Economic Uncertainty

Informative Insights on How Economic Uncertainty Affects Executive Pay

The economic uncertainty and labor shortages impact the executive pay outlook for 2023. From an HR analytics standpoint, this uncertainty makes it difficult to accurately assess and predict executive pay trends. Let us discuss the current stand on executive pay and the potential outlook for 2023.

The Impact of Uncertain Environment on the Current Executive Pay

With the pandemic impacting the global economy, the past year has forced many companies to make difficult decisions about salaries and bonuses. They have had to adjust executive pay and benefits packages to remain competitive and responsive to uncertain economic conditions.

Though the economy is gradually beginning to stabilize amidst the pandemic, still some companies are surviving rising inflation, so it is difficult to predict what the future will unfold.

Outlook for 2023

As the pandemic has caused a great deal of disruption to the global economy and executive pay, companies are taking a more cautious approach, focusing more on retention and performance-based compensation. As a result, they are likely to create a more flexible executive compensation structure that will allow them to adjust according to changes in the market. This trend is likely to continue in 2023.

Financial Services Firms Take a Hit

The financial services sector has been particularly hard hit by the pandemic, and as a result, they are facing increasing pressure to manage costs and remain competitive. This also has had an impact on executive pay.

Besides, financial services firms are also facing increased pressure from regulators to manage executive pay. Regulatory bodies are looking to ensure that executive pay is fair and reasonable, and this too is having an impact on executive pay. Financial services firms have had to adjust their executive compensation packages to comply with regulatory requirements.

Due to the uncertain economic conditions and decreasing revenue, year-end incentives (including equity awards and cash bonuses) for the financial sector have anticipated dropping compared to the last year. Also, bonuses for management designations across the banking sector are expected to decline by 25%-30%.  Unfortunately, based on current projections, inflation, challenging business conditions, and economic uncertainty will likely continue in 2023 across financial services.

With these insights, you are aware of how the executive pay structure will be in 2023. So, make adjustments accordingly to remain fair enough to your talented employees.

We Help You Create a Better Executive Pay Structure

At Stan McKnight & Associates, we provide strategic executive compensation consulting services to help companies make informed decisions about executive pay. Our team of experienced consultants can help you create an effective strategy for executive pay, and ensure that your executive compensation packages are fair and reasonable. Contact us today to learn more about our executive compensation services.