100112_Mercer_webcast_Executive_Compensation_in_Financial_Services

Vicki Elliott, New York LexVerweij, AmsterdamExecutive Compensation in Financial Services:Current state and future expectations12 January 2010Commonly asked questionsCan I ask a question?YES! We will leave room for Q&A at the end of the presentation, please type yourquestions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for.Will I be able to get copies of the slides after the web briefing?YES! We will send you a copy of the presentation and a link to the recording a few days after the session today. You can also continue to check/webbriefings.Full-screen modeClick here to ask a question to“All panelists”Half-screen mode Type your question here to “All panelists”Welcome to Mercer’s financial services web briefingVicki Elliott MercerLex Verweij MercerToday’s speakersvicki.elliott@ +1 212 345 7663lex.verweij@+31 20 431 3854AgendaParticipation in Mercer’s Global Financial Services Executive Incentive Plan Snapshot SurveyImpact of government supportChanges to compensation programsChanges to annual bonus structuresMandatory bonus deferralsLong-term incentive programsKey actions for 2010 & current developmentsParticipationGlobal Financial Services Executive Incentive Plan Snapshot Survey Participation in brief61 participating financial services organisations 69% banks, 28% insurance companies and 3% other47%11%8%7%5%3%3%2%7%3%2%2%United States Canada United Kingdom Ireland Germany Italy Belgium France Switzerland Netherlands SpainSwedenImpact of government supportGlobal Financial Services Executive Incentive Plan Snapshot Survey Government support remuneration limits0%10%20%30%40%50%60%70%80%90%100%SalaryAnnual BonusCashLong-term Incentive(LTI)Share Based LTIStock Option Based LTI No Payouts No Caps Imposed Caps Imposed33% of participants received government supportChanges to compensationprogramsGlobal Financial Services Executive Incentive Plan Snapshot Survey Changes to compensation programs100%80%60%40%20%0%All Banking Insurance America EuropeChanges to compensation programsChange to incentiv e programChange in pay mixIntroduced mandatory bonus deferral linked tosubsequent performanceIntroduced mandatory bonus deferral linked tosubsequent serv iceIncreased deferred bonus amountIntroduced new forward looking LTIEliminated golden parachutes or change in controlarrangementsOther changes; performance conditions or addingclawback prov isions0%10%20%30%40%50%60%70%Changes in pay elements 0%10%20%30%40%50%60%70%80%90%100%Base Salary Annual Bonus LTI Stock Optionswithin LTI Mix Benefits Increased No change DecreasedBase salaries were increased and annual cash bonuses were decreasedChanges to annual bonusstructures80% of organizations making changes in annual bonus structures100%90%80%70%60%50%40%30%20%10%0%All Banking InsuranceAbout a quarter of the responding organizations have limited oreliminated commission or formula-based incentives.Commission 41% of the responding organizations have significantly limited oreliminated one year bonus guarantees.64% of the responding organizations have significantly limited oreliminated multi-year bonus guarantees.42% of responding organizations have eliminated “goldenparachutes”or “change in control”arrangements.Bonus/contractualguarantees 25% of the responding organizations have special provisions for starperformers in years where the bonus pool is small / not triggered.Star performers 2/3 of responding organizations have not included top executives or the head of the division in the same bonus pool as their division.Division bonus pool Organizations typically have an annual bonus / incentive linkage tooverall company performance for all bonus plans.Company performanceHalf of the responding organizations have minimum thresholdperformance requirements for bonus pools and individual payouts.Minimum thresholds Almost half of the responding organizations have or plan to introducecaps or maximums for bonus pools.57% of the responding organizations have caps or maximums forindividual payouts.Bonus caps Almost half of the banks have recalibrated payout curves or ratios orplan to do so.Payout curves Over 2/3 of responding organizations have performance scorecards that include both financial and non-financial performance criteria.Scorecards 2/3 of responding organizations now include cost of capital and risk-adjusted performance metrics or plan to introduce them.Only 26% of organizations currently have multi-year / rollingperformance metrics although another 15% plan to introduce them.Performance measuresMandatory bonus deferralsIntroduction of mandatory bonus deferral linked to subsequent performance 80%60%40%20%0%All America EuropeIncrease in proportional amount of mandatory bonus deferral 60%40%20%0%All America EuropeMandatory bonus deferrals 37% of the responding organizations have the deferral set up as amalus (or bonus bank) type structure and another 32% plan tointroduce such a structure.Bonus Malus 32% of the responding organizations have a bonus deferral with both upside and downside payout opportunities and another 18% plan tointroduce.Upside and downsideopportunity 28% of the responding organizations have the deferral set up as aclaw back type structure.Claw back Typically responding organizations do not differentiate the deferral “based on the nature and time horizon of risks”by line of business or position/role.Risk differentiationSubsequent performance links in bonus deferrals focus more on business unit and company performanceSubsequent individualperformanceSubsequent portfolioperformanceSubsequent businessunit performanceSubsequent companyperformance *0%10%20%30%40%50%60%70%80%90%100%In Plan Plan to introduce Not Included * Other than share price appreciation.Mandatory bonus deferrals Deferral vesting time is predominantly 3 years.Most organizations use installment vesting of bonus deferrals ratherthan cliff vesting.Vesting 37% of the responding organizations pay interest on the deferred bonus.Interest More than half of responding organizations provide dividendequivalents on share based deferrals.Dividend equivalents If performance conditions are not met there is no deferral payout in36% of the responding organizations although another 21% plan tointroduce this.Performance conditionsLong-term incentive plansOver 80% of organizations have long term incentive plans and most are using a combination of plans in their approach0%10%20%30%40%50%60%70%80%Stock Options / SAR plans Share Based Plans Cash / Unit plans% o f o r g a n i s a t i o n sPrevalence of performance conditions in long-term incentive plans is generally greater in Europe than in North America 0%10%20%30%40%50%60%70%80%90%100%Stock Options / SAR P lans Share Based P lansCash / Unit P lans% o f o r g a n i s a t i o n s All America E uropePrevalence and types of performance conditions in LTI plans 0%10%20%30%40%50%60%70%80%90%100%Performance conditions Relative performancemeasures *Internal performance measures Non-financial performance measures Stock Options / SAR PlansShare Based Plans Cash / Unit Plans* To peers or index.Organizational focus in long-term incentive plans 0%10%20%30%40%50%60%70%80%90%100%Focus on overall companyperformanceFocus on business unit performance Stock Options / SAR PlansShare Based Plans Cash / Unit PlansKey actions for 2010 andcurrent developmentsKey actions for 2010 and current developments Align deferred compensation with risk time horizon Assess risks in incentive plans Make plan design and contractualchangesAddress pay mix Key actions for 2010Current developmentsQ&A30Mercer /webbriefings View past recordings and sign up for upcoming web briefings Feedback Please take the time to fill out the survey at the end of this web briefing so we can continue to improve. The survey will pop-up in a new window when the session ends.Questions and contacts Questions Please type your questions in the Q&A section of the toolbar and we will do our best to answer as many questions as we have time for.To submit a question while in full screen mode, use the Q&A button on the bottom right-hand side of your screen.To submit a question while in half screen mode, use the Q&A panel on the bottom right-hand side of your screen. Click here to ask a questionto “All panelists”vicki.elliott@+1 212 345 7663lex.verweij@+31 20 431 3854。