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Compensation trends spotlight: Financial Services

COVID-19 significantly impacted how people work, where they work and what they value. 

By Lindsey Clayfield | December 22, 2020

This is evident in the financial services sector but with varying degrees of impact across its sub-sectors.
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For instance, the investment banking, insurance and capital markets sub-sectors have shown more resilience throughout the pandemic than retail banking and private/wealth management.

As financial services organizations surmount the effects of the pandemic, they will also have to manage changes to regulations in addition to a different regulatory landscape in 2021.

Based on our 2020 compensation surveys and industry research, we observed a few key trends in 2020 for the financial services industry.

Budgets for salary increase decreased slightly from 2019 and 2020. For 2021, the sector projects a further reduction to around 2.9% on average across all markets. 83% of organizations will still have a regular review process.

Actual bonus payouts are trending below target, but most organizations are not changing their short-term incentive plans.

Long-term incentives (LTI) remains a strong component of the total rewards package for executives in the Financial Services industry.

Compensation trends in the Financial Services industry

Base salary movements

There was a slight decrease in the year-over-year salary increase rate from 2019 to 2020. Organizations that conducted their salary review after April 2020 either implemented a pay freeze or postponed their salary review. The financial services sector in general expects the salary review process in 2021 to go ahead as normal, but with a lower budget compared to pre-crisis in 2020. The average salary increase is seen to be 0.3% lower than in 2020.

Our recent Salary Budget survey shows that freezing or reduced hiring was the most common response among financial services organizations. to manage labor costs. More banks (45%) took this action compared to insurance organizations (18%), making banks more in line with the prevalent actions taken by the wider General Industry market (42%).

In terms of pay-related actions, the broader financial services sector appears to have emerged less scarred from 2020. The main action taken was to reduce annual bonus accruals, which was done by only 7% of banks. Compared to other sectors, the majority of financial services organizations did not reduce or delay their salary increases, freeze salaries nor reduce pay (including board of director compensation) throughout 2020.

Industry hot jobs

Our survey data shows a greater than average increase in market demand for jobs clustered in these main functions: risk, compliance, legal, HR, digital technology, portfolio management, anti-money laundering, fixed-income and equities.

Figure 4 shows the highest paid roles at the professional career level (P3) for major markets. Asset management trading and research roles are among the highest paid in Germany, Hong Kong, Singapore and United Kingdom. Legal and technology roles are also consistently among the top paid in 2020.

However, financial services organizations are still challenged with attracting and retaining digital talent, largely due to the sector not being seen as an appealing destination for digital talent. Therefore, organizations must work on their employee value proposition in order to attract and retain the talent they need.

Figure 4 – Hot jobs in selected major markets
Country Job Title Base Salary 50th
Germany Legal Generalist/Multidiscipline 1
Germany Information Technology Project Management 2
Germany Advertising 3
Germany Asset Management Research 4
Hong Kong Legal Generalist/Multidiscipline 1
Hong Kong Private Banking Product Development 2
Hong Kong Private Banking Sales Management and Marketing 3
Hong Kong Asset Management Trading 4
Mexico Accounting Generalist/Multidiscipline 1
Mexico Quality Assurance Methods|Six Sigma Process 2
Mexico Middle Market Commercial/Small Business Banking Product Development 3
Mexico Project/Program Management|Agile/Scrum Master Project 4
Singapore Asset Management Research 1
Singapore Private Banking Product Development 2
Singapore Contract Law 3
Singapore Asset Management Trading 4
United Kingdom Asset Management Trading 1
United Kingdom Asset Management Research 2
United Kingdom Strategic Planning/Corporate Development 3
United Kingdom Program Management|Developmental Operations (DevOps) 4
United States Actuarial - Non-Life|Reserving Actuary 1
United States Legal Generalist/Multidiscipline 2
United States IT Development|Cloud Computing Engineering 3
United States Real Estate Investment Management 4

Bonus payout and short-term incentives

Actual bonus payouts for bonus schemes with pre-determined targets are trending close to or just below targets in 2020 (Figure 5A). A small percentage of organizations are offsetting the financial impact of the pandemic by restructuring their total compensation program for executives, such as delaying goal-setting for annual incentive plans. On the other hand, discretionary bonuses are trending higher than targeted performance bonus schemes. This is partly due to the types of organizations that have discretionary bonus schemes.

The bonus funding for 2021 per sub-sector within the financial services industry is expected to vary depending on the business mix, and financial performance. For example, fixed-income platforms have performed well in comparison to the larger investment banking platforms. A close look specifically at the investment banking and capital markets sub-sector (Figure 5B) shows that revenue-generating roles had significantly larger payouts compared with the broader financial services sector.

Long-term incentives (LTI)

Within the financial services sector globally, LTIs continue to be a prevalent part of executives’ total compensation plan, but many organizations are now also awarding LTIs to more middle manager levels.

Interestingly, there is a 25% higher eligibility prevalence among insurance organizations compared to the financial services sector as a whole. This trend continues in the practice of awarding LTI as a percentage of base salary. We see insurance organizations have higher award pay outs, outclassing the financial services sector by 11% at median and 20% at the upper quartile.

The pandemic’s unprecedented impact on employee wellbeing and business created a continuously evolving and uncertain environment for the financial services industry, forcing organizations to reevaluate their rewards priorities and understand their market positioning to be able to make informed decisions in such an agile market. As such, access to an array of high-quality compensation market data and insights to support decision-making has been critical in helping organizations creatively address compensation and benefits issues. Our Financial Services Compensation Surveys offer timely and lasting support. Join us.

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