Reward structures need reform but no one wants to be first mover
By
Fiona Chan
THE days of high bonuses for bank executives are not necessarily over just because of the financial crisis, said PricewaterhouseCoopers (PwC).
But the accounting firm believes pay packages at financial institutions are likely to be more closely pegged to risks.
A MATTER OF BALANCE
'The fundamental question is not whether a bonus payout was too high in absolute terms, but whether the reward given to the individual talent has struck a good balance between performance, risk and profitability.' PwC partner Ron Collard
PwC surveyed 119 Asian financial institutions in May and found that 93 per cent expected to see changes in how firms reward employees and executives - although none wanted to start the ball rolling.
Fast forward six months - and several rounds of severe financial shocks - and these changes are almost certain to happen now, said PwC partner Ron Collard.
As investors and regulators clamour for higher standards in financial institutions, firms all over the world need to become more transparent and equitable in their remuneration policies, he said.
'The fundamental question is not whether a bonus payout was too high in absolute terms, but whether the reward given to the individual talent has struck a good balance between performance, risk and profitability.'
Many governments are pumping money into faltering organisations and starting to scrutinise issues such as compensation. UBS, one of the European banks worst hit by the crisis, has already said its top executives will not get any bonus payouts for this year.
Mr Collard added that for some sectors, such as private banking, firms in Asia are 'more in need of reform' than organisations in the rest of the world.
This is because the rapid, explosive growth of industries such as private banking in the region in recent years had sparked a fight to attract talent, he said.
A good move would be to use more long-term incentives in pay packages, which would tie an employee's interest to the firm for a extended period.
But current 'long-term' incentives do not always work well, said Mr Collard. Stock options, for instance, are now marked with a question mark because shareholder value is not always related to share price.
Still, there is some resistance among organisations here towards making drastic changes in compensation.
'There is a 'wait and see' attitude to making changes to reward structures,' he said. Firms are reluctant to be the first movers in this area in case they are 'punished' by losing their best people - although this is beginning to change now that the need for reforms is getting stronger.
