Financial services firms increase focus on building sound risk culture to prevent inappropriate risk-taking
18 7월 2016 - 11:43PM
Business Wire
- Majority of banks planning changes to
performance management programs to balance financial outcomes with
assessment of appropriate behaviors in performance achievement
- Many are changing employee value
proposition to go beyond pay to attract new breed of graduates and
retain millennials
Mercer’s latest Global Financial Services Executive Compensation
Snapshot Survey found that most financial services companies are
taking significant steps towards fostering a sound risk culture
among their staff. Of the companies surveyed, 62% have carried out
initiatives to penalize misconduct and non-compliance to a “great
degree”, 60% can show evidence of setting the right tone at the
top, and 58% are communicating clear (risk) culture objectives.
“It’s encouraging to see companies engaging senior leaders to
set an example when it comes to risk taking and compliance
behaviors,” said Vicki Elliott, Senior Partner and Financial
Services Talent Leader at Mercer. “The best way to foster a sound
risk culture and combat excessive risk taking is with strong,
authentic leadership who are willing to manage consequences for
good and bad behavior.”
Mercer’s research showed that rewarding positive risk behavior
continues to be challenging with only a few organizations having
taken these steps “to a great degree” (only 11%). “Proactively
rewarding positive risk behavior can be tricky, but it is likely to
have a more positive impact on culture in the long term compared to
punitive measures,” said Ms. Elliott.
Mercer’s survey reviewed the practices of 68 financial services
companies globally – banks, insurers, and other financial services
companies – based in 20 countries in Europe, North America, and
Asia. The report provides an update on key changes in talent
management and rewards practices in financial services.
Experience with bonus malus
Over 90% of banks and 72% of insurance organisations have malus
policies in place largely due to regulation, which requires that
all or a portion of deferred or unvested awards can be reduced or
wiped out. Such policies are mostly triggered by individual
misconduct (89%), individual breach in compliance (89%), and
negative business performance (74%). About half of banks have
applied malus for individual performance reasons. However,
approximately 60% of them do not retain individuals involved in
malus cases, which may call into question their overall
effectiveness.
Performance management changes
“Establishing an effective employee performance management
system continues to be a highly challenging task for financial
services organisations,” said Dirk Vink, Principal in Mercer’s
Talent business. “However, when done right it can have a greater
impact on behavior and performance than just changing compensation
plans. Performance management reform is a key lever to help manage
toward desired culture change.”
In Mercer’s study, more than half responded that their
performance management approach works well, though only a small
proportion indicated that it delivers exceptional value. Mercer’s
survey finds that change is on the horizon, with half of all banks
planning to make changes to their performance management processes
in the next 12 months; this compares to just 16% of insurers.
However, 32% of insurers want to change their processes, but are
unsure when. Almost half of respondents indicate that their
feedback process and performance management linkage to development
needs work. Most banks are increasingly involving their risk
management function in selecting performance measures, goal
setting, and performance evaluation, which is a significant
development for aligning performance with sound risk-taking.
Employee value proposition beyond pay
Mercer’s report found that many financial services companies
have made or are making changes to their employee value proposition
(EVP) beyond pay in order to better attract and retain talent that
might otherwise choose not to work for them The most prevalent
initiatives planned, or already in place, are learning and
development programs (47%) and remote working programs, (43%).
Other popular changes include implementing career frameworks (37%),
introducing flexible working (37%), and non-monetary recognition
programs (34%).
“Following the financial crisis, the reputation of traditional
financial services firms suffered badly. Esteem turned to stigma as
a new generation of graduates started rejecting a culture they
viewed as aggressive and lacking in integrity,” said Mark Quinn,
Partner and Head of Mercer’s UK Talent business. “Banks, in
particular, who have since been struggling to attract and retain
the best new talent, are realizing that these so-called millennials
are not just in it for the money. They look for a sense of pride
and purpose in their work, as well as flexibility and career
support. To attract them, companies need to develop a strong and
genuine purpose-led employee value proposition.”
Notes to Editors
This edition of the survey looks at changes in annual, deferred,
and long-term incentives, pay mix, and role-based allowances.
Forty-seven percent of companies are based in Europe, 32% in North
America, and 21% in Asia. Fifty percent of companies are in
banking, 28% in insurance, and 22% in other financial sectors
(asset managers, for example).
Bonus Malus – Refers to the part of the deferred bonus
that has not yet been paid out and can be “reclaimed” because, for
example, an acquisition’s due diligence is not carried out
thoroughly.
About Mercer
Mercer is a global consulting leader in talent, health,
retirement and investments. Mercer helps clients around the world
advance the health, wealth and careers of their most vital asset –
their people. Mercer’s more than 20,000 employees are based in 43
countries and the firm operates in over 140 countries. Mercer is a
wholly owned subsidiary of Marsh & McLennan Companies
(NYSE:MMC), a global professional services firm offering clients
advice and solutions in the areas of risk, strategy and people.
With annual revenue of $13 billion and 60,000 colleagues worldwide,
Marsh & McLennan Companies is also the parent company of Marsh,
a leader in insurance broking and risk management; Guy Carpenter, a
leader in providing risk and reinsurance intermediary services; and
Oliver Wyman, a leader in management consulting. For more
information, visit www.mercer.com. Follow Mercer on Twitter
@Mercer.
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MercerStacy Bronstein, + 1 215 982
8025Stacy.Bronstein@mercer.com
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