Salaries in banking and insurance salaries won't rise much higher than the broader market this year. Despite that, bonus pools are filled to the brim.
The last two years saw compensation levels for normal employees in Swiss finance rise by 2.5 percent on average. However, many of them are going to have to be content with a much smaller increase this year even though the bonus pools of institutions that did well in 2023 are now filled right up to the brim.
Kienbaum, a consultancy that drafts incentive-based models for banks, including domestic ones, calculates that fixed compensation at financial institutions will rise 2.2 percent this year while pay in insurance will increase 2 percent. It used the results of its own compensation trends survey to come up with the figures. When it comes to bonuses, however, bankers still have the upper hand. On average, they are expected to move up 8 percent while incentive-based compensation in the insurance level will stay at the same level in 2024 as it did last year.
The broader market is expected to see pay gain 2 percent in 2024, making the gap between that and finance practically non-existent.
Shrinking Pay Gap
«We expect to see a continuation of the trend whereby specialists and experts get paid more than executive leadership», indicates Kienbaum director Timon Forrer (image below) to finews.com. The increases will not be spread across the ranks evenly. Lower levels will get more and the higher ones less. That means that the pay gap at most companies will shrink.
(Image: Kienbaum)
«Bonuses continue to have very negative connotations in the public mind. In 2023, they will be significantly higher than they were a year earlier given improved results as most banks use a bonus pool model», Forrer continued.
Less Variable Compensation
Banks that make adjustments to their compensation models are usually seen increasing fixed salaries while reducing the variable components. The personnel consultant said there were two reasons for that. One of them is that employees prefer it as most appreciate the security that it brings. «That can increase a company's attractiveness to new talent and they see that as an advantage», Forrer says.
Incentive-based models that use individual employee targets are also becoming increasingly rare. «Empirical analysis shows that compensation models that link individual targets to bonuses don't lead to behaviors that are ideal for organizations in many fields», the expert warned. Instead, it seems to promote an internal elbow mentality while limiting creativity.
What corporations want now is networked thinking and sil0-free solution-making.
Organizational Success
But doing that also gives employees the feeling that individual performance only has a small impact on personal compensation.
«The public's perception is that bonuses are only paid as something on top», the Kienbaum executive maintains. What gets forgotten is that having a high proportion of incentive-based compensation also entails risks for the manager in question. Still, organizations are cutting down on bonuses given the reputational risks involved. «It is assumed that this happens almost exclusively by increasing fixed compensation. In other words, salaries remain just as high, but there is a great deal less risk involved.»
Bonus Limits
In autumn, the Zurich Cantonal Bank announced that it would institute bonus limits that cut off numbers at the same level as those paid in 2022. In addition, it said that it would adjust its compensation model. The proportion of variable pay on total compensation was reduced at the expense of the fixed component. Beyond that, more of the variable parts would be delayed and paid for in subsequent, time-delayed phases.
«When we adjusted compensation we also changed our positioning against peers», bank head Urs Baumann said last week during the annual news conference. He also clearly defined where the bank wanted to be. «When it comes to compensation we want to be better than 50 percent of our peers at all levels and among the top 25 percent.» «People know that they are being paid market rates», the senior manager maintained.
