Concerns rise over break in performance related pay for bankers, as firms stuggle to balance risk and rewards

Billy Bambrough
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The EU has moved to crack down on the size of bankers bonuses but there are concerns banks are continuing to pay similar amounts unrelated to performance (Source: Getty)

Financial services firms around the world have continue to wean staff off bonuses and onto fixed salaries throughout 2015, raising concerns banks are unable to properly penalise misconduct.

The report, by consultancy Mercer, found that the financial industry is struggling to balance rewards for taking positive risks with sanctions against rule breaking.

Dirk Vink, a principal at Merck and co-author of the report, said:

There continues to be a concern that increasing the focus on fixed guaranteed pay breaks the link between pay and performance, and may actually be counterproductive for aligning pay with risk.

In 2013 the European Union council pushed through a plan to cap bankers' bonuses at a maximum of double their salary from last year.

The plans were criticised by Mercer at the time as higher base salaries are harder to claw back from staff whose misconduct is online revealed at a later date.

Lawyers also warned that base salaries would rise at an equal pace to the decline of bonuses.

According to Vicki Elliott, senior partner at Mercer, banks significantly increased fixed pay levels in 2015.

Elliott said: “Overall, total compensation levels remain broadly the same compared to levels prior to regulated bonus caps.”

Over half of firms polled had increased fixed pay for staff by around five per cent in 2015 and reduced bonuses by about the same.

Organisations overwhelming said that they were trying to ingrain a strong risk culture by penalising misconduct and non-compliant behaviours (93 per cent) followed by the role of risk management in performance expectation setting and evaluation (89 per cent).

The report found some organisations, particularly in North America, are finding it more difficult to attract and retain staff in the risk, legal and compliance divisions that oversea these functions.

The Mercer survey looked at the the pay practices of 71 financial services companies from 20 countries in Europe, North America, Asia, and South America.

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