MERCER GLOBAL FINANCIAL SERVICES EXECUTIVE COMPENSATION SNAPSHOT SURVEY JUNE 2015

Transcription

1 MERCER GLOBAL FINANCIAL SERVICES EXECUTIVE COMPENSATION SNAPSHOT SURVEY JUNE 2015

2 Contents 1. OVERVIEW About the Survey Definitions Confidentiality If You Have Questions Commentary on Survey Results PARTICIPANT LIST AND PROFILE Participant List Participant Profile CHANGES IN ANNUAL AND LONG-TERM INCENTIVES AND PAY MIX Changes to Executive Compensation Programs in Light of Difficult Market Conditions Planned Changes in Corporate Annual Incentive Design in Planned Changes in Allocation of Annual Incentives to Individuals Planned Changes in the Mandatory Deferral Design in Planned Changes in the Forward-looking Long-term Incentive Design in Planned Changes to Vehicle Mix in Multi-year Awards (Mandatory Deferral and LTI) for Planned Changes in Pay Mix in NON-FINANCIAL PERFORMANCE MEASUREMENT Non-financial Performance Links to Incentive Compensation Non-financial Performance Links to Incentive Compensation (Business and Individual Level) Non-financial Performance Metrics Used in Incentive Compensation Weight of Non-financial Performance Metrics (Business and Individual Level) Compliance/Risk Behaviors in Annual Incentive Programs APPROACH TO MULTI-YEAR COMPENSATION Prevalence of Mandatory Deferral and Forward-looking Long-term Incentives Mandatory Deferral and Forward-looking Long-term Incentives Eligibility Vehicles Used for Mandatory Deferral and Forward-looking Long-term Incentives Vehicles for Mandatory Deferral Vehicles for Forward-looking Long-term Incentives Performance Metrics for Mandatory Deferral or Forward-looking Long-term Incentives Weight of Performance Measures Compliance/Risk Management in Multi-year Incentive Programs Performance Conditions Based on Corporate, Regional, Business Unit or Individual Performance Weight of Corporate, Regional, Business Unit or Individual Performance... 49

3 5.7. Performance Adjustment for Deferral Payout Vesting Period and Scheme for Mandatory Deferral and Forward-looking Long-term Incentives Vesting Period and Scheme for Mandatory Deferral Vesting Period and Scheme for Forward-looking Long-term Incentives Additional Holding Periods on Vested Awards ROLE-BASED ALLOWANCES Prevalence of Role-based Allowances Changes Planned in the Role-based Allowances Design Vehicles Used for Role-based Allowances Frequency of Role-based Allowances Pay-out Term/Duration for Role-based Allowances IDENTIFIED STAFF/MATERIAL RISK TAKERS Definition of Identified Staff/Material Risk Takers Number of Identified Staff/Material Risk Takers Number of Employees That Have Been Excluded as Identified Staff/Material Risk Takers... 67

4 1. OVERVIEW 1.1. About the Survey Mercer is pleased to present the results for the eleventh edition of the Mercer Global Financial Services Executive Compensation Snapshot Survey, conducted in April This report provides an update on key changes and practices in corporate level compensation programs. The survey was completed by 55 financial services organizations, of which 55% were banks, 35% insurance companies, and 11% other financial services organizations. Survey participants are based in 15 different countries with 53% in, 44% in North America, and 4% in AsiaPac (which combines Asia and Australia). A list of the organizations submitting their data is included in Section 2. The next four sections cover questions about changes in annual and long-term incentives and pay mix, as well as practices around non-financial performance measures, multi-year compensation, role-based allowances, and material risk takers Definitions Clawback already vested compensation is reclaimed based on restatement, gross negligence, non-compliance or other malfeasance. Forward-looking long-term incentives (LTI) programs that grant long-term incentive awards for rewarding future success in addition to the short-term incentive award; an LTI award generally vests based on performance over a multi-year time frame going forward (for example, with a 2015 grant, performance criteria are set for 2019 achievement and payout). Malus any adjustment in the unvested deferred compensation in the subsequent or current year, based on performance. Mandatory deferral programs that have a portion of the short-term incentive award deferred over time with potential inclusion of performance-based vesting criteria which considers how business results in an award year develop over a multi-year period (for example, performance of 2015 will be re-evaluated in 2018). Material risk-taking positions as defined by the organization, staff members whose professional activities either individually or collectively, as a member of a group/unit/department can exert influence on the institution s risk profile. Includes MRTs, covered employees and identified staff Confidentiality To ensure the confidentiality of all data, a minimum number of observations is required in order for statistics to be displayed. Three organizations must report at least three observations for a variable in order for the mean and frequency distribution to be displayed. Four organizations and four observations are required for display of the median. Five organizations reporting at least five observations are required to display 25 th and 75 th percentiles. Where there has been insufficient data for analysis, this has been indicated with of 67

5 The information and data contained in this report are for information purposes only and are not intended nor implied to be a substitute for professional advice. In no event will Mercer be liable to you or to any third party for any decision made or action taken in reliance of the results obtained through the use of the information and/or data contained or provided herein If You Have Questions If you have questions regarding the survey or the report, contact us at: Vicki Elliott Dirk Vink vicki.elliott@mercer.com dirk.vink@mercer.com Phone: Phone: Commentary on Survey Results Mercer conducted an online survey in April The focus of this survey is on key changes in annual and long-term incentives and pay mix, as well as practices around non-financial performance measures, multi-year compensation, role-based allowances, and material risk takers. Changes in Annual and Long-term Incentives and Pay Mix A majority of organizations (78%) are planning to make changes to their executive compensation programs as a result of difficult market conditions in However, 42% of North American organizations do not expect to make changes to executive compensation in light of difficult market conditions. The top three changes organizations are considering include strengthening malus/clawback conditions (47%), strengthening the linkage between performance management and compensation (44%), and including more non-financial performance measures (31%). About one-third of the insurance companies also increased the difficulty/toughness of performance conditions and changed the expected distribution of performance ratings. Most organizations are not planning to make changes to their corporate annual incentive design in More an organizations are planning to make changes than North American organizations. About 41% of an organizations have plans to increase the weight of non-financial performance measures compared to 13% in North America. About one-third of an organizations are planning to increase use of risk-adjusted measures at business unit level (34%) and at individual level (31%), and decreasing maximum incentive level (28%) compared to only 4% of North American organizations. There are industry differences as well: more banks are planning to decrease target and maximum incentive levels, increase the use of risk-adjusted measures at business level and individual level and increase the weight of non-financial performance measures than insurance companies. 42% of insurance companies are increasing individual differentiation in bonus distribution compared to 27% of banks. The majority of organizations have a mandatory deferral mechanism in place with nearly all banks, and half of insurance companies having these plans as well. 42% of North American organizations do not have a mandatory deferral program in place. Increases in the malus conditions (prior to vesting) and clawback (after vesting) are among the most cited changes to mandatory deferral design in both the banking and insurance industries. About one-third of an organizations plan to increase the use of malus (prior to vesting) compared to 14% in North America. A quarter of an firms (24%) are increasing the weight of non-financial performance measures and 16% are decreasing the weight of financial performance measures, while none of the North American organizations are making these changes. 4 of 67

6 Nearly 75% of organizations currently have a forward-looking long-term incentive plan in place. Forward-looking long-term incentive plans are particularly prevalent in North America (88%) and the insurance industry (89%). Changes to forward-looking long-term incentive plans are more prevalent in. Increasing the clawback (after vesting) (39%), malus conditions (prior to vesting) (33%), employee eligibility for forward-looking long-term incentive plans (28%), and additional required holding period (after vesting period) (22%) are the top 4 changes for an organizations. Some banking organizations are planning on increasing the performance/vesting period (28%) and the weight of financial performance measures (17%), while none of the insurance companies are planning to do so. One quarter (24%) of insurance companies are planning to increase the additional required holding period (after vesting period) compared to only 6% of banks. The majority of organizations are not planning to change the vehicle mix in multi-year awards for Some organizations (19%; 17% of banks and 21% of insurers) are considering increasing the weight of performance contingent restricted stock/performance shares. Although most organizations are not planning to make changes to their pay mix in 2015, organizations in are planning on making more changes to their pay mix in 2015 than those in North America. Particularly, increasing the weight of base salaries are prevalent in an organizations (38% compared to 4% in North America). Changes to the pay mix are more prevalent in the banking industry than in the insurance industry. Banks are generally increasing the weight of base salaries (41%), and mandatory deferrals (17%). About 10% of banks and insurance companies are decreasing the weight of benefits. Non-financial Performance Measurement The vast majority of organizations link non-financial performance to incentive compensation. Linking non-financial performances measures to incentive compensation is slightly more common in the banking industry (93%) compared to the insurance industry (74%). Organizations typically weight non-financial performance at 30% as part of overall business performance and 40% as part of individual performance. Organizations in North America and the banking industry place more emphasis on the individual qualitative performance at 50% (median). Compliance/risk management is the most prevalent non-financial performance metric at 64% overall, but it is notably less common in the insurance industry (29%). The vast majority of banks assess compliance/risk management elements as part of their incentive compensation programs (85%). Customer metrics are prevalent in banks (67%) but less so in insurance companies (36%). Employee metrics are also widely used (60% overall), but more so in the banking industry (67%) than the insurance (50%) industry. Mixed results are found on how organizations use compliance/risk behaviors in their annual incentive programs. About half of the organizations use compliance/risk behaviors either as a qualifier hurdle, as a portion of a scorecard, or as a modifier of an award or some combination. Scorecards are more prominent in North American organizations (63%), whereas a modifier of an award determined by other performance achievements is more prevalent in an organizations (68%). Approach to Multi-year Compensation Typically, most senior executives are eligible for long-term incentives and mandatory deferrals. Eligibility for mandatory deferral is typically extended to identified staff (e.g., Material Risk Takers). 5 of 67

7 Mandatory Deferral Cash and service-based restricted stock are the most common ways organizations pay out the bonus deferral. In, performance contingent restricted stock/performance shares are quite common as well (52%). The two most prevalent performance metrics used to determine payouts are net/operating profit (50%) and compliance/risk management metrics (45%). For mandatory deferral programs, the performance conditions adjustment is usually downwards only (67%), particularly in the banking industry. The median vesting is 3 years regardless of the vehicle. The installment vesting approach is more prevalent than cliff vesting across all regions, industries, and vehicle types. Forward-looking Long-term Incentives Performance contingent restricted stock/performance shares are the most prevalent vehicles for forward-looking long-term incentives across all regions and industries. North American organizations also use stock options (39%) and service-based restricted stock (33%). In and in the banking industry, contingent capital/debt-based instruments are used by some organizations (13% and 12% respectively). Return on equity is the most common at 52%, followed by net/operating profit and TSR at 35%. Performance conditions adjustment is usually both upwards and downwards. The median vesting is 3 years for most vehicles with the exception of stock options/sar which have a median vesting of 4 years. Cliff vesting is typical of cash, service-based restricted stock, and performance contingent restricted stock/performance shares, while installment vesting is used more with stock options/sar. A majority of organizations (67%) use compliance risk management as a modifier of an award determined by other performance achievements in their multi-year incentive program. In the banking industry and in, it is more common to have additional holding periods on vested awards. The average length of the additional holding period is one year, with the exception of insurance where it is two years. Role-based Allowances 50% of banking organizations have role-based allowances in place for 2015, and an additional 3% are planning to introduce them soon (particularly those based in North America). Very few organizations that implemented role-based allowances are now planning to eliminate them. The majority of organizations outside the banking industry do not have role-based allowances in place, and have no plans to do so in the future. Only 12% of the organizations in the survey are already planning to make design changes to their role-based allowances. Half of the an organizations are not planning to change the role-based allowances design until after consultation with their national regulators. Cash is the predominant vehicle for role-based allowances across all regions and industries (88%). A few an organizations use stock or a combination of cash and stock (both 6%). A majority of the role-based allowances are paid out on a monthly basis (71%); if not paid monthly, the allowances are paid out annually. The median term for role-based allowances is 3.0 years across the banking industry, in and in North America. 6 of 67

8 Identified Staff/Material Risk Takers Approximately three-fourths of the organizations in the survey have identified staff/material risk takers. An individual at a defined total compensation level and above is the most prevalent criteria (83%) in defining material risk takers for those referencing the EBA. Across all regulators, individuals at a defined organization level and above is the most common definition. Other frequently cited definitions are individuals who have credit approval authority levels above a specific amount and individuals who have a Value At Risk (VAR) limit in excess of a specific amount. Based on EBA regulations, the average number of employees that are identified as core material risk takers is 415, and when defining the broader group of employees, the average increases to an additional 2,124. Using the Fed s definition, the average number of material risk takers is 459. On average, 311 employees within an organization in the banking industry have been excluded as material risk takers above the CRD IV thresholds. 7 of 67

9 2. PARTICIPANT LIST AND PROFILE 2.1. Participant List Alphabetical list of all participants The following 55 organizations participated in the survey: Organization Name Country Industry ABN AMRO Netherlands Banking AIA Group Hong Kong Insurance AIG United States Insurance Allianz Germany Insurance American Express United States Other Financial Services Ameriprise Financial United States Other Financial Services Assicurazioni Generali Italy Insurance Assurant United States Insurance Aviva Canada Canada Insurance AXA France Insurance Axpo Trading Switzerland Other Financial Services BBVA Spain Banking BMO Financial Group Canada Banking BNP Paribas France Banking BNY Mellon United States Banking Capital One United States Banking Chubb & Son United States Insurance CIT United States Banking Credit Agricole France Banking Credit Suisse Switzerland Banking East West Bank United States Banking Erie Insurance United States Insurance Erste Group Bank Austria Banking Great Eastern Life Assurance Company Singapore Insurance HSBC Holdings plc United Kingdom Banking If Skadeforsakring Sweden Insurance ING Bank N.V. Netherlands Banking Intesa Sanpaolo Italy Banking Irish Life Ireland Insurance JPMorgan Chase & Co United States Banking Liberty Mutual Insurance United States Insurance Macquarie Holdings USA United States Banking Manulife Financial Canada Insurance MassMutual United States Insurance Mediobanca Italy Banking 8 of 67

10 Organization Name Country Industry Morabanc Andorra Banking MSCI United States Other Financial Services NIBC Netherlands Banking Northern Trust United States Other Financial Services Phoenix Group United Kingdom Insurance Scotiabank Canada Banking PNC Financial Services United States Banking Skandinaviska Enskilda Banken Sweden Banking Societe Generale France Banking State Street Corporation United States Banking Swedbank Sweden Banking Swiss Life Switzerland Insurance Swiss Re Switzerland Insurance US Bank United States Banking UBS AG Switzerland Banking UniCredit Italy Banking Visa United Kingdom Other Financial Services Vontobel Switzerland Banking Wells Fargo & Company United States Banking Zurich Insurance Switzerland Insurance Other financial services: e.g., payments, stock exchange, consumer finance. 9 of 67

11 2.2. Participant Profile The survey was completed by 55 financial services organizations, of which 55% were banks, 35% were insurance companies, and 11% were other financial services organizations. Survey participants are based in 15 different countries with 53% in, 44% in North America, and 4% in AsiaPac (which combines Asia and Australia). Note that the AsiaPac sample size was too small to provide separate findings and maintain confidentiality, however the AsiaPac observations are included in the overall findings shown for all regions and industries. Organization nationality Country Percentage of Organizations United States 36% Switzerland 13% Italy 7% France 7% Canada 7% United Kingdom 5% Sweden 5% Netherlands 5% Spain 2% Singapore 2% Ireland 2% Hong Kong 2% Germany 2% Austria 2% Andorra 2% No. of 55 Note: The total may not equal 100% due to rounding. Industry Banking Insurance Other Financial Services No. of Overall 55% 35% 11% 55 62% 31% 7% 29 North America 50% 33% 17% 24 AsiaPac Other financial services: e.g., payments, stock exchange, consumer finance. Note: The total may not equal 100% due to rounding. Number of employees Percentage of Organizations Less than 3,000 11% 3,000 14,999 25% 15,000 49,999 24% 50,000 or more 40% No. of 55 Note: The total may not equal 100% due to rounding. 10 of 67

12 3. CHANGES IN ANNUAL AND LONG-TERM INCENTIVES AND PAY MIX 3.1. Changes to Executive Compensation Programs in Light of Difficult Market Conditions A majority of organizations (78%) are planning to make changes to their executive compensation programs as a result of difficult market conditions in However, 42% of North American organizations do not expect to make changes to executive compensation in light of difficult market conditions. The top three changes organizations are considering include strengthening malus/clawback conditions (47%), strengthening the linkage between performance management and compensation (44%), and including more non-financial performance measures (31%). About one-third of the insurance companies also increased the difficulty/toughness of performance conditions and changed the expected distribution of performance ratings. Yes, included more non-financial performance measures Yes, strengthened the linkage between performance management and compensation Yes, changed the expected distribution of performance ratings Yes, decreased payout for lower performance ratings Yes, created a separate bonus pool for high performers Yes, improved base salary management systems All Regions and Industries Region Industry North Banking Insurance America Other Financial Services 31% 48% 8% 37% 26% 17% 44% 55% 29% 47% 37% 50% 20% 28% 13% 13% 32% 17% 15% 21% 8% 10% 21% 17% 0% 0% 0% 0% 0% 0% 5% 7% 4% 7% 0% 17% Yes, strengthened malus/clawback conditions 47% 55% 42% 63% 26% 33% Yes, increased the use of Human Capital Metrics ( Big Data ) in decision making Yes, changed HR policies to deal with recent currency exchange fluctuations Yes, reduced the difficulty/toughness of performance conditions Yes, increased the difficulty/toughness of performance conditions Yes, increased payout for highest performance ratings Yes, other changes related to difficult market environment 11% 17% 4% 13% 5% 17% 0% 0% 0% 0% 0% 0% 2% 0% 0% 0% 5% 0% 29% 34% 25% 27% 32% 33% 18% 24% 13% 20% 16% 17% 11% 14% 8% 13% 5% 17% No changes 22% 7% 42% 13% 32% 33% No. of Note: Some organizations may have indicated more than one answer; therefore, the total may exceed 100%. Other includes: decrease of the maximum incentive level; increased global governance; harmonized pay structures; introduction of a new deferred compensation plan shifting annual incentives to performance shares. 11 of 67

13 3.2. Planned Changes in Corporate Annual Incentive Design in 2015 All regions and industries Most organizations are not planning to make changes to their corporate annual incentive design in More than one-third of the organizations are considering increasing individual differentiation in bonus distribution (36%). Some organizations are planning on increasing the weight of non-financial performance measures (29%) and increasing use of risk-adjusted measures at business unit level (20%). Weight of financial performance measures Weight of non-financial performance measures Use of risk-adjusted measures at business unit level Use of risk-adjusted measures at individual level Bonus/incentive eligibility Target incentive level Maximum incentive level Amount of discretion applied Individual differentiation in bonus distribution -20% -10% 0% 10% 20% 30% 40% Decrease Increase Increase Decrease No Change No. of Weight of financial performance measures 7% 15% 78% 55 Weight of non-financial performance measures 29% 5% 65% 55 Use of risk-adjusted measures at business unit level 20% 0% 80% 55 Use of risk-adjusted measures at individual level 18% 2% 80% 55 Bonus/incentive eligibility 4% 7% 89% 55 Target incentive level 5% 11% 84% 55 Maximum incentive level 2% 16% 82% 55 Amount of discretion applied 18% 4% 78% 55 Individual differentiation in bonus distribution 36% 4% 60% 55 Other 0% 0% 100% 7 Note: The total may not equal 100% due to rounding. 12 of 67

14 By region More an organizations are planning to make changes to their corporate annual incentive design than North American organizations. About 41% of an organizations have plans to increase the weight of non-financial performance measures compared to 13% in North America. About one-third of an organizations are planning to increase use of risk-adjusted measures at business unit level (34%) and at individual level (31%), and decreasing maximum incentive level (28%) compared to only 4% of North American organizations. North America Weight of financial performance measures Weight of non-financial performance measures Use of risk-adjusted measures at business unit level Use of risk-adjusted measures at individual level Increase Decrease No. of Increase Decrease No. of 7% 17% 29 8% 13% 24 41% 3% 29 13% 8% 24 34% 0% 29 4% 0% 24 31% 3% 29 4% 0% 24 Bonus/incentive eligibility 3% 14% 29 4% 0% 24 Target incentive level 0% 21% 29 13% 0% 24 Maximum incentive level 0% 28% 29 4% 4% 24 Amount of discretion applied 14% 3% 29 21% 4% 24 Individual differentiation in bonus distribution 45% 3% 29 25% 4% 24 Other % 0% 6 Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 13 of 67

15 By industry There are industry differences in changes to corporate annual incentive design: more banks are planning to decrease target and maximum incentive levels, increase the use risk-adjusted measures at business level and individual level and increase the weight of non-financial performance measures than insurance companies. 42% of insurance companies are increasing individual differentiation in bonus distribution compared to 27% of banks. Banking Insurance Other Financial Services Increase Decrease No. of Increase Decrease No. of Increase Decrease No. of Weight of financial performance measures Weight of non-financial performance measures Use of risk-adjusted measures at business unit level Use of risk-adjusted measures at individual level 7% 17% 30 11% 16% 19 0% 0% 6 37% 3% 30 21% 11% 19 17% 0% 6 27% 0% 30 11% 0% 19 17% 0% 6 27% 3% 30 11% 0% 19 0% 0% 6 Bonus/incentive eligibility 0% 13% 30 5% 0% 19 17% 0% 6 Target incentive level 3% 17% 30 5% 5% 19 17% 0% 6 Maximum incentive level 0% 23% 30 5% 0% 19 0% 33% 6 Amount of discretion applied 20% 3% 30 21% 0% 19 0% 17% 6 Individual differentiation in bonus distribution 27% 3% 30 42% 5% 19 67% 0% 6 Other 0% 0% 4 0% 0% Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 14 of 67

16 Planned Changes in Allocation of Annual Incentives to Individuals The vast majority of organizations do not plan to make changes in allocation of annual incentives to individuals (73%). However, 14% of organizations in plan to move to an evaluation method using a scorecard with both financial and non-financial criteria, and 16% of insurance companies are planning to move to a more discretionary allocation when allocating annual incentives to individuals. All Regions and Industries Region North America Industry Banking Insurance Other Financial Services Yes, moving to formal target bonus system 2% 3% 0% 0% 5% 0% Yes, moving to evaluation of scorecard with financial and non-financial criteria Yes, moving to more structured, formulaic approach 11% 14% 4% 7% 11% 33% 5% 7% 0% 3% 11% 0% Yes, moving to more discretionary allocation 9% 7% 13% 7% 16% 0% No, no changes planned 73% 69% 83% 83% 58% 67% No. of Note: The total may not equal 100% due to rounding. 15 of 67

17 Industry Region Mercer Global Financial Services Executive Compensation Snapshot Survey 3.3. Planned Changes in the Mandatory Deferral Design in 2015 Percentage of organizations that have mandatory deferral program The majority of organizations have a mandatory deferral mechanism in place with nearly all banks, and half of insurance companies having these plans as well. 42% of North American organizations do not have a mandatory deferral program in place, and no organizations are planning to introduce such programs in North America Banking Insurance Other Financial Services 0% 20% 40% 60% 80% 100% Mandatory deferral in place Planning to introduce mandatory deferral program in 2015 No mandatory deferral program in place All Regions and Industries Region North America Industry Banking Insurance Other Financial Services No mandatory deferral program in place 27% 14% 42% 3% 53% 67% Planning to introduce mandatory deferral program in % 0% 0% 0% 0% 0% Mandatory deferral in place 73% 86% 58% 97% 47% 33% No. of Note: The total may not equal 100% due to rounding. 16 of 67

18 Planned changes in the mandatory deferral design in 2015 all regions and industries About 25% of organizations are planning to increase the use of malus conditions in their mandatory deferral programs, while one-third of organizations (33%) are planning to increase their use of clawback (after vesting). Increase Decrease No Change No. of Eligibility for mandatory deferral 18% 3% 80% 40 Required mandatory deferred portion of bonus 15% 0% 85% 40 Maximum payout/leverage 0% 5% 95% 40 Mandatory deferral period (performance/vesting period) Additional required holding period (after vesting period) 13% 0% 88% 40 8% 5% 88% 40 Weight of financial performance measures 5% 10% 85% 40 Weight of non-financial performance measures 15% 0% 85% 40 Rigor of performance conditions 10% 0% 90% 40 Amount of discretion applied 8% 3% 90% 40 Use of malus conditions (prior to vesting) 25% 0% 75% 40 Use of clawback (after vesting) 33% 3% 65% 40 Other 75% 0% 25% 4 Note: The total may not equal 100% due to rounding. Other includes: Determination of deferred to be based on % of Total Cash (instead of annual incentive); deferral period increase (from 3 to 5 years) only for CEO and top executives; extend the clawback period for specific covered individuals. 17 of 67

19 Planned changes in the mandatory deferral design in 2015 by region About one-third of an organizations plan to increase the use of malus (prior to vesting) compared to 14% in North American. A quarter of an firms (24%) are increasing the weight of non-financial performance measures and 16% are decreasing the weight of financial performance measures, while none of the North American organizations are making these changes. North America Increase Decrease No. of Increase Decrease No. of Eligibility for mandatory deferral 20% 4% 25 14% 0% 14 Required mandatory deferred portion of bonus 20% 0% 25 7% 0% 14 Maximum payout/leverage 0% 8% 25 0% 0% 14 Mandatory deferral period (performance/vesting period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures 20% 0% 25 0% 0% 14 12% 8% 25 0% 0% 14 4% 16% 25 7% 0% 14 24% 0% 25 0% 0% 14 Rigor of performance conditions 12% 0% 25 7% 0% 14 Amount of discretion applied 4% 4% 25 14% 0% 14 Use of malus conditions (prior to vesting) 32% 0% 25 14% 0% 14 Use of clawback (after vesting) 32% 0% 25 36% 7% 14 Other % 0% 3 Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. Planned changes in the mandatory deferral design in 2015 by industry Increases in the malus conditions (prior to vesting) and clawback (after vesting) are among the most cited changes to mandatory deferral design in both the banking and insurance industries. Most banks are making other changes: some are planning to increase the eligibility levels (21%), increase the deferral period (17%), and increase the required mandatory deferred portion of bonus (17%). 18 of 67

20 Eligibility for mandatory deferral Required mandatory deferred portion of bonus Maximum payout/leverage Mandatory deferral period (performance/vesting period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures Rigor of performance conditions Amount of discretion applied Use of malus conditions (prior to vesting) Use of clawback (after vesting) -20% -10% 0% 10% 20% 30% 40% Banking Decrease Insurance Decrease Banking Increase Insurance Increase Banking Insurance Other Financial Services Increase Decrease N Increase Decrease N Increase Decrease N Eligibility for mandatory deferral 21% 3% 29 11% 0% Required mandatory deferred portion of bonus 17% 0% 29 11% 0% Maximum payout/leverage 0% 7% 29 0% 0% Mandatory deferral period (performance/vesting period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures 17% 0% 29 0% 0% % 7% 29 0% 0% % 10% 29 0% 11% % 0% 29 11% 0% Rigor of performance conditions 10% 0% 29 11% 0% Amount of discretion applied 10% 3% 29 0% 0% Use of malus conditions (prior to vesting) 24% 0% 29 33% 0% Use of clawback (after vesting) 34% 3% 29 33% 0% Other 75% 0% Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 19 of 67

21 Industry Region Mercer Global Financial Services Executive Compensation Snapshot Survey 3.4. Planned Changes in the Forward-looking Long-term Incentive Design in 2015 Percentage of organizations that have forward-looking long-term incentive program Nearly 75% of organizations currently have a forward-looking long-term incentive plan in place. Forward-looking long-term incentive plans are particularly prevalent in North America (88%) and the insurance industry (89%). North America Banking Insurance Other Financial Services 0% 20% 40% 60% 80% 100% Forward looking long-term incentives in place No forward-looking long-term incentive program in place Planning to introduce forward-looking long-term incentive program in 2015 No forward-looking long-term incentive program in place Planning to introduce forward-looking long-term incentive program in 2015 Forward looking long-term incentives in place All Regions and Industries Region North America Industry Banking Insurance Other Financial Services 22% 28% 13% 30% 11% 17% 5% 10% 0% 10% 0% 0% 73% 62% 88% 60% 89% 83% No. of Note: The total may not equal 100% due to rounding. 20 of 67

22 Planned changes in the forward-looking long-term incentive design in 2015 all regions and industries Some organizations are planning to increase the clawback (after vesting) (23%), malus conditions (prior to vesting) (20%), and employee eligibility for forward-looking long-term incentive plans (18%). Increase Decrease No Change No. of Eligibility for forward-looking long-term incentive 18% 5% 78% 40 Target award levels 8% 0% 93% 40 Maximum payout/leverage 5% 8% 88% 40 Performance/vesting period 13% 0% 88% 40 Additional required deferral period (after performance period) 3% 3% 95% 40 Additional required holding period (after vesting period) 15% 3% 83% 40 Weight of financial performance measures 8% 3% 90% 40 Weight of non-financial performance measures 3% 0% 98% 40 Rigor of performance conditions 13% 0% 88% 40 Amount of discretion applied 8% 3% 90% 40 Use of malus conditions (prior to vesting) 20% 0% 80% 40 Use of clawback (after vesting) 23% 0% 78% 40 Other 15% 0% 85% 13 Note: The total may not equal 100% due to rounding. Other includes: Introduce threshold for TSR measure; Introduction of Dividend Equiv. Units; Vesting: moved from 1/3 to 3 year cliff. 21 of 67

23 Planned changes in the forward-looking long-term incentive design in 2015 by region Changes to forward-looking long-term incentive plans are more prevalent in. Increasing the clawback (after vesting) (39%), malus conditions (prior to vesting) (33%), employee eligibility for forward-looking long-term incentive plans (28%), and additional required holding period (after vesting period) (22%) are the top 4 changes for an organizations. Eligibility for forward-looking long-term incentive Increase Decrease No. of North America Increase Decrease No. of 28% 6% 18 10% 5% 21 Target award levels 11% 0% 18 5% 0% 21 Maximum payout/leverage 6% 11% 18 5% 5% 21 Performance/vesting period 17% 0% 18 10% 0% 21 Additional required deferral period (after performance period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures 6% 0% 18 0% 5% 21 22% 6% 18 10% 0% 21 6% 6% 18 10% 0% 21 6% 0% 18 0% 0% 21 Rigor of performance conditions 17% 0% 18 10% 0% 21 Amount of discretion applied 6% 6% 18 10% 0% 21 Use of malus conditions (prior to vesting) 33% 0% 18 10% 0% 21 Use of clawback (after vesting) 39% 0% 18 10% 0% 21 Other 0% 0% 3 20% 0% 10 Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 22 of 67

24 Planned changes in the forward-looking long-term incentive design in 2015 by industry Changes in forward-looking long-term incentive design differ by industry. Some banking organizations are planning on increasing the performance/vesting period (28%) and the weight of financial performance measures (17%), while none of the insurance companies are planning to do so. One quarter (24%) of insurance companies are planning to increase the additional required holding period (after vesting period) compared to only 6% of banks. Increasing the use of clawback (after vesting) and malus conditions (prior to vesting), as well as employee eligibility, for forward-looking long-term incentive plans is somewhat common in both industries. Eligibility for forward-looking long-term incentive Target award levels Maximum payout/leverage Performance/vesting period Additional required deferral period (after performance period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures Rigor of performance conditions Amount of discretion applied Use of malus conditions (prior to vesting) Use of clawback (after vesting) -20% -10% 0% 10% 20% 30% Banking Decrease Insurance Decrease Banking Increase Insurance Increase 23 of 67

25 Planned changes in the forward-looking long-term incentive design in 2015 by industry Eligibility for forward-looking long-term incentive Banking Insurance Other Financial Services Increase Decrease N Increase Decrease N Increase Decrease N 22% 0% 18 18% 6% 17 0% 20% 5 Target award levels 6% 0% 18 6% 0% 17 20% 0% 5 Maximum payout/leverage 6% 11% 18 6% 6% 17 0% 0% 5 Performance/vesting period 28% 0% 18 0% 0% 17 0% 0% 5 Additional required deferral period (after performance period) Additional required holding period (after vesting period) Weight of financial performance measures Weight of non-financial performance measures 6% 6% 18 0% 0% 17 0% 0% 5 6% 6% 18 24% 0% 17 20% 0% 5 17% 0% 18 0% 6% 17 0% 0% 5 0% 0% 18 6% 0% 17 0% 0% 5 Rigor of performance conditions 11% 0% 18 12% 0% 17 20% 0% 5 Amount of discretion applied 6% 6% 18 0% 0% 17 40% 0% 5 Use of malus conditions (prior to vesting) 17% 0% 18 24% 0% 17 20% 0% 5 Use of clawback (after vesting) 22% 0% 18 24% 0% 17 20% 0% 5 Other 13% 0% 8 20% 0% Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 24 of 67

26 3.5. Planned Changes to Vehicle Mix in Multi-year Awards (Mandatory Deferral and LTI) for 2015 All regions and industries The majority of organizations are not planning to change the vehicle mix in multi-year awards for Some organizations (19%) are considering increasing the weight of performance contingent restricted stock/performance shares. Increase Decrease No Change No. of Change the weight of cash 0% 9% 91% 53 Change the weight of service-based restricted stock 6% 6% 89% 53 Change the weight of performance contingent restricted stock/performance shares 19% 0% 81% 53 Change the weight of stock options/sar 0% 0% 100% 53 Change the weight of co-investments 0% 2% 98% 53 Change the weight of contingent capital/debt-based instruments Note: The total may not equal 100% due to rounding. 2% 0% 98% 53 By region 25% of an organizations plan to increase the weight of performance contingent restricted stock/performance shares and 14% plan to decrease the weight of cash.. North America Increase Decrease No. of Increase Decrease No. of Change the weight of cash 0% 14% 28 0% 4% 23 Change the weight of service-based restricted stock Change the weight of performance contingent restricted stock/performance shares Change the weight of stock options/sar Change the weight of co-investments Change the weight of contingent capital/debt-based instruments Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 7% 4% 28 4% 9% 23 25% 0% 28 13% 0% 23 0% 0% 28 0% 0% 23 0% 4% 28 0% 0% 23 4% 0% 28 0% 0% of 67

27 By industry Some banks (17%) and insurance companies (21%) are planning on increasing the weight of performance contingent restricted stock/performance shares. Some banks (17%) are planning to decrease the weight of cash in the vehicle mix for multi-year awards. Banking Insurance Other Financial Services Increase Decrease N Increase Decrease N Increase Decrease N Change the weight of cash 0% 17% 29 0% 0% 19 0% 0% 5 Change the weight of service-based restricted stock Change the weight of performance contingent restricted stock/performance shares Change the weight of stock options/sar Change the weight of co-investments Change the weight of contingent capital/debt-based instruments Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 10% 3% 29 0% 11% 19 0% 0% 5 17% 0% 29 21% 0% 19 20% 0% 5 0% 0% 29 0% 0% 19 0% 0% 5 0% 3% 29 0% 0% 19 0% 0% 5 3% 0% 29 0% 0% 19 0% 0% 5 26 of 67

28 3.6. Planned Changes in Pay Mix in 2015 All regions and industries Although most organizations are not planning to make changes to their pay mix in 2015, some organizations are: 22% of the organizations are increasing the weight of base salary, and 11% of the organizations are increasing the weight of mandatory deferrals and the weight of forward-looking long-term incentives. Change the weight of base salary Change the weight of role-based allowances Change the weight of annual/non-deferred incentives Change the weight of mandatory deferrals Change the weight of forward-looking long-term incentives Change the weight of benefits (including retirement/pension) Change the weight of perquisites -20% -10% 0% 10% 20% 30% Decrease Increase Increase Decrease No Change Not Applicable No. of Change the weight of base salary 22% 4% 72% 2% 54 Change the weight of role-based allowances 5% 4% 35% 56% 55 Change the weight of annual/non-deferred incentives 2% 9% 87% 2% 54 Change the weight of mandatory deferrals 11% 9% 52% 28% 54 Change the weight of forward-looking long-term incentives Change the weight of benefits (including retirement/pension) 11% 4% 65% 20% 55 4% 9% 87% 0% 54 Change the weight of perquisites 6% 6% 83% 6% 54 Note: The total may not equal 100% due to rounding. 27 of 67

29 By region Organizations in are planning on making more changes to their pay mix in 2015 than those in North America. Particularly, increasing the weight of base salaries are prevalent in an organizations (38% compared to 4% in North America). Some an organizations are decreasing the weight of annual/non-deferred allowances (14%) and benefits (including retirement/pension) (17%). North America Increase Decrease Not Applicable No. of Increase Decrease Not Applicable No. of Change the weight of base salary 38% 0% 3% 29 4% 9% 0% 23 Change the weight of role-based allowances Change the weight of annual/non-deferred incentives Change the weight of mandatory deferrals Change the weight of forward-looking long-term incentives Change the weight of benefits (including retirement/pension) 10% 7% 41% 29 0% 0% 71% 24 0% 14% 3% 29 4% 4% 0% 23 17% 10% 14% 29 4% 9% 43% 23 17% 0% 24% 29 4% 8% 13% 24 7% 17% 0% 29 0% 0% 0% 23 Change the weight of perquisites 10% 7% 3% 29 0% 4% 9% 23 Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 28 of 67

30 By industry Changes to the pay mix are more prevalent in the banking industry than in the insurance industry. Banks are generally increasing the weight of base salaries (41%), mandatory deferrals (17%), and forward-looking long-term incentives (13%). About 10% of banks and insurance companies are decreasing the weight of benefits (including retirement/pension). Change the weight of base salary Change the weight of role-based allowances Change the weight of annual/non-deferred incentives Change the weight of mandatory deferrals Change the weight of forward-looking long-term incentives Change the weight of benefits (including retirement/pension) Change the weight of perquisites -20% -10% 0% 10% 20% 30% 40% 50% Banking Decrease Insurance Decrease Banking Increase Insurance Increase Banking Insurance Other Financial Services Increase Decrease Not Applicable No. of Increase Decrease Not Applicable No. of Increase Decrease Not Applicable No. of Change the weight of base salary 41% 3% 0% 29 0% 5% 5% 19 0% 0% 0% 6 Change the weight of role-based allowances Change the weight of annual/non-deferred incentives Change the weight of mandatory deferrals Change the weight of forward-looking long-term incentives Change the weight of benefits (including retirement/pension) 10% 7% 27% 30 0% 0% 89% 19 0% 0% 100% 6 3% 14% 3% 29 0% 0% 0% 19 0% 17% 0% 6 17% 14% 3% 29 5% 5% 53% 19 0% 0% 67% 6 13% 7% 27% 30 5% 0% 11% 19 17% 0% 17% 6 3% 10% 0% 29 5% 11% 0% 19 0% 0% 0% 6 Change the weight of perquisites 7% 7% 10% 29 0% 5% 0% 19 17% 0% 0% 6 Note: "No change" option is not displayed in the table; therefore, the total may not equal 100%. 29 of 67

31 Industry Region Mercer Global Financial Services Executive Compensation Snapshot Survey 4. NON-FINANCIAL PERFORMANCE MEASUREMENT 4.1. Non-financial Performance Links to Incentive Compensation The vast majority of organizations link non-financial performance to incentive compensation. Linking non-financial performances measures to incentive compensation is slightly more common in the banking industry (93%) compared to the insurance industry (74%). All Regions and Industries Region North America Banking Industry Insurance Other Financial Services Yes 83% 86% 83% 93% 74% 60% No, but planning to introduce 4% 3% 4% 0% 5% 20% No, not on the agenda 13% 10% 13% 7% 21% 20% No. of Note: The total may not equal 100% due to rounding. North America Banking Insurance Other Financial Services 0% 20% 40% 60% 80% 100% Yes No, but planning to introduce No, not on the agenda 30 of 67

32 Non-financial Performance Links to Incentive Compensation (Business and Individual Level) Organizations typically weight non-financial performance at 30% as part of overall business performance and 40% as part of individual performance. Organizations in North America and the banking industry place more emphasis on the individual qualitative performance at 50% (median). 25 th Percentile As part of overall business performance % Average Median 75 th Percentile No. of All regions and industries 20% 33% 30% 50% 28 20% 34% 33% 50% 17 North America 18% 28% 25% 43% 10 Banking 20% 31% 30% 50% 18 Insurance 20% 37% 37% 58% 8 Other Financial Services As part of individual performance % All regions and industries 29% 43% 40% 50% 30 30% 39% 40% 50% 19 North America 20% 49% 50% 63% 10 Banking 40% 42% 50% 50% 17 Insurance 21% 46% 35% 73% 12 Other Financial Services of 67

33 4.2. Non-financial Performance Metrics Used in Incentive Compensation Compliance/risk management is the most prevalent non-financial performance metric at 64% overall, but it is notably less common in the insurance industry (29%). The vast majority of banks assess compliance/risk management elements as part of their incentive compensation programs (85%). Employee metrics are also widely used (60% overall), but more so in the banking (67%) than the insurance (50%) industry. Customer metrics are prevalent in banks (67%), but less so in insurance companies (36%). All Regions and Industries Region North America Industry Banking Insurance Other Financial Services Customer metrics 56% 64% 47% 67% 36% 50% Employee metrics 60% 68% 53% 67% 50% 50% Compliance/Risk management metric 64% 76% 47% 85% 29% 50% Other non-financial metrics 56% 48% 68% 52% 71% 25% Not applicable 4% 4% 5% 0% 7% 25% No. of Other includes: achievement of strategic initiatives; broker net promoter score; business expansion; corporate social responsibility; individual/business performance metrics and/or discretionary; leadership metrics; management; partnership/corporate citizenship; people management; talent management and internal climate survey results. Note: The total may not equal 100% due to rounding Weight of Non-financial Performance Metrics (Business and Individual Level) If customer metrics are incorporated, they are weighted at 40% of the overall business unit assessment (median). At the individual level, customer, employee and compliance/risk management metrics weigh about one third of overall individual performance. Customer metrics 25 th Percentile Average Median 75 th Percentile No. of Business level % 14% 39% 40% 50% 12 Individual level % 27% 40% 37% 50% 12 Employee metrics Business level % 16% 25% 25% 35% 10 Individual level % 23% 47% 33% 85% 14 Compliance/Risk management metric Business level % 13% 26% 23% 38% 12 Individual level % 20% 41% 33% 50% 15 Other non-financial metrics Business level % 31% 53% 50% 79% 8 Individual level % 19% 42% 28% 63% of 67