rewards Articles

The Kingdom Reforms (Part II)

Saudi Arabia has announced a spate of cuts around compensation within the government and the public sector. While there may not be immediate ramifications of these curbs for the private sector, firms irrespective of their ownership structure, should be wary of these changing times. In this second part of the series, we explore what organizations in the Kingdom could do to effectively adapt to these circumstances.

The Troubled Waters for Retail Banking

Incentive opportunities and the mix of pay continue to be examined as the effectiveness, administrative burden, and risks of low dollar programs are under scrutiny in retail banking.

EBA Publishes Final Guidelines on Sound Remuneration Policies under CRD IV

The European Banking Authority (EBA) published its final guidelines on sound remuneration policies under CRD IV (Guidelines) on 21 December 2015. Following a strong industry response to the first draft of the Guidelines that was published in March 2015, there have been changes to the original text. Most notably, proportionality is not addressed in the Guidelines; instead a separate Opinion that is addressed to the European Commission (EC), European Parliament and Council has been published. The EBA’s Opinion on proportionality confirms that the EBA will provide guidance to the EC on potential changes to the text of the Directive to clarify how proportionality is to apply.

What Next for The Kingdom of Saudi Arabia’s Capital Markets?

Recently The Kingdom of Saudi Arabia announced a grand economic vision to take the economy to 2030, diversifying the area’s reliance on oil. This comes at just the right time. Depressed oil prices and a tumultuous 24 months in the region, where state coffers have been tested and economic growth has lagged, has now been met with a new sense of optimism and a way forward. This has been further spurred on by the recent increase in oil prices that are back at approximately $50 USD a barrel.

McLagan Alert: The UK Decides to Leave the EU

On 23 June the UK voted to leave the European Union (EU). This historic decision is creating near-term volatility in the capital markets, but it is important to note that the full impact of this decision for the UK and European financial services sector will unfold over a period of at least two years as the UK negotiates the terms of the exit.

Employee Turnover Slows in Brazil, Even as the Tech Sector Remains an Economic Bright Spot

Voluntary employee turnover at technology companies in Brazil has slowed for the past four years, suggesting limited job opportunities amid the country's political and economic crisis. However, if we peel back the layers, we find sales employee turnover has rebounded in the past year and the Brazilian startup scene is attracting government support and foreign investment.

Incentive-based Compensation Arrangements: A Summary of Dodd-Frank Section 956 (Part II)

The update provides an executive summary of critical strategic issues, a deeper dive on tactical implementation issues, and definitional clarity on key topics. McLagan has been in communication with members of several regulatory bodies and based upon those communications developed our perspective for this alert. While we believe the substance of each agency's proposal is aligned, we acknowledge the potential for nuances as the proposals range from approximately 300 - 700 pages in length, depending on the agency.

Competing in Hong Kong

The Competition Ordinance (Commencement) (no 2.) Notice 2015 was published in the Gazette on 17 July 2015, which declares 14 December 2015 as the effective date for the rule. This Ordinance, first outlined in 2012, restricts four types of conduct that are described as anti-competition - pricing manipulation, market division/allocation, output restriction or control, and bid rigging. Though not specifically targeted at employment matters, it is clear that the Competition Ordinance (CO) restricts practices like wage-fixing, formal and informal sharing of pay or benefits related information with competitors, industry-wide negotiations that impact wages and employment terms, and no-poaching agreements.

Who wants to be an Investment Banker?

It is no secret that investment banks are concerned about their ability to attract and retain the best talent. The fading allure of investment banking as a career, increased competition for talent, reputational damage, cost pressure, regulation, and attitudinal shifts associated with the changing of the generational guard have all contributed to what is now widely regarded as one of the biggest challenges facing the industry.

Breaking the Digital Banking Talent Code

Innovative digital developments have had a profound impact on the day-to-day lives of individuals, including retail banking customers. In response, the banking industry has begun to embrace the digital era, where mobile apps and smart ATMs are no longer a luxury but have become a necessity. The wave of digitalization has led many banks to reevaluate their business and talent strategies to attract, engage, and reward a new generation of staff that can successfully transform their existing platforms and provide the digital experience their customers have come to expect.

Restoring the Culture / Reward Link

Firms are trying to do more with less regarding compensation but two powerful, conflicting forces are affecting how they manage reward. Diminished business performance is increasingly driving firms to customized solutions, with the focus less on conforming to market practice, and more on what is optimal for survival. Regulation is a powerful force in driving firms toward more standardization. Even firms that are operating outside the regulatory crosshairs are influenced by what they are seeing in the larger, more regulated marketplace around compensation. In the midst of trying to tailor plans to be unique and practical, as well as aligned with regulatory guidelines, the linkage between a firm's culture and reward is often falling by the wayside.

Consciously Uncoupling Complexity in Retail Banking Incentives

Historically, branch employees were the main interface with the customer. Today customers have more frequent interactions with their banks through technology, thus altering the role of branch employees. Within retail banking, incentive plans have grown overly complex in response to the historic branch business model.  However, technology-driven changes in the branch are enabling model firms to simplify their incentive plans and drive desired staff behaviors within a new banking model. Firms that are able to make this change will have a competitive advantage in recruiting staff and serving customers. 

The Changing Face of Variable Pay Schemes in GCC Consumer Banking Industry

Over the last couple of years, incentive/commission schemes in the Gulf Cooperation Council (‘GCC’) have gained a lot of traction amongst local Consumer Banks. In some countries, banks have introduced incentive schemes in order to reduce the overall compensation expense which is derived from their bank-wide bonus pools. Though, most banks generally pursue the overarching concept of a ‘Pay-for-Performance’ philosophy, when introducing such schemes.

Changing Times: Quantifying Research

Research continues to form an integral part of a firm’s product offering, although, like all functions, it has come under intense pressure over the past 4-5 years as the dip in firm-wide revenues has pressured margins. While the economics of providing research improved in 2013, driven by a rebound in equities revenue, firms are still considering whether to categorize research as a revenue producing function or a cost centre.

New Banks: License to Skill

​For the majority of 2012 and 2013, the Reserve Bank of India (RBI) has seemed reluctant to take decisive action on policy issues and monetary mechanisms. It finally managed to rouse the banking industry in India, by giving the go-ahead for corporates and non-banking finance companies (NBFCs) to apply for new banking licenses. This decision has been long debated and even longer awaited, coming after a hiatus of 10 years.  The RBI had issued only two licenses in the early 2000s and prior to that its last activity was in 1993-94.

Emerging Regions Update

A team of our consultants provide an update on emerging regions including Brazil, Russia, India, China, Middle East, and South Africa.

Infrastructure Pay Update: Rebalancing Value

In a previous article, we discussed how banks largely “back into” funding incentive pay for their Infrastructure or support groups. Many firms use hard financial metrics to measure performance and create incentive funding in their revenue generating areas, and only after these obligations have been satisfied, divide up the balance for the Infrastructure groups.

Shareholders at the Top 50 Say “Yes” on Pay

​If investors are dissatisfied with executive pay, voting results during this proxy season are certainly not reflecting that sentiment. An overwhelming majority of shareholders at the top banks gave their approval on executive pay. However, shareholders have shown a desire to have ongoing input into the pay decision-making process by strongly supporting annual say on pay proxy votes.

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).

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.

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?

What Do They Mean By Unreasonable Risk?

Virtually every regulatory body has come out with some pronouncement or other admonishing financial institutions to curtail compensation programs that “encourage the taking of unreasonable risk.” Two parts of that statement are problematic.

Job Alignment Opportunities

​In the current market environment, there are numerous opportunities for human resources and compensation professionals to continue to add value to their organizations. While a return to more robust revenue levels would obscure a multitude of other problems, lean times force organizations to work smarter and more efficiently, and HR and compensation professionals are uniquely positioned to lead.

Can We Please Stop This Craziness Now? The Case Against Punitive Taxes on Banker’s Pay

It was a big week in Washington—lots of hoopla and press and plenty of opportunity to take pot shots at the “fat cats” on Wall Street. But, it’s a new week and calmer heads must rationally get down to the business of saving our financial system.

Asset Management 2008 Recap: A Look Back At A Profoundly Changing Industry

While 2008 was a profoundly challenging period for the asset management industry, the impact of the stock market chaos in the latter part of the year is only partially recognized in the financials of our benchmark firms. This document summarizes public data collected for twelve asset management firms in a report titled Asset Management — Quarterly Financial Benchmarks.

First Quarter Optimization

After working harder than ever, in the most stressful year-end environment any of us have seen, it would be nice to say that we can coast a bit in the first quarter of 2009. But we can’t – there is still much work to be done.

Crisis in Asset Management

Building on results of Performance Intelligence, McLagan and Casey Quirk's annual study of asset management company financial performance, this paper highlights the challenges facing asset management firms. 

Building a Meritocracy

Most firms pride themselves on being meritocracies, yet financial services firms are increasingly struggling to rationalize a pay for performance culture.

 

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