Financial services firms increase focus on building sound risk culture to prevent inappropriate risk-taking – Mercer

Most financial services companies are taking significant steps towards fostering a sound risk culture amongst their staff, according to a survey by Mercer. As many as 62% of respondents have carried out initiatives to penalise misconduct and non-compliance to a ‘great degree’, 60% can show evidence of setting the right tone at the top and 58% are communicating clear (risk) culture objectives. But rewarding positive risk behavior continues to be challenging with few organisations having taken these steps ‘to a great degree’ (only 11%).

Vicki Elliott, Senior Partner and Financial Services Talent Leader at Mercer, said:

‘Proactively rewarding positive risk behaviour can be tricky but it is likely to have a more positive impact on culture in the long term compared to punitive measures.’

Key findings

• Experience with bonus malus: Over 90% of banks and 72% of insurance organisations have malus policies in place largely due to regulation which requires that all or a portion of deferred or unvested awards can be reduced or wiped out.
• Performance management changes: More than half of respondents said that their performance management approach works well, though only a small proportion indicated that it delivers exceptional value. But change is on the horizon, with half of all banks planning to make changes to their performance management processes in the next 12 months, this compares to just 16% of insurers. Almost half of respondents indicate that their feedback process and performance management linkage to development needs work. Most banks are increasingly involving their risk management function in selecting performance measures, goal setting and performance evaluation, which, says Mercer, ‘is a significant development for aligning performance with sound risk-taking’.
• Employee value proposition beyond pay: Many financial services companies have made or are making changes to their EVP in order to better attract and retain talent who might otherwise choose not to work for them. The most prevalent initiatives planned, or already in place, are learning and development programmes (47%) and remote working programmes (43%). Other popular changes include implementing career frameworks (37%), introducing flexible working (37%) and non-monetary recognition programmes (34%).

Mark Quinn, Partner and Head of Mercer’s UK Talent business, said:

‘Following the financial crisis, the reputation of traditional financial services firms suffered badly. Esteem turned to stigma as a new generation of graduates started rejecting a culture they viewed as aggressive and lacking in integrity. Banks, in particular, who have since been struggling to attract and retain the best new talent, are realising that these so-called millennials are not just in it for the money. They look for a sense of pride and purpose in their work, as well as flexibility and career support. To attract them, companies need to develop a strong and genuine purpose-led employee value proposition.’

Bonus Malus – As Mercer puts it: 'The part of the deferred bonus that has not yet been paid out and can be ‘reclaimed’ because, for example, an acquisition’s due diligence is not carried out thoroughly.'

‘Global Financial Services Executive Compensation Snapshot Survey’, Mercer, July 2016. Mercer’s survey reviewed the practices of 68 financial services companies globally – banks, insurers and other financial services companies – based in 20 countries in Europe, North America, and Asia. To find out more, please visit: www.uk.mercer.com/newsroom/financial-services-firms-increase-focus-on-building-sound-risk-c.html