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Culture

Remuneration: Money (still) makes the world go round

Talk of a permanent post-pandemic shift towards flexible working has yet to be accompanied by a change in how (re)insurance executives are remunerated – and big bonuses are likely to stay

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The coronavirus pandemic has already accelerated acceptance of radical changes to the working life of the (re)insurance industry. Last year, the pandemic caused people to reappraise their work-life balance, with many employees now wanting the option to work more flexibly – and that sentiment has endured.

While the traditional office routine is more likely to be in hibernation than stone dead, the shift to new ways of working has inevitably put a new spin on employee motivation. And those new ways of working – whether completely remote or hybrid/flexible – might also necessitate a rethink about whether traditional employee incentives are aligned with the changing approach to attracting and retaining talent.

“In the ongoing war for talent, companies will have to develop policies to ensure flexible working is viable, inclusive and here to stay,” said Carolina Klint, Risk Management Leader, Continental Europe, Marsh & McLennan, speaking at the World Economic Forum’s briefing for its Global Risks Report 2021.

“We’ve had candidates request confirmation that flexible working will remain after Covid,” says James Cooper, a director at executive search consultancy Damhurst & Co. “People are voicing their boundaries in reaction to a Zoom culture of people presumed to be constantly on call. Someone has asked for three days in the office, so they don’t want to be at the whim of their manager. Someone else said they aren’t contactable in the evening, for example, but that won’t go into their contract,” he adds.

Another recruitment source tells of a recent conversation with the regional CEO of a London market carrier who was certain that post-Covid conversations were beginning with senior staff who want to work from home and enjoy a different work-life balance than previously. However, the staff are unlikely to be able to maintain the same London salary.

It is also important to emphasise that the desire for a shift towards greater remote/flexible working is not shared by everyone.

“Most senior brokers and underwriters want to return to a face-to-face trading environment. Even if there’s a flexible working shift we’re still going to see people coming in at least three days each week,” says Mark Stephens, a partner at executive search consultancy Stephens Rickard. “And on a personal level, if you travel by rail three days a week, working from home doesn’t actually save you much money.”

Show me the money

However, there is little evidence that the pay packages of London market executives are likely to change as a result of the pandemic, sources agree. In particular, there is no sign yet that the massive retention bonus is on the way out.

“You’d think it might be having an effect, but no. Pay has not been affected whatsoever, in our experience. If anything, the pressure for talent has only increased,” says Cooper.

“There is no downwards trajectory on pay at a board or executive level, not even by a single percentage point. Retention bonuses have not been affected, nor have counter offers when someone resigns - they’re still there in full flow.”

Roles with oversight of global teams could also be in the spotlight in the post-pandemic environment. With local relationships proving easier to forge virtually in an era of less international business travel, such roles are likely to be focused more on the executive’s own back-yard, with the possible consequence that these employees will have less interest in managing a global team if it's all done via Zoom rather than through travelling.

“This is a strong assumption, because if the new culture is not one that enjoys travel the way we used to, some of the benefits of running global teams are just not there. You won’t get to forge the same relations with global colleagues,” Cooper says.

Cultural changes can take time to filter through, so it could simply be too soon to tell how job descriptions and related pay and benefits might change – whether that’s pensions or additional non-financial incentives.

“Employee benefits is such a slow-moving industry,” says Cooper. “First, HR will have to do a review, [then] hire employee benefits consultants, and [then] large organisations will come up with new products accordingly. That will take time.”

Making hay

The (re)insurance industry is also currently enjoying the fruits of a hard market, following years of barely-adequate soft market rates, which will have translated into smaller bonuses for senior brokers and underwriters.

“People aren’t paying too much attention to benefits because there’s money to be made out there,” says Cooper.

And for those in the recruitment business, January 2021 is also a good time for business.

“Everyone’s expecting to be paid more in the upwards trajectory of a hard market. If you’re an executive in the (re)insurance market that’s what you’re focused on,” says Cooper. “Companies, including new start-ups, are going for the best talent, so they have to pay for it. That means buying them out of shares, buying them out of their March bonus. Making sure they are comfortable going into a riskier venture; barriers to entry are high.”

Large broker mergers, such as the recent MMC-JLT deal and the imminent fusion of Aon and Willis Towers Watson, have resulted in some senior brokers looking to move firms – whether to rival big brokers or smaller start-ups – in a period when the market is picking up.

Meanwhile, those that stay can expect their retention bonuses to be increased to incentivise them to remain loyal. As sources agree, Aon’s decision early in the pandemic to cut pay by 20% was predictably unpopular, and may have strained loyalties at the broker.

“There are some senior brokers, who can move business with them, [who are] coming to the end of their three year deals. Their retention bonuses are very much alive and kicking, and will be for some time to come,” says Stephens. “There’s a big difference between those who wear out their shoe leather moving around the market and those who can move business with them if they choose to jump ship.”

All change please

However, a rising tide lifts all ships, meaning that even less senior and influential underwriters and intermediaries, in addition to other staff – are also expecting bigger pay-outs. “Underwriters will expect to earn more in a hard market but so will the middle and back office people who can also expect to earn bigger bonuses,” Stephens says.

Underwriters are also contemplating moves, with some new market entrants as well as established carriers going on the offensive to attract talent.

“While some carriers are licking their wounds, the start-ups have caused a fair amount of work and they are willing to pay well to take advantage of some of the businesses that have made missteps,” says Stephens.

Regulatory changes rolled out for brokers and underwriters – in the UK, the Senior Managers Regime in particular – meant that before Covid there was already a trend to realign performance-related pay with longer-term financial stability. Annual bonuses are typically referred to as short-term rewards, but they are starting to look like longer-term incentives.

“Big incentives are being spread out,” says Stephens. “Bonuses are being tied to performance of the business over three years, adjustable, and based on results, so short-term and long-term rewards are starting to look more similar.

“That’s all very sensible post-2008, but it does mean methods of reward are starting to change shape now that there is a higher percentage of earned cash in the pipeline.

“It might not be paid out now but it will still have to be paid to buy talent in the market. That has made things a little more complicated, but it has not stopping people hiring in a hard market.”

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