PwC: Bonuses deferred are worth less

By Rob Starr, Content Manager, Big4.com

PwC’s study entitled ‘Psychology of incentives’ was carried out among 1,106 executives in 43 countries across a broad spectrum of sectors, including financial services. Its findings included the fact that the longer executives in the financial services sector have to wait for their incentive bonuses, the less it is worth to them. Most financial services executives in Africa are risk averse and would prefer lower, less volatile pay over a complicated, potentially higher reward.

Martin Hopkins, PwC Leader of the Reward Consulting Team, says: “Many executives in the financial services sector are risk-averse, don’t like complexity and substantially discount deferred pay. The intense competition for talented executives in Africa has driven up reward packages and long term incentives are seen as a vital tool in retaining the best employees.

“Deferral, use of shares, and clawback type features have substantially increased for many and are understandable given the environment. But if pay was more aligned to the form that executives value, perhaps less could be paid – surely this is worth giving serious consideration.”

The study found that incentives in the financial services sector have become so complex and volatile that they no longer motivate many of the executives they are aimed at. Certain features of current pay packages mean that the value executives place on them is materially lower than the cost to companies of providing them. In many cases, executives would be happier being paid a smaller salary in a less complex and less volatile form.