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Article | Beyond Data

Salary Budget Trends for 2020 – Banking

Ominous signs for the Banking Sector as Salary Budget forecasts fall for 2020.

Compensation Strategy & Design
Beyond Data

By Max Ashwanden | December 12, 2019

The overall picture is that while some aspects of increases are stable, banking is not consistent.

The overall picture from the Salary Budget Report is that while Europe, Middle East and Africa (EMEA) maintains its stable consistent approach to salary budget increases there could be some issues for the banking sector. EMEA’s forecast data for 2020 seem to increase slightly compared to 2019, with the average increase being 3.3% for 2019 and a forecast of 3.5% for 2020.

The majority of countries within EMEA are forecasting the same budget as they did in 2019. There are, however some underlying changes to industry specific data, specifically reduction in the salary budgets for the Banking sector. This could be a reflection of a stagnant economy and tough political conditions.

The banking sector within Europe is one of the most important to the continents economic growth and stability One would presume that this sector would contribute to positive salary growth and be one of the key contributors to a countries overall labour market. Our data collected in the salary budget planning survey in Q3 shows that Banking specifically is acting in reverse and falling below the overall countries median.

Analysis

In Europe we expect to see the Salary Budget Planning data stay very consistent usually hovering around 2.5% to 3% mark. The graphs below compare the actual 2019 salary budget increases to the 2020 forecasted increases for All Industries and Banking.

A graph showing the salary rises for France, Germany, Spain, Switzerland and the United Kingdom. Germany and United Kingdom show 3 %, France and Spain show 2.5% and Switzerland shows 2%
All Industries – 2019 and 2020 salary rises

Above is the All Industry Salary Budget increase 2019 Actual vs 2020 forecasted, which represents a very consistent approach for budgets for most companies.

A graph showing the salary rises for France, Germany, Spain, Switzerland and the United Kingdom for the banking sector which are all lower than the industry averages.
Banking – 2019 and 2020 salary rises.

The second graph is the median Salary Budget Increase for Banking companies. When compared with The All Industries graph a very different trend emerges.

On the surface the Banking graph shows a downward trend in Salary Budgets specific to the Banking sector. Further to that, it gives a good indication of the sector’s sentiment to the external economic environment.

The most notable decrease is Switzerland with a shift of 0.5 base points from 1.5% to 1% for 2020. The United Kingdom has also seen a decrease, from 2.7% to a predicted 2.5%, while this is a less dramatic decrease it is still worth noting.

One reason which would account for the decrease in forecasted salary budgets within the Banking sector is the volatile political environment. At this point in time there is still a huge amount of political uncertainty which has taken hold in most parts of Europe. This is two-fold as most countries are experiencing a level of ambivalence around their own politics but also that sentiment contributes to the general political environment within Europe as a whole. One example of political instability having an impact on Europe’s economic growth and political sentiment is Brexit. Brexit is not only affecting the economic performance of UK but also the economic performance of other countries within Europe, best represented by the slowing growth in industry economic sentiment. The European Commission reported that even in the last year the Industrial Confidence Indicator has shown a decrease from 2.8 in December 2018 to -9.4 as of November 2019.

Another reason why Banking forecasts are lower for 2020 is the reduced profitability caused by the tough economic environment. Our industry expert in banking- Marcus Durst (Director- Executive Compensation Global Financial Services WTW) said the following: “The negative interest rate environment in Europe is a real challenge for banks, particularly retail and commercial banks, due to their dependence on lending. Salary increases are reserved for the junior population, hot jobs and high performers”. This makes sense as in times of low profitability companies are likely to become much more selective in terms of salary growth, focussing on pay rises where it most matters therefore bringing the overall median down for the 2020 forecast. 

Following on from this another possible reason for falling profitability leading to decreased salary budgets is the rapidly growing Fintech industry specifically smart or online banks. No high-street branches mean far lower baseline costs compared to traditional banks. Pair that with the increased functionality and ease of use, traditional banks are finding it increasingly difficult to win customers and keep costs to a competitive level. As evidence of this we have seen a large amount of consolidation and restructuring attempts by traditional retail banks.

In summary the assumption that Banking is driving salary growth in Europe in this case is incorrect. Our data shows the opposite, with 2020 forecasts falling behind most other industries in terms of forecasted growth.

2 Tips to consider when setting Salary Budgets for 2020

  1. Use accurate market data on Salary Budget increases to inform the decisions: Participate in the 2020 Q1 Salary Budget Planning report to receive a complimentary report.
  2. Ensure Employees stay motivated and are retained: Using accurate market compensation data.
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