According to Alan Johnson, managing director at executive pay consulting firm Johnson Associates, boards in the financial services sector are struggling with how to set performance goals for certain equity compensation plans because the sector is heavily impacted by short-term turbulence.

Additionally, it has become increasingly difficult to forecast how the market will behave over the next three to four years, which makes it challenging to establish long-term performance goals for executive pay as well, said Johnson.

These challenges are not new to the financial services sector, but it’s become more difficult lately because of consolidation, changing fee levels and other impacts — making compensation in the sector less stable than it was five or 10 years ago, he said.

M&A activity has been very disappointing in the last few years, said Johnson. There was hope that last year’s activity would return to previous higher levels of activity after a “very dismal” 2022, but that turnaround hasn’t happened yet, he said, adding that financial firms have gone through some cost-containment measures as a result.

Indeed, looking to 2024, firms are cautiously optimistic about an uptick in activity, but not wildly so, causing them to manage their costs and headcounts quite tightly, said Johnson.

Agenda / February 5, 2024