Banks to find creativity stifled on 'whacky' pay
Pay consultants in the City of London said investment banks would be hard pressed to find imaginative ways of offsetting the impact of incoming European Union rules on bonuses, after a report from the consultancy Mercer hinted banks could be getting creative.
A survey of 78 financial services organisations published today by Mercer suggested that banks were looking at “creative compensation alternatives” as well as base salary increases in order to maintain the high levels of rewards for top bankers.
Tom Gosling, head of reward at PricewaterhouseCoopers, said: “That stuff is all fiddling around the edges of the issue. I think the solutions will be around adjusting fixed pay so banks can pay the total levels of compensation they want to.”
Of the respondents, which included banks and insurers, 75% said they were looking at creative compensation. Banks are also planning to shift the focus of what makes a particular position attractive away from compensation to other elements of the “total employee value proposition” such as flexible working arrangements, training and career development, according to 70% of respondents to the Mercer survey.
Mark Quinn, UK head of talent at Mercer, agreed that banks would focus on increasing fixed pay rather than looking to make up for lower bonuses entirely through creative compensation. “There’s only so many ways you can skin a cat on that,” he said.
He added: “If total compensation goes down per head, which it is, as well as a reduction of people in the industry, what banks are going to have to do is make clear to employee why they should work for a particular organisation above and beyond their pay and bonus.”
Pay consultants and lawyers said that other creative pay arrangements were unlikely to be introduced because of a regulatory crackdown on unusual schemes in recent years.
John Marshall, principal lawyer in the London employment department at Slater & Gordon, said: “Firms have become so terrified about their compliance obligations that there is a desire to keep a clean relationship with the financial regulator and HMRC and all those schemes you saw in the past have now been dismantled.”
Bankers have in the past been paid in gold bars, fine wine, platinum sponges and through offshore corporate structures, according to pay consultants, who added, however, that such schemes were unlikely to return.
Owen Watkins, a barrister at law firm Lewis Silkin, said: “It’s clear that if the idea is the amount of variable pay will be limited, then the regulators will look quite carefully at any packages that might interpret pay quite liberally.”
PwC’s Gosling said that it was also unlikely given the global nature of the employment market, which would mean a position with a highly structured benefits package would not be comparable with a straightforward pay scheme in New York or Hong Kong.
He said: “If you have an individual used to being paid in a certain way, then if their bank comes up with a weird and whacky way to pay them that’s not recognised in the market, it won’t work.”
Bankers also previously used to be given company cars and other allowances. These benefits in kind still exist, say consultants, but the trend has waned due to changes in tax rules. Paul Quain, partner at employment consultancy GQ employment law, said: “Company cars used to be popular in the 1980s but fell out of fashion when their tax benefits were limited in the 1990s.”
