. Regulators are watching their compensation policies and decisions with great interest,” said Vicki Elliott, Global Financial Services talent leader at Mercer.

Globally, executives in the financial services sector are anticipating base salary increases of 2.2-2.5%. Regionally, excluding those who are expected to have pay freezes, executives in emerging markets are expected to receive the highest salary increases of between 4-5%, followed by North America at 3% and then executives in Europe.

While the median increase for executives is expected to be between 2.2-2.5%, those in control roles – risk management, legal, internal audit, compliance, finance and HR – are, as in previous years, set to receive slightly higher increases (2.5%) in 2013. “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,” a report on the survey results said.

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. As a broader trend, salary freezes are more common in Europe and rare in emerging markets. Pay freezes are expected to decline more for North American CEOs; in 2012 65% did not receive an increase, whereas only 38% plan to freeze salaries for 2013.

Within the financial services industry, there are marked differences. With median salary increases of 3%, the insurance industry outpaces the banking sector.

“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,” said Dirk Vink, senior consultant and Snapshot Survey Project manager at Mercer.

The majority of organisations predict 2012 annual incentive levels will be similar to 2011 results. While 30% expect 2013 bonus pools to be smaller than in 2012, European organisations have the most pessimistic forecast.

Banks are also more likely to have lower predictions than insurance companies, reflecting the latter’s stronger business confidence. It is also worth noting that most companies stated that those employees in risk-taking roles are most likely to receive smaller bonuses in 2013.

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

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