Remuneration Governance in the Gulf

It is a generally accepted belief that remuneration and corporate governance issues may have contributed to the recent financial crisis. Therefore, many countries’ regulatory bodies have encouraged stronger remuneration governance especially in financial institutions. The latest remuneration governance principles set out by authorities in Bahrain, the Kingdom of Saudi Arabia and the United Arab Emirates (UAE) have specifically addressed the issue of Remuneration Governance.

Refining the Employee Value Proposition

Over the last 18 months, a number of forces—regulatory reform, firm economics, share availability and public perception—have forced large-scale shifts in the form, level and mix of compensation in financial institutions. Many of these changes were made in haste and out of necessity. As competition for talent heats up, firms are under pressure to define, benchmark and optimize what they use to attract, engage and retain employees―their Employee Value Proposition.

Compensation Risk: Regulatory Update and Risk Review Process

To reward, to retain and to motivate – it is a phrase that often sits at the core of a compensation program philosophy. To achieve these goals, companies use a wide array of compensation vehicles. Among them, incentive programs are the most relied upon component of total reward used to motivate and encourage alignment of individual and organizational goals.

2010 Compensation Plans: A Year in Flux

Mandatory deferral plans were never particularly interesting. Firms were preoccupied with being “competitive with the street”. There wasn’t a great deal of variety and innovation. Employees griped about having some portion of their bonuses deferred, and then often sat back and watched the value of their awards escalate. Of course, that hasn’t always been the case in the last couple of years.

2009: A Year to Forget? Are There Lessons to Be Learned?

By all accounts, 2009 was a year that most of us want to forget. The credit crisis came home to roost, government intervention and regulation reached an all-time high, executives in general and bankers in particular were vilified, and so many things that we took for granted were turned upside down. But, from all this, are there lessons that we can learn?

Country Specific Compensation Regulation

Given the multitude of regulatory agencies that global financial institutions have to deal with, we thought it would be helpful to summarize the latest requirements as we understand them. The table below is designed to give you an update "at a glance". It is not comprehensive and only covers the major economies. We will update this as we become aware of changes.  

The Changing Landscape of Strategic Cost Management for Insurers

The global financial crisis of 2008 - 2009 has spurred a renewed focus on operational efficiency and Enterprise Risk Management (ERM) not only for (re)insurers but for all organizations. With companies facing the toughest market conditions and economic climate since the Great Depression, challenges and questions loom around every corner. The turmoil we have experienced, and continue to encounter, coupled with an abundance of new and proposed regulatory reforms, presents firms with daunting challenges - and significant opportunities.

What Do They Mean By Unreasonable Risk?

Virtually every regulatory body has come out with some pronouncement or other admonishing financial institutions to curtail compensation programs that “encourage the taking of unreasonable risk.” Two parts of that statement are problematic.

Financial Services Authority: Reforming Remuneration Practices in Financial Services

Regulatory bodies and industry associations across the world have been focused on incentive compensation practices in order to assess their impact on the recent financial crisis and more importantly to identify ways to prevent future problems. On August 11, 2009, the United Kingdom’s Financial Services Authority (FSA) published a policy statement for regulating remuneration policies in the UK. This was preceded on July 13th by a report from the European Commission. The overall objectives of the policy statement and recommendations are to sustain market confidence and promote financial stability. Most regulatory and industry organizations have concluded that by removing incentives that encourage inappropriate risk-taking, there will be greater stability in the financial markets.

Starting Over: The Rebuilding of Executive Pay Structures in Financial Instituations

For a number of reasons—government scrutiny, shareholder backlash, undernourished balance sheets—bank management and boards are hearing the call to reform executive pay. Many are convinced that while pay did not cause the financial meltdown, it certainly exacerbated the problem. This has lead to a genuine interest in transforming executive pay. The devil, of course, is in the details. 

Job Alignment Opportunities

​In the current market environment, there are numerous opportunities for human resources and compensation professionals to continue to add value to their organizations. While a return to more robust revenue levels would obscure a multitude of other problems, lean times force organizations to work smarter and more efficiently, and HR and compensation professionals are uniquely positioned to lead.

Salary Increases: Separating Fact from Speculation

There is a lot of noise in the market and in the press that seems to suggestthat many banks and financial services firms of all types are increasing salaries broadly – a sentiment that is reinforced by those lobbying for such action. The topic is emotionally charged and like most market events, the perception may often create its own reality.

Considering Salary Increases

​There has been a lot of talk about increasing salaries in financial institutions. This is particularly surprising given that relative performance is, for the most part, declining.

Can We Please Stop This Craziness Now? The Case Against Punitive Taxes on Banker’s Pay

It was a big week in Washington—lots of hoopla and press and plenty of opportunity to take pot shots at the “fat cats” on Wall Street. But, it’s a new week and calmer heads must rationally get down to the business of saving our financial system.

The Brave New World of Executive Compensation

This is a year like no other in the world of executive compensation.  Everything has turned on its head and the challenges for professionals in the field are staggering.  The bad news is that things will never again be like they were before and we are going to have to get used to it.  The good news is that we have an opportunity to, within very real constraints, reinvent executive compensation practices in this critical industry.

2009 Compensation Plans: An Early Look

In the 2008 / 2009 bonus process, we have seen significant changes to deferral plans, most notably, substantially more compensation deferred. Employee perception is a mixed bag: with stock prices depressed across the market, this may be a time when employees see more potential upside in performance driven / long-term awards; however, in some cases, employees have seen historic awards lose value, and may be skeptical as to their value proposition.

Troubled Assets Relief Program (TARP)

Since its enactment, the Emergency Economic Stabilization Act of 2008 (EESA) has required that financial institutions participating in the Troubled Assets Relief Program (TARP) accept certain conditions for executive compensation and corporate governance for the period during which Treasury holds an equity stake.

Addressing Underwater Options: Measured Responses to a Contentious Problem

The credit crisis of 2007 and 2008 has resulted in severely depressed stock prices for the majority of large financial services firms, leaving their executives and employees holding underwater options (an employee stock option with an exercise price greater than the fair market value of the underlying company stock). Many executives have lost a significant portion of net worth based on the decline in the value of their holdings.

First Quarter Optimization

After working harder than ever, in the most stressful year-end environment any of us have seen, it would be nice to say that we can coast a bit in the first quarter of 2009. But we can’t – there is still much work to be done.

View From the Top: What Should We Do About Executive Pay?

Boards and senior leaders of financial institutions from around the world are struggling to decide what to do about pay this year-end, and time is running out. After an impressive run of staggering business results and pay to go with it—everything came tumbling down. Now is the time that compensation/remuneration committees must decide how and what to pay top executives this year. While there are few benchmarks to guide these decisions, there are many loud and conflicting voices expressing opinions from the sidelines. Traditional tools like surveys, payout ratios and market trends provide useful intelligence, but there is even more to consider.

Stemming the Tide of Title Inflation

While some may look at title inflation as a statistical curiosity, or a “soft” issue, and not a legitimate business concern, we have seen compelling evidence to the contrary. McLagan works with our clients to manage this problem out of their organizations through benchmarking title ratios, defining promotion criteria and improving title processes.

So What Should We Do Now?

​We have spoken to hundreds of firms over the last 60 days and they are all asking—“so what should we do now?” Existing executive compensation programs won’t/aren’t working and executives’ net worth has declined dramatically. There is the very real prospect of zero bonuses, underwater (drowning) options and performance plans that don’t have a prayer of paying out now or in the foreseeable future.

Pay Pressures

As 2008 progresses, and the banking / capital markets business shows limited signs of bouncing back, firms are struggling to think of ways to deliver a reasonable level of compensation. To some degree, this is a problem that is being carried forward from 2007, as many firms did not adjust pay levels downward in a way that corresponded to business results. Payout ratios, which have largely been a constant for mature businesses, increased in unprecedented and unsustainable ways.

Where Are The Villains Now?

In this current crisis, pain is widespread and where there is pain there is a search for villains. As a result, there is likely to be broad and deep investigation into Wall Street’s compensation plans. The outcome of this work could be the most significant shift in the compensation philosophy and plans since firms went public. It is clear that regulatory bodies are taking a hard look at this topic at this very moment.

 

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