Base salaries to increase as bonus caps loom in Europe

walletWith bonus caps looming and 'say on pay' on the rise, organisations will aim to raise base salaries and find creative ways to remunerate staff, says a consultancy.

Mercer, in its latest Global Financial Services Executive Remuneration Report, says recent regulatory changes may undermine the concept of pay for performance, which could perpetuate an un-level playing field in financial services.

Vicki Elliott, senior partner at Mercer, warns that reducing the amount of variable pay, like bonuses, weakens the link between performance and pay.

“This is contrary to the principles developed by the Financial Stability Board after the financial crisis,” she says. “Rewards in banks and other financial organisations should be tied to multi-year performance to help manage risk.”

Some 75% of companies Mercer surveyed are exploring “creative compensation alternatives” while 70% are looking at ways to retain staff without paying them more, such as offering flexible working hours or training.

Pay within financial services, and among senior executives in general, has received much attention from regulators and investors since the crisis.

Particularly hotly debated in Europe have been the “say on pay” and bonus caps.

Mercer says it found that most companies, 68%, had not yet set a fixed/variable compensation ratio cap. Many also indicated it was not on their agenda, despite the Capital Requirements Directive IV approaching.

Some 76% of organisations say the proposed requirements were creating an un-level playing field and 22% say their organisation would benefit competitively.

Another 63% say the proposed compensation caps will reduce the organisation’s ability to pay for performance and 53% say they will maintain total compensation levels, regardless of the level of the bonus cap.

The findings are based on data from 78 financial services organisations in Europe, North America and emerging markets.

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