HIGHLIGHTS OF MERCER GLOBAL FINANCIAL SERVICES SNAPSHOT SURVEY

Transcription

1 HEALTH WEALTH CAREER HIGHLIGHTS OF MERCER GLOBAL FINANCIAL SERVICES SNAPSHOT SURVEY JUNE 2016

2 TODAY S SPEAKERS VICKI ELLIOTT Global Financial Services Talent Leader New York Vicki.Elliott@mercer.com MARK QUINN UK Talent Business Leader London Mark.Quinn@mercer.com +44 (0) DIRK VINK Global Financial Services Talent Project Manager New York Dirk.Vink@mercer.com MERCER

3 TABLE OF CONTENTS Participant Profile Planned Changes to Compensation Programs The Changing Employee Value Proposition in Financial Services Advances in Building A Sound Risk Culture Experiences With Applying Malus And Clawback Conditions Performance Management in Financial Services The Way Forward Q&A MERCER

4 PARTICIPANT PROFILE 68 ORGANIZATIONS ACROSS 20 COUNTRIES BY INDUSTRY BY REGION 13% 21% 9% 50% 47% 28% 32% Banks Insurance Investment / Asset Management Europe North America Growth Markets Other Financial Services MERCER 2016 LLC. ALL RIGHTS RESERVED 3

5 PLANNED CHANGES TO COMPENSATION PROGRAMS MERCER 2016 LLC. ALL RIGHTS RESERVED 4

6 PLANNED CHANGES TO ROLE-BASED ALLOWANCES Most organizations who have role-based allowances are not planning to make changes to them: Nearly three-quarters of banks are using role-based allowances but only 6% are making changes by moving role-based allowances into base salary, and the remaining banks are not making any changes. None of the organizations are planning to eliminate role-based allowances at this point. Most insurance organizations (63%) do not have role-based allowances in place. All Regions and Industries Europe 43% 41% 53% 54% 3% 6% 0% 0% N/A. No role-based allowances in place North America Growth Markets 36% 50% 64% 50% 0% 0% No changes to rolebased allowances planned Banking Insurance 26% 63% 68% 37% 6% 0% 0% Moving role-based allowances into base salary Investment/Asset 50% 50% 0% Eliminating role-based allowances Other Financial Services 56% 44% 0% MERCER 2016 LLC. ALL RIGHTS RESERVED 5

7 EFFECT OF MORE FIXED COMPENSATION ON ABILITY TO ATTRACT AND RETAIN TALENT, AND MOTIVATE The majority of organizations reported that fixed compensation had little to no impact on their ability to attract and retain talent (68%) whereas 22% of the organizations saw some or substantial positive impact: Banks in particular have made changes to their pay mix and placed more emphasis on fixed compensation due to regulations over the past years. 24% of the banks saw some or substantial positive impact and 18% saw some negative impact on their ability to attract and retain talent. None of the organizations noted any substantial negative impact. The majority of organizations reported that more fixed compensation had little to no impact on their ability to motivate performance (67%) : 21% of the organizations saw some or substantial positive impact. 25% of the banks saw some or substantial positive impact. 19% of the banks saw some negative impact on their ability to motivate talent. None of the organizations noted any substantial negative impact. Industry Region Industry Region MERCER 2016 LLC. ALL RIGHTS RESERVED 6 Europe North America Growth Markets Banking Insurance Investment / Asset Management Other Financial Services Europe North America Growth Markets Banking Insurance Investment / Asset Management Other Financial Services 5% 16% 7% 18% 17% 57% 73% 74% 78% 69% 59% 83% 21% 18% 21% 21% 11% 16% 14% 5% 3% 5% 11% 0% 20% 40% 60% 80% 100% 5% Substantial negative impact Neutral / hardly any impact Substantial positive impact 17% 14% 19% 22% 43% 79% 82% 83% 67% 56% 67% 36% 22% 16% 17% 9% 5% 17% 7% 3% 5% 11% 0% 20% 40% 60% 80% 100% Some negative impact Some positive impact

8 PLANNED CHANGES TO CORPORATE ANNUAL INCENTIVE DESIGN The majority of organizations are not planning to make changes to their 2016 corporate annual incentive design. Most prevalent changes to corporate annual incentive design include: Link to conduct / compliance behaviors 37% 63% Increasing the link to conduct/compliance behaviors (37%). Increasing the individual differentiation in bonus distribution (28%). Increasing the link to performance ratings (24%). Individual differentiation in bonus distribution 28% 72% Changes to annual incentive design vary significantly by region: North American organizations predict far less changes than organizations elsewhere. Increasing the use of risk-adjusted measures at business unit level (31%) and at individual level (28%) are significantly more prevalent in Europe than elsewhere. Increasing the link to conduct/compliance behaviors is the most prevalent change in both Europe (41%) and Growth Markets (57%). Link to performance ratings Weight of non-financial performance measures Use of scorecard with both financial and non-financial performance criteria 24% 1% 24% 3% 22% 1% 75% 74% 76% Changes to annual incentive design in 2016 are more common in banks than other industries: More than half of the banks (56%) are increasing the link to conduct / compliance behaviors. 32% of banks are increasing the link to performance ratings and use of scorecard with both financial and non-financial criteria. 16% of insurance organizations are lowering the weight of financial performance measures, whereas only 3% of banks are considering the same. Use of risk-adjusted measures at business unit level Use of risk-adjusted measures at individual level Weight of financial performance measures 22% 19% 19% 6% 78% 81% 75% Increase Decrease 0% No Change 100% MERCER 2016 LLC. ALL RIGHTS RESERVED 7

9 PREVALENCE AND PLANNED CHANGES TO MANDATORY DEFERRAL 68% of organizations have mandatory deferral programs in place. Nearly all banks (88%), 67% of investment/asset management firms and approximately half of insurance firms have a mandatory deferral mechanism in place. Some organizations are planning to make changes to their mandatory deferral program design in 2016: The most prevalent change is increasing focus on conduct and compliance (22%). In Europe, increasing the mandatory deferral period (performance/vesting period) is more prevalent (32%), than elsewhere. Increasing the focus on conduct and compliance and increasing the mandatory deferral period (performance/vesting period) are among the most cited changes to mandatory deferral design for banks (both 30%). Focus on conduct and compliance Mandatory deferral period (performance / vesting period) 22% 20% 78% 80% Weight of financial performance measures 13% 2% 85% Weight of non-financial performance measures Use of malus conditions (prior to vesting) 13% 11% 87% 89% Increase Decrease No Change Use of clawback provisions (after vesting) 11% 89% Eligibility for mandatory deferral 9% 4% 87% Required mandatory deferred portion of bonus 9% 4% 87% MERCER 2016 LLC. ALL RIGHTS RESERVED 8

10 PREVALENCE AND PLANNED CHANGES TO FORWARD-LOOKING LONG-TERM INCENTIVES 62% have a forward-looking long term incentive program in place. These programs are more common in the insurance industry (84%) than banking (50%) and investment/asset management (33%). However, 9% of banks are planning to introduce one. More North American firms (73%) have forward-looking long-term incentive programs than in other regions. Although changes to forwardlooking long-term incentive plans are not prevalent, 11% of organizations are planning to increase the rigor of performance conditions, additional required deferral period (after performance period), and target award levels. Increasing the additional required deferral period (after performance period) and rigor of performance conditions are more prevalent in Europe (19% and 14% respectively), whereas none of the North American organizations are planning to make these changes. A few banks (16%) are decreasing eligibility for forward-looking longterm incentive. Rigor of performance conditions 11% 89% Additional required deferral period (after performance period) 11% 89% Target award levels 11% 2% 86% Use of malus conditions (prior to vesting) 9% 91% Increase Amount of discretion applied 9% 91% Decrease No Change Inclusion of strategic goals 9% 91% Additional required holding period (after vesting period) 9% 91% Eligibility for forward-looking long-term incentive 9% 9% 82% 0% 100% MERCER 2016 LLC. ALL RIGHTS RESERVED 9

11 PLANNED CHANGES IN VEHICLE MIX The far majority of organizations are not planning to make changes to their vehicle mix of multi-year incentives in % of organizations are planning to increase the portion of performance shares. Contingent capital / debtbased instruments 3% 97% Stock options / SAR 3% 6% 90% Increase Performance shares 10% 90% Decrease No Change Service-based restricted stock 3% 97% Cash-based plans 2% 2% 97% MERCER 2016 LLC. ALL RIGHTS RESERVED 10

12 THE CHANGING EMPLOYEE VALUE PROPOSITION IN FINANCIAL SERVICES MERCER 2016 LLC. ALL RIGHTS RESERVED 11

13 CHANGES TO EMPLOYEE VALUE PROPOSITION BEYOND PAY Financial services organizations are making or planning to make changes to their employee value proposition beyond pay: Almost half of the organizations are increasing learning and development programs/education and work remotely programs (47% and 43% respectively). Career frameworks, use of flexible work schedules, and use of non-monetary recognition programs are increased by more than one-third of the organizations (37%, 37% and 34% respectively). Learning and development programs / Education 47% 1% 51% Work remotely 43% 57% Use of flexible work schedules 37% 63% Career frameworks 37% 63% Increase Use of non-monetary recognition programs Use of job rotation programs 34% 29% 66% 71% Decrease No Change Use of (global) mobility programs 25% 4% 71% Employee choice in benefits provided 22% 3% 75% 0% 100% Changes to employee value proposition beyond pay vary by region: Overall, more organizations in North America and Europe are projecting changes. More European organizations are increasing the use of non-monetary recognition programs, employee choice in benefits provided, and company's "noble purpose" communication than in North America. More North American organizations are increasing the use of (global) mobility programs than in Europe. MERCER 2016 LLC. ALL RIGHTS RESERVED 12

14 ADVANCES IN BUILDING A SOUND RISK CULTURE MERCER 2016 LLC. ALL RIGHTS RESERVED 13 13

15 STEPS TAKEN TOWARDS FOSTERING A SOUND RISK CULTURE More than half of the organizations are making the following steps to a great extent: penalizing misconduct and/or noncompliance (62%) and showing evidence of setting the right tone at top (60%), top management set and communicate clear (risk) culture objectives (58%), the right values and risk objectives are clearly articulated and reinforced by leadership action (54%), and introducing an annual review of adherence to risk and compliance criteria for all regulated staff (52%). Penalizing misconduct and / or non-compliance 62% 38% 0% Evidence of setting the right tone at the top 60% 28% 12% Top management set and communicate clear (risk) culture objectives 58% 35% 6% The right values and risk objectives are clearly articulated and reinforced by leadership action 54% 40% 6% Introducing an annual review of adherence to risk and compliance criteria for all regulated staff 52% 25% 23% Values and associated behaviors are instilled, encouraged, and supported throughout the employee lifecycle 49% 43% 8% Effective use of discretion in qualitative evaluation of performance and behaviors 49% 37% 14% Training programs on sound risk culture and risk awareness 48% 46% 6% Training and coaching managers on sound risk culture and risk awareness 45% 49% 6% Increased focus on assessing risk behavior as part of the annual performance review 42% 43% 15% Strengthened malus provisions (possible reduction of unvested awards) 31% 38% 31% Strengthened role of risk management in performance expectation setting and evaluation 31% 46% 23% Strengthened role of compliance function in performance expectation setting and evaluation 30% 44% 27% Strengthened clawback policy (possible recoupment of vested and paid awards) 30% 41% 30% Introducing a separate rating on adherence to risk and compliance criteria 26% 32% 42% Using a behavior-based hurdle for qualifying to be eligible for an incentive payment 19% 33% 48% Rewarding positive risk behaviors 11% 51% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% To a great degree To some degree Not taken MERCER 2016 LLC. ALL RIGHTS RESERVED 14

16 EXPERIENCES WITH APPLYING MALUS AND CLAWBACK CONDITIONS MERCER 2016 LLC. ALL RIGHTS RESERVED 15 15

17 APPLYING MALUS Over 90% of banks and 72% of insurance organizations have malus policies in place. Malus policies are mostly triggered by: Individual misconduct (89%) Individual breach in compliance (89%) Negative business performance (financial) (74%) Malus triggered by a restatement of company or business financial statements is more prevalent in North America (67%) than in Europe (37%). Disciplinary case against individual and negative business performance (financial) are more common triggers in Europe (74% and 89% respectively) than in North America (50% and 56% respectively). CONDITIONS TRIGGERING MALUS POLICY TO REDUCE AWARDS Individual misconduct Individual compliance breach Negative business performance (financial) 56% 94% 93% 89% 96% 89% Disciplinary case against individual Restatement of company or business financial statements Firm-wide regulatory fines Individual on performance improvement plan 28% 26% 37% 39% 37% 50% 67% 74% 0% 100% North America Europe MERCER 2016 LLC. ALL RIGHTS RESERVED 16

18 APPLYING MALUS Typically, amounts reduced under malus conditions are determined on a case-by-case basis (45%). Prevalent practices in North America are to recuperate all outstanding unvested awards (42%) or determined on a case-by-case basis (42%). The majority of organizations (69%) do not retain individuals involved in malus cases. PART OF AWARDS REDUCED BY MALUS CONDITIONS All outstanding unvested awards (multiple years) 13% 42% Only awards that would vest that year 19% Depends case by case 42% 56% None, no malus in place 16% 13% 0% North America Europe MERCER 2016 LLC. ALL RIGHTS RESERVED 17

19 APPLYING CLAWBACK North American (80%) and European (71%) firms tend to have a clawback policy in place. Policies are also prevalent in the banking (76%) and insurance (65%) industries. In the rare instance a clawback policy was applied, nearly 90% of employees were not retained following the incident. This is common across all regions and industries. PREVELANCE AND EFFECTIVENESS OF CLAWBACK POLICIES Policy effectiveness differs across regions. 35% of European companies indicated that labor laws prevent an effective application compared to just 5% in North America and 7% in Growth Markets. The majority of North American firms (65%) find that their clawback policy works effectively, compared to just 23% of European organizations. Differences in effectiveness between industries are small. Yes, the policy works effectively Yes, but labor laws prevent an effective application Yes, but other challenges prevent an effective application No such policy in place 0% 5% 10% 13% 23% 20% North America 29% 35% Europe 65% MERCER 2016 LLC. ALL RIGHTS RESERVED 18

20 MALUS & CLAWBACK CASES APPLIED ¾OF COMPANIES 63% OF COMPANIES 10% IN 2-YEARS Three-quarters of companies have not applied their malus policy in the past 2 years for company or business performance reasons Banks have applied malus for company or business performance reasons more than insurance firms (39% vs. 18%). 9% of banks have done so in 4 to 20 cases. 6% of European organizations have had 21 or more cases of malus in the past two years, whereas none of the North American and Growth Market organizations have. 63% of companies have not applied their malus policy in the past 2 years for individual performance reasons or misconduct Banks have applied malus for individual performance reasons more than insurance firms (52% vs. 29%). 35% of banks have done so in 1 to 9 cases and 13% percent of banks have done so in 10 to 49 cases, compared to only 24% of insurance firms in 1 to 9 cases. Europe had the most cases of malus policies being applied due to individual performance (59%), compared to just 15% in North America. Almost half of European firms (45%) applied malus due to individual performance in 1 to 9 cases only, and 13% in 10 cases or more. Over the past 2 years, clawback policies were rarely applied (10%), with little difference between industries and regions: In cases where clawback policies were triggered, most instances were typically limited to 1 3 cases. MERCER 2016 LLC. ALL RIGHTS RESERVED 19

21 PERFORMANCE MANAGEMENT IN FINANCIAL SERVICES MERCER 2016 LLC. ALL RIGHTS RESERVED 20 20

22 TENURE OF CURRENT PERFORMANCE MANAGEMENT PROCESSES Many organizations (41%) have had their current performance management processes in place without making any key decision changes or revisions for 1-3 years, followed by 4-6 years in 24% of the organizations. Tenure of performance management processes is similar between regions, but differences by industry exist: 22% of insurers indicated to have used their processes for 7 years or more, compared to only 3% of banks. 30% of banks have made changes in the past 12 months compared to just 11% of insurers. All Industries 18% 9% 41% 24% 4% 4% Banking 18% 12% 41% 26% 3% Insurance 11% 42% 26% 11% 11% 0% 20% 40% 60% 80% 100% Less than 6 months 6-11 months 1-3 years 4-6 years 7-10 years Longer than 10 years MERCER 2016 LLC. ALL RIGHTS RESERVED 21

23 PLANNED CHANGES TO PERFORMANCE MANAGEMENT PROCESSES 46% of organizations across all industries indicate that they do not have key design changes or revisions planned for their performance management processes: Half of all banks are planning to change their performance management processes in the next 12 months, compared to just 16% of insurers. 32% of insurers want to change their processes but are unsure when. 37% of European organizations are planning to change their performance management processes in the next 12 months with an additional 13% after one year compared to 28% and 5% of North American organizations. All Industries 12% 22% 7% 13% 46% Banking 18% 32% 6% 9% 35% Insurance 5% 11% 16% 32% 37% 0% 20% 40% 60% 80% 100% Yes, in less than 6 months Yes, in 6 to 12 months Yes, in more than 12 months Yes, not sure when No, no changes planned MERCER 2016 LLC. ALL RIGHTS RESERVED 22

24 PERCEIVED EFFECTIVENESS OF PERFORMANCE MANAGEMENT APPROACH Only a small portion of the participating organizations indicated that their performance management approach delivers exceptional value. More than half of participants responded that the performance management approach works well. Reinforces a sound risk culture, involvement of Control Functions, linkage to compensation and use of performance rating scale were cited as most effective There are differences in the perceived effectiveness of performance management approach across regions and industries 30% of North American organizations reported that the involvement of control functions delivers exceptional value compared to just 3% of European organizations Around half of the European and banking organizations indicated feedback process and linkage to development needs work compared to 40% and 30% in North America and 44% and 24% of insurers Reinforces a sound risk culture 26% 63% 11% Involvement of Control Functions (e.g., Compliance, Risk Management) 23% 63% 14% Linkage to development 41% 55% 5% Linkage to compensation 26% 65% 9% Use of performance rating scale 27% 65% 8% Evaluation process 34% 60% 6% Feedback process 46% 51% 3% Setting expectations / Planning process 31% 64% 5% 0% 20% 40% 60% 80% 100% MERCER 2016 LLC. ALL RIGHTS RESERVED Needs work Works well Delivers exceptional value 23

25 PERFORMANCE MANAGEMENT APPROACH AND PROCESS COMPONENTS The top 4 most cited components that are included in a company s performance management approach are: 1. Individual goals (99%) 2. Formal year-end review discussions (96%) 3. Overall performance ratings (85%) 4. Link individual performance ratings and compensation decisions (85%) The top 3 components that companies indicate they are planning to introduce are: 1. Competencies / behaviors (12%) North America and Growth Markets have the same top 4 most cited components European organizations have calibration of performance ratings as one of their top 4 most cited components A majority of banks (82%) indicated they have performance scorecard with financial and nonfinancial criteria The top 3 components that companies indicate they do not have: 1. Managers receiving a separate rating on "people management" (69% do not have this) 2. Grid rating of goal results and behaviors ("9-box") (60%) 2. Frequent feedback throughout the year rather than only periodic performance review (12%) degree or multi-source feedback (10%) European organizations are also planning for compliance and conduct review 3. Year-end feedback and compensation decision occurring in the same meetings (59%). 74% of banks indicated they do not have year-end feedback and compensation decision occur in the same meeting, which is more than 20% higher than the other industries MERCER 2016 LLC. ALL RIGHTS RESERVED 24

26 FUNCTIONS INVOLVED IN PERFORMANCE MANAGEMENT PROCESS Selecting Performance Measures Performance Goal Setting Performance Evaluation Bonus Determination Human Resources and Finance have significant involvement throughout the performance management process. The role of Risk Management is meaningful particularly in selecting performance measures, performance goal setting, and performance evaluation. Across all four performance management processes, more banks have a major involvement of their Risk Management function compared to insurers. More European organizations have major involvement of their Finance function in the performance evaluation and bonus determination process. MERCER 2016 LLC. ALL RIGHTS RESERVED 25

27 TOOLS AND PROCESSES USED FOR DIFFERENTIATING PERFORMANCE The predominant tool used for differentiating performance is guidelines regarding expected ratings distribution (69%) Relative ranking of employees is more prevalent in North American and Growth Markets organizations (35% and 43%) than European (23%) The use of "forced" distribution of ratings is limited to about one quarter of organizations across regions, however, more prevalent in the insurance industry (33%) than banking (25%), as is the relative ranking of employees (56% vs. 22%) Most firms use a 5 point rating system to determine employee performance rating POINTS ON Points PERFORMANCE on Performance Rating RATING Scale SCALE More than No rating scale is used 16% 24% 9% 5% 6% 10% 13% 62% 56% North America Europe MERCER 2016 LLC. ALL RIGHTS RESERVED 26

28 TOOLS AND PROCESSES USED FOR DIFFERENTIATING PERFORMANCE The most prevalent processes used to differentiate employee performance levels are mandatory calibration meetings and next-level manager reviews (55%). Next-level manager reviews are more common in North America (70%), than in Europe (44%). Mandatory calibration meetings (72%), next-level manager reviews (72%) and guided distribution (67%) are more prevalent in insurance organizations than banks (48%, 48%, and 36% respectively). Looking ahead, 74% of companies foresee continuing with their current performance rating system. 20% of North American organizations are planning to move away from performance ratings and an additional 10% would like to but do not have an alternative yet. DIFFERENTIATING BETWEEN PERFORMANCE LEVELS Mandatory calibration meetings Next-level manager review Forced rankings Guided distribution Other None of the above Banking 3% 6% 15% 21% 22% Insurance 36% 48% 48% 67% 72% 72% MERCER 2016 LLC. ALL RIGHTS RESERVED 27

29 CRITICAL SKILL AREA TO BE IMPROVED Financial services organizations see lots of opportunities to improve critical skills of their people managers. Having candid dialogue with their direct reports about their performance 74% Providing career development coaching and direction to employees 58% Linking individual performance to "actionable" development planning Setting "SMART" goals Ensuring performance evaluations are "fair" and "equitable" (i.e., through calibration meetings, gathering performance feedback from others, etc.) 44% 48% 47% Holding formal performance evaluation discussions with employees Gathering "meaningful" information on employee performance (e.g., multisource feedback) 30% 30% 0% 100% 65% of North American organizations are aiming to improve providing career development coaching and direction to employees. 60% of North American organizations are linking individual performance to "actionable" development planning 50% of European companies would like to improve ensuring performance evaluations are "fair" and "equitable 50% of European companies are setting "SMART" goals 44% of European companies are gathering "meaningful" information on employee performance 55% of banks are focused on setting SMART goals, and ensuring performance evaluations are "fair" and "equitable" (52%) than insurers (39% and 39% respectively) 94% of insurers are focused on having candid dialogue with their direct reports about their performance and providing career development coaching and direction to employees (67%) than banks (73% and 52% respectively) MERCER 2016 LLC. ALL RIGHTS RESERVED 28

30 THE WAY FORWARD MERCER 2016 LLC. ALL RIGHTS RESERVED 29 MERCER 2016 LLC. ALL RIGHTS RESERVED 29

31 THE WAY FORWARD Compensation plan design change has continued in the financial services industry (e.g., creating increased fixed compensation for key risk-takers in the EU) Recent regulatory proposals in the US and the impact of the UK s EU referendum vote will likely bring about more changes: Inclusion of non-financial performance metrics in short and long-term incentives; Limitations on maximum awards as a multiple of target; Extended deferral and forfeiture/clawback requirements; Potential changes to pay structures in the UK (a return to CRD III?) The emphasis on Employee Value Proposition in financial services is critical in the war for talent, particularly for millennials. Reinforcing the right behaviors and demonstrating a sound risk culture will be a focus and a challenge Performance management reform is a key lever to help manage toward desired culture change Efforts to achieve a sound risk culture, create an attractive environment for Talent, and meet shareholder requirements, have to go beyond compensation systems for meaningful change to become embedded These initiatives need to be driven by responsible leadership rather than additional regulation MERCER 2016 LLC. ALL RIGHTS RESERVED 30

32 QUESTIONS? MERCER 2016 LLC. ALL RIGHTS RESERVED 31 31

33 QUESTIONS? VICKI ELLIOTT Global Financial Services Talent Leader New York MARK QUINN UK Talent Business Leader London +44 (0) DIRK VINK Global Financial Services Talent Project Manager New York QUESTIONS Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for. To submit a question while in full screen mode, use the Q&A button, on the floating panel, on the top of your screen. CLICK HERE TO ASK A QUESTION TO ALL PANELISTS MERCER 2016 LLC. ALL RIGHTS RESERVED 32

34 MERCER 2016 LLC. ALL RIGHTS RESERVED 33 33