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Common characteristics and evolution trends of past compensation policies of western European banks

Base rates used to be established through collectively negotiated agreements and fixed according to conventional structures, in a rather rigid manner (codified system of scales). This is largely due to the centralised collective bargaining system defining national industry-wide agreements.

Salaries were relatively high (compensation used to be higher than in other businesses, for the same qualifications), at least when taking into consideration the weight of insurance contributions and charges even if the possibilities for wages progression are, now, more and more restrained. And automatic and uniform premiums can double theoretical salaries.

Remuneration policies have been almost exclusively linked to job categories, eliminating individual differences. Banks based rewards far less on individual performances, than on occupation of a specific post. Wages were mainly linked to positions, according to classification, employment categories… and seniority. Many banks still try to emphasise position rather than pay and an orderly salary schedule position within the bank.

Differences in earnings were, thus, basically linked to changes in category, which, in turn, were closely dependent on rather rigid compensation practices.

All this was designed to guarantee minimum compensation levels, instead of promoting individual incentive. Virtually everyone on the same level earned the same amount.

So, pay hardly reflected the differences in individual performances, giving people little incentive to improve their individual contribution. This a pattern that does not encourage efforts.

Rewards were more or less a function of seniority, with automatic annual increases, all staff expecting at least that pay increases meet rises in the cost of living. So, pay increases were nearly automatic, according to seniority. Nowadays, in the majority of retail banks, for the most part, progression still remains linked to seniority (only explicit evolution criterion).

Pay per performance systems existed only at the higher hierarchical levels.

However, nowadays, management is trying to make wages more flexible and new compensation policies are appearing, at least for managers.

But, there is a rather strong resistance on the part of personnel to application evolution.

What do you think about such practices?

Example of an “ideal” compensation policy

Principles of an appropriate

Policy concerning compensation, wages and salaries

1- Total wage and salary bill should be kept under control…

— in relation to the real situation (wage + salary bill / G.D.P.),

— And in a long term view,

— While safeguarding the competence and quality of services (motivation of the staff).

2- Social balance should be preserved:

— internal: equity (perceived as legitimate) on essentials and sustained over period of time (progressive),

— external:

— competitiveness (attractive),

— without excesses (alternative to mobility).

3- Motivation should be stimulated:

Rewarding loyalty, dynamism, adaptability

— and efforts to improve,

— without disrupting cohesion (by creating exaggerated competition between individuals).

Example of the Priorities of a policy concerning compensation, wages and salaries, for a bank willing to improve its performance, while preserving its social peace

1- Restoration of equity:

— preservation of purchasing power,

— equal pay for equal work, including contribution (no excessive variability between categories),

— competitive pay / employment market (implies variability between categories).

2- Encouragement of performance:

procedures, progressive introduction, means

3- Control over wage and salary bill:

area of autonomy (overheads / G.D.P.).

4- Enhancement of professional standards:

Positioning on the basis of performance in post:

— adequate variations between categories (to face to the change of jobs),

— explanation of criteria for the salary increases.

Tagged as: Motivation