The Future of Compensation & Benefits in the Financial Services sector

No-one could have escaped the 2008 media focus on executive remuneration within the financial services sector. The quick buck, short-term bonus and remuneration structures failed to take into account risk which directly contributed to the current financial crisis.

To address these issues, on the 18th of March 2009 the FSA in the UK published Consultation Paper 09/10 entitled 'Reforming remuneration practices in financial services'. The paper generally calls for tighter controls and a greater emphasis on reducing the exposure to risk faced by the companies. Namely the focus is on restructuring packages to ensure that the cash component of remuneration is the largest and most significant part of the total comp; on increasing long-term incentives to encourage best practice and long term view approach; calculation of bonuses on profits rather than sales achieved; and to introduce a bonus claw back with a minimum vesting period, which will be linked to future performances of the division or the whole business. The UK effort comes in conjunction with the EU-level regulation on remuneration policy currently being developed by the European Union.

This spells good news for professionals within the sector. Senior Partners and Heads of Tax are predicting large growth in the area over the coming years. The FSA focus on longer term incentives and higher risk associates with a bumpy stock market open a window of opportunity for new share plan products to come to market. The ability to come from the tax perspective and incorporate the April Budget Report’s new top tax rate and non-domicile rules into the overall remuneration planning is signaling a huge opportunity for professional services firms over the coming months and even years. A few strategic buy-outs, such as PwC’s acquisition of Halliwell Consulting in Jan 2009, coupled with a diminished size of the Tier A share plan teams largely due to redundancies at the end of 2008/ beginning of 2009 indicate an opportunity for the Big 4 firms to significantly increase share in this market.

This is also good news for tax-qualified Share Schemes specialists. They are already in demand in-house as the technical expertise they can bring is of great value to more HR-led Reward teams. Furthermore, the generalist Compensation & Benefits market is thriving when compared to other areas. This is something that can also be seen outside Financial Services as employers strive to minimise risk and set higher standards, taking lead from the new guidelines. 2009/2010 promises to be an interesting time which will bring opportunities to the market and it will be interesting to see who will be able to capitalise upon them.