2010 Articles

Update on CRDIII Implementation: Part 2 Convergence of EU Regulations

On 10 December 2010, the Committee of European banking Supervisors (CEBS) published the final guidelines on implementation of the Capital Requirements Directive (CRD)III remuneration regulations in the EU and on 17 December, the UK Financial Services Authority (FSA) published the associated Revised Remuneration Code.

SNL Financial: The New Mandate for Compensation Decision-Making

Publication in SNL Financial: External forces such as legislation, regulatory guidance, and shareholder and media scrutiny have necessitated the largest thought overhaul the banking industry has seen in many years.  The overall message is clear:  Banks will change the way they consider compensation, either voluntarily or by mandate.  This paper discusses concerns, considerations and challenges banking leadership must deal with moving forward in their compensation planning.

Brazil Update: A Superheated Talent Market

As the world economy struggles to gain its footing, Brazil is in the midst of a new “golden age”. Having overtaken the United States and tying China as the most favorable country for investments as well as playing host to the Olympics and the World Cup in the near future, the stage is now officially set for Brazil to further cement itself as a prominent world player.

Study Results: Market Impact on Incentive Compensation Trends

McLagan conducted an online survey in November and December 2010 regarding current and planned performance metrics and payment vehicles at community and regional banks. The intent was to sample the latest thinking in light of the current economic and legislative environment. Sruvey questions covered 2010 and planned 2011 incentive plans

Study Results: 2011 Salary Incentive Planning

In order to help clients prepare for 2011 salary increases, we conducted a free flash survey in late September and early October of 2010 to get a sense of what banks are planning for their 2011 salary budgets. The 97 banks that participated in the survey were asked if they planned to give salary increases in 2011; and if so, what percentage increase they were budgeting, and how the increase differed from their 2010 increases (greater, less or the same).

Update on Capital Requirements Directive III (CRDIII) Remuneration Guidelines

The long awaited guidance from the Committee for European Banking Supervisors (CEBS) was published 8 October 2010. The guidelines are designed to help institutions and regulators interpret and implement the remuneration aspects of the EU CRD III legislative resolution on the implementation of the Basel III agreement on solvency. In short, these guidelines will direct institutions on how they can compensate a significant number of their most crucial employees. As was anticipated, the guidelines are strict on the conditions and structure of variable pay from a risk management and solvency perspective.

The Perils of Pre-Pays

Over the years, some companies have actively managed the timing of incentive compensation in anticipation of tax rates changing. While there has been a fair amount of speculation around this recently, to date, there has been more discussion than any real action on this front. 

Infrastructure Bonus Pool Funding:

During the last 12 months, pay structures for bank staff have changed dramatically. There have been significant increases in base salaries for some firms and changes to the delivery of incentive compensation. The decision making for these changes has been directed at perceived risk takers in the front offices of banks. However, these changes have also impacted the back offices, i.e., the infrastructure functions. As firms are now beginning the planning process for year-end compensation, should they also reassess the way that the bonus pool for infrastructure functions is calculated and distributed?

Impact on Brokerage Firms of a Fiduciary Standard

The Dodd‐Frank Wall Street Reform and Consumer Protection Act is likely to usher in a transformation of the wealth management industry with implications not only for the brokerage firms that will be most affected by new regulations, but also for private banks and investment advisors who already operate under a fiduciary standard of care.  Congress has charged the SEC with the responsibility and authority to create a single fiduciary standard covering brokers, who were previously only held to a suitability standard, and investment advisors who already work to a fiduciary standard of care.  While the final shape of this SEC rule‐making will determine how brokers and investment advisors will be impacted, we can be sure that the changes will be far reaching and impact almost every element of brokerage firms’ business models, from product management, client management, execution and FA compensation.

Trends in Equity Approaches

This survey examines whether or not banks use equity as part of their overall compensation program. For banks that use equity, we present information regarding what type of equity they grant, the company, individual, etc. performance measures upon which Banks base the equity grants, how frequently grants are made, and vesting.

Dodd-Frank Wall Street Reform & Consumer Protection Act

On July 21, 2010, the Dodd-Frank Wall Street Reform & Consumer Protection Act (the “Act”) was signed into law. This legislation of more than 2,300 pages includes a number of provisions affecting executive compensation and corporate governance. While a majority of the compensation provisions apply to all public companies, a few select provisions apply to all financial institutions (public or private) with assets of $1 billion and more. This client alert summarizes these provisions and the associated effective dates.

The Psychology of the Take-Away

As firms consider ways to deliver pay that are motivating, conform to regulatory guidelines, factor in multi-year performance, and discourage risk, there has been increasing thought and energy devoted to expanding clawbacks, holdbacks, performance hurdles, etc. In some cases these provisions are largely window dressing. Most clawback provisions are linked to employee malfeasance or conduct that is deliberately detrimental. When you consider the recent credit crisis, very little of the conduct would have actually triggered any of these provisions. 

Today’s Compensation Environment – 2010

This is the 9th edition of Corporate and Consumer Banking Consulting Practice White Paper on current compensation trends in the banking industry. Since beginning this annual publication (originally published by Amalfi Consulting and sponsored by the American Association of Bank Directors) we have focused on specific trends in compensation with a detailed year-over-year analysis. However, with the industry continuing to face challenges on numerous fronts, we also comment on the state of the banking industry, along with the resulting impact on compensation.

Board of Directors Compensation Practices

Given the state of the banking industry over the past twenty-four months, we felt it was time to examine if and how board of directors’ compensation plans were changing. In this flash survey, we explore the prevalence of increases and decreases in overall board of directors’ compensation, retainer, or meeting attendance compensation as well as committee retainer and attendance compensation.

Remuneration Governance in the Gulf

It is a generally accepted belief that remuneration and corporate governance issues may have contributed to the recent financial crisis. Therefore, many countries’ regulatory bodies have encouraged stronger remuneration governance especially in financial institutions. The latest remuneration governance principles set out by authorities in Bahrain, the Kingdom of Saudi Arabia and the United Arab Emirates (UAE) have specifically addressed the issue of Remuneration Governance.

Final Guidance on Sound Incentive Compensation Policies

On June 21, 2010 the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (collectively, the “Agencies”) issued final guidance on incentive compensation arrangements that apply to all banking organizations. This final guidance replaces the proposed guidance issued by the Federal Reserve on October 22, 2009.

Refining the Employee Value Proposition

Over the last 18 months, a number of forces—regulatory reform, firm economics, share availability and public perception—have forced large-scale shifts in the form, level and mix of compensation in financial institutions. Many of these changes were made in haste and out of necessity. As competition for talent heats up, firms are under pressure to define, benchmark and optimize what they use to attract, engage and retain employees―their Employee Value Proposition.

Compensation Risk: Regulatory Update and Risk Review Process

To reward, to retain and to motivate – it is a phrase that often sits at the core of a compensation program philosophy. To achieve these goals, companies use a wide array of compensation vehicles. Among them, incentive programs are the most relied upon component of total reward used to motivate and encourage alignment of individual and organizational goals.

2010 Compensation Plans: A Year in Flux

Mandatory deferral plans were never particularly interesting. Firms were preoccupied with being “competitive with the street”. There wasn’t a great deal of variety and innovation. Employees griped about having some portion of their bonuses deferred, and then often sat back and watched the value of their awards escalate. Of course, that hasn’t always been the case in the last couple of years.

2009: A Year to Forget? Are There Lessons to Be Learned?

By all accounts, 2009 was a year that most of us want to forget. The credit crisis came home to roost, government intervention and regulation reached an all-time high, executives in general and bankers in particular were vilified, and so many things that we took for granted were turned upside down. But, from all this, are there lessons that we can learn?

Country Specific Compensation Regulation

Given the multitude of regulatory agencies that global financial institutions have to deal with, we thought it would be helpful to summarize the latest requirements as we understand them. The table below is designed to give you an update "at a glance". It is not comprehensive and only covers the major economies. We will update this as we become aware of changes.