TMCnet News
United Kingdom : EU Regulation weakens bank efforts to manage performance and risk management [TendersInfo (India)](TendersInfo (India) Via Acquire Media NewsEdge) The Capital Requirements Directive IV (CRD IV), European Union regulation which has placed a cap on variable pay in the EU s banking sector, is weakening efforts by EU-based banks to manage performance and risk through pay, says a new survey by Mercer. The consultancy s report shows that, in an effort to remain competitive in attracting and retaining talented staff, large numbers of banks are increasing base salaries or using cash allowances as part of the pay mix. These allowances, however, cannot be performance-linked under the EBA s definition of fixed compensation. These findings come from Mercer s Global Financial Services Executive Compensation Snapshot Survey which analyses pay information amongst 78 financial services organisations, including 44 banks in 18 countries. The report surveyed emerging pay practices related to changes in pay mix, application of malus conditions and clawbacks, strategies for addressing CRD IV restrictions and the definition and number of material risk-takers to which regulations apply. According to Mark Quinn, Head of Talent at Mercer UK and a specialist in Financial Services remuneration, High-performing employees expect remuneration comparable to their peers, but CRD IV restricts EU-headquartered banks in what they can pay in performance-related compensation. They re looking at other methods of making up the shortfall to prevent staff walking into the arms of other less regulated competitors, such as hedge funds. Cash allowances are a form of fixed compensation that do not generally require a corresponding increase in benefits costs as base salary increases do. However, both are forms of guaranteed cash with no variable link to performance which is far from satisfactory. Since 2008, banks have made much progress structuring pay so that it allowed for appropriate consideration of risk-adjusted outcomes and conduct/compliance behaviors over a multi-year timeframe. Mercer s report shows that organisations continue to try to strengthen the link between performance management and compensation, introducing individual risk-related factors in performance management and strengthening bonus malus/clawback conditions. There is also strong evidence that banks are applying malus conditions, i.e., actually reducing or not paying deferred unvested awards when lower performance, non-compliance or misconduct occur. In 2012, 62% of banks applied malus with it being more prevalent amongst European banks (82%) compared to North America (25%). But in 2013, the proportion of North American banks that applied malus increased to 42%. Almost half of banks said that malus was applied to individuals due to non-compliance or misconduct while almost one-third said that it was applied because of poor performance. (c) 2014 Euclid Infotech Pvt. Ltd. Provided by SyndiGate Media Inc. (Syndigate.info). |