A survey sheds light on how banks and other financial institutions continue to adjust their remuneration strategy in the wake of regulatory pressures to curb excessive risk and abuses.

It is proving difficult for banks and other financial firms to reward good behaviour at a time when rules are so focused on punishing miscreants, and when variable pay and bonuses are less a feature of business life, a report by Mercer says.

Findings come from 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.

"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,” said Vicki Elliott, senior partner, leader of the global financial services talent network at Mercer. 

At a time when the so-called “bonus culture” continues to be pilloried for having contributed to the world’s financial crisis of 2008, focus remains on how to curb excesses without restraining legitimate risk-taking.

Some 61 per cent of organisations had increased their employees’ fixed pay by more than 5 per cent while 58 per cent had reduced variable pay by more than 5 per cent, marking a shift in pay mix. Total compensation levels are expected to remain relatively unchanged in 2016 - within plus or minus 5 per cent — and most organisations 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 per cent and 2.7 per cent. Latin and South America and Asia are projecting higher average salary increases (4.3 per cent) while North America and Europe are forecasting lower average salary increases of 2.4 per cent and 2.3 per cent, respectively. 

“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,” said Dirk Vink, Mercer principal and financial services project manager. 

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

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).