New compensation regulations adopted in the U.S., UK and other countries following the financial crisis are causing global financial services companies to focus on talent management and on rewards beyond pay to help them attract, retain and engage top talent, according to a poll from Towers Watson.
In the U.S., both the Troubled Asset Relief Program (TARP) and the Dodd-Frank Wall Street Reform and Consumer Protection Act require financial institutions to review and disclose whether their compensation programs encourage executives, traders and other employees to take “excessive” risks. Similar rules were adopted in many European companies following guidelines issued by the Financial Stability Board in 2009.
“Traditionally, the financial services industry has differentiated itself in the market for talent by its ability to offer above-average incentive compensation opportunities,” said Mark Shelton, global co-leader of Towers Watson’s talent and rewards financial services practice. “With the new regulatory restrictions limiting their flexibility in that regard, global companies are focusing more on talent management and redefining the ‘deal’ with their people.”
Indeed, when asked what issues concerned them the most, nearly one-third (31%) of poll respondents said redesigning the employee deal or value proposition. Concerns about employee engagement ranked second (25%), followed by compensation issues (22%). When asked about their primary areas of emphasis over the next few years, almost half (47%) pointed to improving leadership effectiveness in their organizations, while 29% said focusing on redesigning key programs, including performance management and career development.
“Clearly, the current regulatory climate is creating new challenges around talent and rewards in the financial services industry globally,” added Chris Fabro, the other global co-leader of Towers Watson’s Talent and Rewards financial services practice. “The leading companies are struggling to adapt and redefine their programs for a markedly different environment from what preceded the financial crisis.”
According to the poll, half of the respondents see little or no impact on risk taking in their organizations resulting from the recent regulations, while the other half said pay structure regulations have had at least a moderate impact. Seven percent said the new regulatory structure has had a significant impact, while another 7% indicated that pay structure regulation has fundamentally changed the industry’s approach to risk taking.