No Asian bank 'clawed back' compensation in 2011, says survey

But globally, 3% of organisations reclaimed the payments but have yet to receive the pay back.

According to a new survey data issued by Mercer, 14% of global banking organizations have ‘clawed back’ compensation payments made to employees while a further 3% of organisations have reclaimed the payments but have yet to receive the pay back. This recent data comes from Mercer’s Financial Services Executive Compensation Snapshot Survey which looks at compensation structures in 63 global financial services companies, including banks and insurance firms.

Clawbacks, where paid-out compensation is reclaimed based on financial restatement, gross negligence or other malfeasance, are a common feature in bank compensation structures today.

“There are a variety of reasons why actual clawbacks of payments already made are limited – often the concept conflicts with local labour laws so actually recouping the funds can be difficult,” said Vicki Elliott, Global Financial Services Human Capital Leader at Mercer. “Clawbacks are relatively new phenomena in compensation programs so it will take some time for them to bed down. A small number of clawbacks doesn’t signify that the sector is ignoring lessons from the financial crisis but does raise legitimate questions about whether companies will actually seek pay-back of compensation paid.”

Ms Elliott also pointed to numerous cases where top executives have succumbed to political and public pressure and “volunteered” to forego bonus payments awarded to them by their Boards as a sign of increased responsiveness in the sector.

“It is worth remembering that the majority of banks have also introduced “malus conditions” on deferred compensation,” she added. “This can result in reduced, or no payouts, of deferred monies.

Typically, a clawback is triggered by criteria on an individual level with the most prevalent criteria to trigger a clawback being a breach of code of conduct (73%), and individual non-compliance, breach of authority level or ethical violations (63%).

From an Asian perspective, Dr. Hans Kothuis, Mercer’s Asia Pacific Rewards Leader, commented, “in spite of an increasingly global regulatory environment, significant differences remain between jurisdictions with some countries beginning to adopt their own regulations. We continue to observe different approaches to remuneration between global, regional and local financial institutions operating in Asia. Therefore, many international institutions are finding it progressively more difficult to stay competitive in this environment.”

Although none of the survey participants in Asia actually clawed back compensation in 2011, many are undertaking a review towards an enhancement of their claw back policies, including a better articulation of its rationale.

In terms of deferrals, Dr. Kothuis observes that while international banks tend to apply deferrals to all employees, regional and local banks in Asia are more likely to limit deferrals to senior management, key personnel and senior control staff. Another difference he has noticed is that Asian regional banks tend to apply a basic “home-country” framework, and then superimpose an “overlay” – if required – based on local regulations and market practice in overseas jurisdictions.