During a recent Beyond Data Webinar, Brooke Liu, Rewards Data Intelligence Leader of Hong Kong, and Susan Klouman, Global Financial Services Leader of Rewards Data Intelligence, discussed how the changing economic environment impacts global financial services companies’ rewards and talent strategies.
Here are some highlights:
Brooke Liu (Brooke): How are multinational financial services organisations, particularly banks, responding to inflation?
Susan Klouman (Susan): Historically, banks have maintained salary increase rates at 3% to 3.5%. At the 2022 year-end, these rates are expected to reach between 4% and 6% at a global percentage-change median, with adjustments depending on the local inflationary environment.
These percentage changes exclude revenue producers, whose pay is driven very much by performance and the pay mix is weighted towards the variable; the salary portion of their pay is a set rate. The pay mix is much more weighted towards salary in areas such as retail banking, transaction banking and corporate support areas, where they are not bonus driven.
It’s worth noting that 2021 and 2022 were very good years for the investment banks, so the salary increase was inflationary, but also driven by the tight talent market. Inflation continues to be high and we don’t see that changing in the near future.
In talking to financial services firms at the year-end, they are allocating additional funds this year end to make off-cycle salary adjustments as needed, aside from standard merit promotion budgets.
To offset some of the growth in compensation costs, they look for ways to reduce non-compensation costs such as reducing their real estate footprint and restricting travel budgets. This would put more cash in hand for levels and entities within the bank that are not bonus-driven or dependent on the performance of the bank.
“To offset some of the growth in compensation costs, financial services firms look for ways to reduce non-compensation costs such as reducing their real estate footprint and restricting travel budgets.”
Susan Klouman | Global Financial Services Leader
Brooke: What other measures are financial services organisations using to offset inflation for their employees?
Susan: Aside from increasing salary budgets, banks are also taking other actions to address rising prices. Some publicly disclosed actions include Bank of America rewarding staff who earned a total compensation of up to $500,000 a pool of restricted stock to not only increase their compensation but also drive retention. Bank of America has also slowed hiring since fewer employees are leaving and they are more focused on paying and promoting existing employees.
Another example is HSBC, which offered about 18,000 of its call center back office staff in Great Britain a 2,000 British pounds pay raise to address inflation, similar to initiatives from NatWest and Lloyd’s. For revenue producers, pay remains heavily variable and dependent on performance.
Brooke: With the current economic and financial pressures, are sign-on bonuses or one-off spot awards still popular in Europe or in the U.S.?
Susan: Yes, these remain popular and we see this trend continuing. Deutsche Bank gave some of its top earners in Germany and other key markets elevated salary increases to help offset surging inflation. And they cut bonuses for investment bankers who have seen weaker performance; as I mentioned earlier, 2021 was a big year for investment bankers and they had very big bonuses, so they can now offset the cost of paying for these high inflationary areas by cutting bonuses in others.
For the rest of Deutsche Bank, base pay raises are likely to be at 4% on average. NatWest raised the pay for the bulk of their staff in Great Britain and gave them a one-off cash sum to help them cope with soaring prices.
Brooke: You mentioned that some banks slowed down in hiring, and layoffs have been in the news, too. Have banks considered the impact on productivity?
Susan: Banks want to be competitive, so they’re paying their top performers accordingly. When they look at our data, they look at a broad base across all levels. They benchmark high performers with their peers in other banks to ensure they are paying them competitively.
“Banks benchmark high performers with their peers in other banks to ensure they are paying them competitively.”
Susan Klouman | Global Financial Services Leader
There are some layoffs taking place, but I don’t think they will be massive. Our clients reported that 2021 was big year for them, but they expect 2023 to be almost the exact opposite, for instance in 2021, if the investment bank was up by 15%, now it’s down by 15%. Hence, there will probably be some layoffs in the front office and in revenue-producing areas to protect support staff that are not eligible for those big bonuses.
Brooke: Let’s turn to digitalisation. In Asia Pacific, we’ve seen that digital roles command a pay premium; in the context of a potential downturn for banks, are companies investing in digital infrastructure? Also, we’ve seen previously that AI roles appear to lead the pay premium, but other skills do not appear to be as popular as they were in 2021 and 2022; is this the case for the U.S. and Europe also?
Susan: Yes, I think that is universal; compensation for digital talent is very intense because banks, asset management firms, private equity firms and fintech firms are all competing for the same talent. This past year, the banks saw a lot of attrition to technology firms, and the tech firms have a different pay philosophy, so they were able to pay more. We’ve seen that since die down, but AI roles continue to demand a premium.
“Compensation for digital talent is very intense because banks, asset management firms, private equity firms and fintech firms are all competing for the same talent. ”
Susan Klouman | Global Financial Services Leader
The AIDT report for financial services, as well as our Fintech Survey, can help provide some interesting background. The Fintech Survey features not just current pay levels but also the results of focus group discussions between firms about pay philosophy and market trends.
Brooke: Thanks Susan. In summary, global financial services companies and firms headquartered in Asia Pacific are both working to help their employees withstand economic challenges. I hope our discussion today will help Asia Pacific financial services companies in building and managing their talent and rewards strategy.
For more information on the rewards and talent trends in global financial services sector, contact our experts.
