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Financial Services Firms Decreasing Cash Bonuses, Increasing Base Salaries and Deferred Comp
July 8, 2010 — The majority of financial services companies have decreased the annual cash bonus element as part of their employee pay mix and increased base salaries and the use of deferred compensation, according to data from Mercer.
"Mercer's Executive Incentive Plan Snapshot Survey" analyzed data from 30 financial services organizations. 66% of respondents were banks, 26% insurance companies, and 8% other financial services organizations. Two-thirds were based in Europe and the remainder in North America.
Almost all participants noted that they have changed the weighting of components in their pay packages. 70% have increased base salaries while decreasing annual cash bonuses (94%). The weight of long-term incentives (LTIs) also has been increased by 56% of respondents. 38% of companies have reduced the proportion that stock options form within the LTI mix.
More than 65% of companies have a mandatory bonus deferral program; however, 40% have linked bonus deferral payouts to subsequent performance. Performance-based deferrals are more prevalent in European-based firms (53%) compared to North America (10%) and generally are linked to overall company performance. Half of the organizations with mandatory bonus deferrals have structured the deferral to have both upside and downside payout opportunities. Another 35% indicated that they had increased the amount of mandatory bonus that was deferred.
94% of respondents have made or plan to make changes to their annual short-term incentive (STI) plan, commonly known as "the bonus." One-year bonus guarantees are used less than in 2009, with 57% of organizations having limited or eliminated multi-year bonus guarantees. 54% of respondents have introduced caps or maximums for bonus pools, and 60% of respondents have introduced them for individual payouts. Most organizations also have minimum threshold performance requirements for the bonus pool and individual payouts.
Two-thirds of the organizations typically have linked a proportion of their awards to company performance. Most companies are using performance scorecards with both financial and nonfinancial performance criteria. About one-third of companies have introduced multi-year performance metrics for determining annual bonuses. The majority of organizations do not include top executives in the same bonus pool as the division they manage.
80% of respondent companies either have an LTI plan or plan to introduce one (10%); share-based plans are the most prevalent (78%), with half of the organizations also offering stock options (52%) or cash-based plans (48%).
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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.
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