Institute of International FinanceMarch 2009
COMPENSATION IN FINANCIAL SERVICES
Industry Progress and the Agenda for Change
Compensation in Financial Services
Industry Progress and the Agenda for Change
An Institute of International Finance Report
In collaboration with
On behalf of the Board of Directors of the Institute of International Finance (IIF) and the IIF’s Committeeon Market Best Practices, we are pleased to present Compensation in Financial Services: IndustryProgress and the Agenda for Change.In its final report of July 2008, the IIF Committee on Market Best Practices set out seven Principles of Conduct on incentive compensation (‘compensation principles’), reflecting widespread concern thatmisaligned employee incentives were one of the factors underlying the current financial crisis,particularly for senior management and for wholesale banking (corporate and institutional banking, salesand trading). Since then, many financial services firms have taken, and many continue to take, importantsteps to align compensation practices more closely with sound risk management.In making the transition to improved compensation practices, the financial services industry faceschallenges on a number of levels. This report intends to help the industry overcome these challenges bypresenting a thorough picture of current compensation practices, with a particular focus on seniormanagement and on wholesale banking (corporate and institutional banking, sales and trading). Itincludes recent changes made by firms in light of the crisis and establishes the ‘direction of change’- keyimprovements in development and under consideration. The findings of the report are based on the resultsof an in-depth survey of a tailored sample of IIF member institutions conducted by managementconsultancy Oliver Wyman. The Institute is grateful for the participation of so many member firms inboth the survey and subsequent interviews.The IIF recognises that there can be no one-size-fits-all approach to financial services compensation - theprecise approach each firm takes to changing compensation will of course depend on the firm’s currentpractices, unique business model and other strategic considerations, as well as different legal andregulatory conditions. However, the IIF believes that the series of recommendations based on leadingpractices which are set out in this report are worthy of consideration by the financial services industry inthe development of prudent compensation models.The Institute welcomes the publication of guiding principles by regulatory authorities which are broadlyconsistent with key conclusions and recommendations presented in this report. The IIF has coordinated itswork on compensation with the Financial Stability Forum, and we hope that this report will inform andsupport the ongoing dialogue between the industry and members of the regulatory community on mattersrelating to compensation.
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Implementation Yasuhiro Sato Deputy President Mizuho Corporate
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