Compensation Plan Design
Challenge
A Middle East-based investment bank engaged McLagan to help develop a new compensation strategy. Volatile markets in 2006 in the region made the concept of stand alone incentive plans difficult to accept. As a result, compensation decisions were purely discretionary. This, in turn, made it difficult for the bank to retain talent, as employees found it difficult to work without an element of certainty in their compensation.
Solution
After extensive collaboration with the bank Senior Management, as well as with the Remuneration Committee of the Board, McLagan designed a compensation plan with the following components:
- A firmwide “top-down” incentive plan
- Carried interest plans for the Private Equity division
- A performance fee plan for Asset Management
- A profit-based incentive plan for Investment Banking
- A stock option plan
- A sales plan for the sales team
Results
With the implementation of McLagan’s recommendations, the investment bank was able to retain its key talent, remaining competitive in a truly high growth region. In particular, McLagan was able to educate the Board on the advantages of increased profit sharing. As the bank leadership grew more willing to share in the bottom line with productive individuals, they empowered the employees to generate more business, thus increasing the ROI for the Board members.
