Leadership, Talent & Remuneration in the Agile...

Prepared by McLaganMcLagan is part of Aon Hewitt, a business unit of Aon plc.

Leadership, Talent &Remuneration in the Agile BusinessFundForum, 8 June 2016Mark MilesJoel Davies

Aon Hewitt | McLaganProprietary & Confidential | 8th June 2016 2

Context

For most firms, talent is their largest expense and their greatest asset.

People have the most significant impact on a firm’s performance.

In an increasingly competitive market, optimizing investment in talent is vital for a firm’s overall success.

Securing the right people, developing a strong employer brand and value proposition, and aligning your people with your corporate goals and core people processes are all critical to this success.


Agenda

Drivers of change and their Implications in Asset and Wealth Management.

Improving return on talent.

Drivers of change and their Implications in Asset Management


Asset ManagementPay in the context of business economics

Source: McLagan/Casey Quirk Performance Intelligence Study

3326 20 25

32 33 39 43 42

2 2

2 2

2 2 2

3 3 14 15

14 14

15 15 17

17 17 3 2

2 2

3 3 3

3 3

48

43

41 44

47 49

56 61 62

100

89

79 87

98 102

117

128 128

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015e

C&B

Marketing

G&A

Profit

Asset-Based Fees

As a Percentage of Net Revenues:

C&B 48% 49% 52% 50% 48% 48% 48% 48% 48%Marketing 3% 3% 3% 3% 3% 3% 3% 3% 3%G&A 14% 17% 17% 16% 15% 15% 14% 14% 14%Asset-Based Fees 2% 2% 3% 2% 2% 2% 2% 2% 2%Profit 33% 30% 26% 29% 32% 32% 33% 34% 33%


Asset ManagementPay spend – efficient and effective?

3049

26

21

4430

0%10%20%30%40%50%60%70%80%90%

100%

FTE as % Total C&B as % Total

Exec Mgmt, Ops and SupportSales and MarketingInvestment Management

36

42

11

11

0%10%20%30%40%50%60%70%80%90%

100%

Pay Element as %of C&B

Benefits/OtherDeferral/LTICash BonusSalary

In many cases, C&B allocation is based on historical norms and practices rather than design.

Pay not necessarily well correlated with outcomes.

Fixed costs (keeping a lid on salary spend) remains a focus for firms, under pressure from the banking sector.

Few firms ‘break the mould’.

Source: McLagan/Casey Quirk Performance Intelligence Study


Asset ManagementChallenges are well documented…and carry pay implications

Industry challenges

Fee pressure

Changing product preferences

Distribution model

Competitive threats

Digitalisation

Shareholder pressure

Regulation

Increased scrutiny

Pay implications

Downward pressure on quantum

Revised Employee Value Proposition (EVP)

Flexibility required in approach

Shareholder alignment (structure and quantum)

Restrictions on design

Increased transparency


Asset Management

Review your current expense and approach – where is the spend going and why?

Ensure your Performance Management approach is fit for purpose – simplify where possible.

Reconsider pay design – be flexible where required:– Digital professionals– Control functions– Specialist roles– Leadership– Distribution

Rethink employee value – prior pay levels may no longer be appropriate.

Be prepared for regulatory scrutiny, increased transparency and higher governance standards.

Consider the broader employee value proposition - be clear on what’s expected of employees and what they get in return.

Pay must be fair – absolute and relative.

Future success – Differentiated pay: approach and outcomes


Asset and Wealth ManagementFuture Success - Understand the Tech sector and the competition for talent

The technology sector perceives the financial services value proposition as more constrictive and less culturally oriented:

Career Progression

Culture

Technology

Pay Mix

Different Pay Mix DynamicsBroad use of equity at Tech firms provides a sense of ownership and alignment. Few regulatory restrictions.

Legacy TechnologyLegacy Financial Services

technology is seen as obsolete and is a deterrent for

innovative technology sector talent. The constrictive reliance on secure but

outdated technology is a selling obstacle to overcome

for many key digital roles.

Corporate CulturePerceived reluctance to change versus constant innovation. Tech firms provide freedom to innovate through learning from failure rather than fearing it.

Career ProgressionThe technology model is,

generally, geared more around a variety of different

career paths where lateral moves are attractive and

valued in the same way as promotions.

Drivers of change and their Implications in Wealth Management


Wealth ManagementA reminder - with thanks to FT Lex


Wealth ManagementA reminder - with thanks to FT Lex

The ‘WHAT’ isn’t changing, it’s the

‘HOW’ that will dictate future success


Wealth ManagementSuccess remains a challenge for Wealth Managers and Private Banks

Assets under management vs. cost-income ratios grid

25%

50%

75%

100%

125%

0.1 1.0 10.0 100.0 1000.0

Cos

t : In

com

e ra

tio

Assets under management (USD billions)

Source: Scorpio Partnership Global Private Banking Benchmark 2015

Diversified firms

Pure player firms

Diversified trend linePure player trend line

Despite Global wealth accumulating apace,

business performance of Wealth Managers and Private Banks

remains very mixed.

Optimising return on your talent has

become critical to a firms overall

success and is a top management concern.


Wealth ManagementSuccess to date – differentiated pay and proactive performance management has helped enhance business performance

Source: McLagan Pay and Productivity analysis.

The Compensation v. Productivity Corridor of Efficiency

Leading firms are seeing superior

business returns by more proactively linking reward to

performance as the ‘top left’ moves to

the ‘top right’


Wealth ManagementCurrent success - the next frontier for the truly agile wealth management business is connecting productivity to client engagement

Swiss bank

US firm

US firm

Swiss bank

US firm

European bankEuropean bank

US firm

European bank

European bank

US firm

European bank

0%

50%

100%

0% 50% 100%

2014

AU

M g

row

th (%

tile

rank

ing)

2015 Client Engagement Tracking - overall score average (%tile ranking)

Source: Scorpio Partnership.

The appliance of science – the

results show the impact - firms with a rigorous focus

on Client Experience are winning

Correlation of Client Engagement to AUM Growth (Productivity) for the Global Top 20 Firms


Wealth ManagementBenchmarking a more detailed view of the Client Journey gets under the skin of what really drives business performance

Client journey factors – Firm X

Source: Scorpio Partnership HNW insights database

55%

60%

65%

70%

75%

Rep

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Exp

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of s

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Cla

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Qua

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and

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Res

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Supp

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Adv

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Reg

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Total sample (N=1919) Firm X (N=324) Firm Peerset (N=381)

Factors matching peer-set performance scores.

Factors underperforming peer-set performance scores


Wealth ManagementFuture success - embedding productivity and client engagement insight into pay and talent practices creates sustainable results

Use data and insight to review and refine plans continuously.

Refine actions

Validate Top Performers

Support with

enhanced Talent Plans

Profile success

behaviours

Incentivise via the ‘right’ Scorecard

Metrics

Validate who are the top performing advisors against productivity and client engagement metrics.

Use quantitative and qualitative profiling techniques to understand what drives their success (skills and competencies) across the client journey.

Supplement existing scorecard metrics to incentivise people to do what really drives business performance.

Review and enhance Hiring and Talent Development plans to align with Client Experience priorities.

Embedding Insight in Talent and Pay Processes

The Fundamentals to Succeed


In summary - the fundamentals to improve return on talent, your greatest asset

What do your clients really value?

What are your talent requirements to deliver?

What does/will your talent value?

What does good performance look like?

Where and how is your investment best directed?

Organisations with leaders with a strong reputation for cultivating talent (and measuring performance) v. competitors have increased operating income by 120% over five years.

Understand

Differentiate your approach to meet client and talent demands.

Adapt a more tailored and sophisticated approach.

Align core HR processes –performance management, pay and promotion – embed the right measures and behaviours.

Align


About Aon Hewitt

Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies.

With more than 30,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees.

Leadership, Talent & Remuneration in the Agile...

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