Just 17 percent of global financial services institutions clawed back compensation from executives who were at the helm of businesses that were either failing to turn a profit or have experienced systemic failures in business practices, says fresh research.
Executive remuneration in the finance sector is popularly viewed as excessive by the court of public opinion, after the credit crisis in 2007 led to widescale bank bailout funded by taxpayers money and a recession pushed up unemployment, inflation and less spending power. Many questioned why vast, increasing pay packets and bonuses are still being dished out despite taxpayer-funded bailouts and poor performances.
Now some of these banking industry businesses are putting "claw back" clauses in their executives contracts, to ensure remuneration can be recovered from employees who fall short of expectations. Fewer than a fifth reported doing so when surveyed for the year 2011.
Of the 17 percent of finance firms seeking to reclaim remuneration from former staff there were 3 percent that had not yet been handed the cash back, reported Mercer's Financial Services Executive Compensation Survey.
"There are a variety of reasons why actual claw backs of payments already made are limited - often the concept conflicts with local labour laws so actually recouping the funds can be difficult," said Vicki Elliott, Global Financial Services Human Capital Leader at Mercer. "Claw backs are relatively new phenomena in compensation programs so it will take some time for them to bed down. A small number of claw backs doesn't signify that the sector is ignoring lessons from the financial crisis, but does raise legitimate questions about whether companies will actually seek pay-back of compensation paid."
Mercer's research, which surveyed 63 banks or financial services firms, found that the majority of claw backs were triggered, at least in part, by breach of the company's code of conduct, with 73 percent citing this as a reason that money was reclaimed.
A fifth said performance was a factor.
As well as claw back clauses, "malus conditions" also appear in many finance executives contracts, which can mean deferred compensation can be reduced or removed completely.
This can make it easier for banks to adjust bonuses based on new information showing poor performance or bad decision making, but that only comes to light in the months or years after a bonus was awarded.
"It will be interesting to see if, at a time when the news is dominated by major banking missteps and scandals in the US and the UK, levels of claw back and malus increase in 2012," said Elliot.
"If they do not, then it would be fair to ask if the regulatory approach of managing risk through this kind of pay feature is working.
"Focusing on the manner in which banks are managing risk, performance measurement and compliance internally may achieve much more in terms of sound risk management than the regulatory requirements on pay structures have achieved thus far."
There has been some speculation that bosses of banks caught up in the Libor fixing scandal that has rocked the British financial services industry will attempt to claw back remuneration from former executives under whose watch the malfeasance took place.