Most financial services firms around the world have cut back on the share of staff pay that is accounted for bonuses in the face of rising regulatory pressure to curb what is seen as risky bank practice, according to Mercer, the consultants.

Almost all participants in the Mercer survey said they have changed the weighting of components in their remuneration packages. Some 70 per cent have increased base salaries while decreasing annual cash bonuses (94 per cent). The weight of long term incentives has also been increased by 56 per cent of respondents. Some 38 per cent of companies have reduced the proportion that stock options form within the long-term incentive mix, the survey said.

The report did not break down companies into separate categories such as wealth management, investment banking and asset management, however.

The report came as the European Parliament voted yesterday on revised laws capping the size of bankers’ bonuses. Directors of banks that received taxpayers’ money will be forced to justify their bonuses and lenders will have to report the number of people earning more than €1 million ($1.3 million) to regulatory authorities, reports said. The legislation, if finally approved, would cap the cash element of bonuses at 30 per cent.

The issue of bonuses has become a controversial political as well as financial subject. High bonuses have been blamed by some policymakers and commentators for encouraging the sort of risky lending practices associated with the credit crunch. Also, while many of the forces leading up to the crunch are complex and hard to put into human terms, the bonus issue, with examples of multi-million payouts to bankers at bailed-out institutions, has been seized upon by much of the media.

In the US, the Federal Reserve, given enhanced supervisory powers over banks due to recent legislation, recently issued guidance on bank incentive pay that will bring closer scrutiny of risk-reward practices at organisations.

“Our survey shows that there has been significant progress in responding to the regulatory guidance. However, there is still more work to do to fully comply with the regulators’ intentions, particularly ensuring that performance measurement is aligned with the nature and time horizon of risks,”  said Vicki Elliott, partner leading Mercer’s rewards consulting in the financial services industry.

Mercer’s Executive Incentive Plan Snapshot Survey analysed data from 39 financial services organisations. Some 66 per cent of respondents were banks, 26 per cent were insurance companies and 8 per cent other financial services organisations. Two-thirds were based in Europe and the remainder in North America. The report investigates how, in light of G20 support for the FSB guidelines, financial services companies are changing their approach to executive remuneration and incentive programmes.

Over 65 per cent of companies have a mandatory bonus deferral programme; however, only about 40 per cent have yet linked bonus deferral payouts to subsequent performance.

Performance-based deferrals are more prevalent in European-based firms (53 per cent) compared to North America (10 per cent) and are generally linked to overall company performance.  Half of the organisations with mandatory bonus deferrals have structured the deferral to have both upside and downside payout opportunities. Another 35 per cent of respondents to the survey said they had increased the amount of mandatory bonus that was deferred.