internal audit mid-year report 2017 compensation & market trends 2017 internal auditors....

Internal Audit

Mid-Year Report 2017Compensation & Market Trends

2017

Contents

BARCLAY SIMPSON Mid-Year Report 2017 INTERNAL AUDIT

1 Introduction 2

2 At a glance 3

3 Executive summary 5

4 Key issues 7

5 Sector analysis 23

6 Salary guide 33

7 About Barclay Simpson 37

OfficesLondonNew YorkDubaiHong KongSingapore

DisciplinesInternal AuditRiskComplianceSecurity & ResilienceLegalTreasury

1

BARCLAY SIMPSON MID-YEAR REPORT 2017 INTERNAL AUDIT

Introduction

Barclay Simpson has been producing corporate governance market reports since 1990. We currently produce two reports a year:

2

1Annual Market Report

Our annual Market Report is published in January and reviews the corporate governance recruitment market for the year just gone, whilst making predictions for the year ahead. It includes learning from our annual survey of employers.

Mid-Year Report

Our Mid-Year Report is published in July and updates the overall market picture, as well as providing a specific focus on compensation and the views of people working in internal audit, based on our annual survey of employees.

This time round, the results are particularly interesting as we asked several questions about Brexit to gauge sentiment amongst internal auditors and to provide insight into the possible impact of this momentous decision.

Comparable reports exist for all other areas of corporate governance. They can be accessed in section 7 of this report (“About Barclay Simpson”) or at www.barclaysimpson.com.


At a glance 2

3 Section 2 | At a glance

However…

• Potential impact less than in other areas of corporate governance• Language skills could be a problem

Waters currently calm

• Few auditors out of work• Contractor confidence rising

Brexit a potential minefield

• Brexit affecting work• Brexit reducing job security

• 29% of auditors are non-UK EU citizens

Getting ready to jump

• 45% of auditors ready to relocate

My boss has been great about flexible

working

Do you really understand the value

of internal audit?

The key is output, not input

• Salary increases down• Bonuses down

• Auditors feeling less content with remuneration• Remuneration is what auditors would most like to

change about their job

Remuneration starting to fuel discontentTo retain good

staff, it is important to make it difficult

to leave

Don’t rock the boat

• Recruitment activity calm but steady• Focus on improving current position –

flexible working, work/life balance

4


Section 2 | At a glance

Executive summary

5 Section 3 | Executive summary

3BARCLAY SIMPSON MID-YEAR REPORT 2017 INTERNAL AUDIT

Economy and wages under pressureFollowing a steady performance by the UK economy in 2016, growth rates at the beginning of 2017 have slowed. Whilst the post Brexit recession didn’t materialise, the vast majority of economists expect the decision to leave the EU will hit growth. Overall unemployment levels continue to fall. Productivity growth, however, remains elusive and exchange rate depreciation has led to inflation exceeding the Bank of England’s 2% target. Real wages are once again coming under pressure. This is causing an increased number of auditors to report dissatisfaction with their salary and there has been an increase in those who would consider entering the recruitment market to improve their earnings.

Uncertainty prevailsStability and growth tend to raise demand for internal auditors. Unfortunately, we are still living through a period of uncertainty and, as we write this report, the UK government has begun a set of negotiations that will have far reaching implications, not just for employees and employers in internal audit and other areas of corporate governance, but for the country as a whole.

We had hoped that by the time of this report the consequences of Brexit would have become a little clearer. This does not appear to be the case. The situation has been further complicated by the outcome of the recent general election and it remains to be seen what impact this has on the negotiations of the UK government with EU counterparts.

Brexit is a potential minefieldWhilst the response to our survey about the impact of Brexit is still speculative, our survey demonstrates that Brexit is a potential minefield for internal audit departments, with many internal auditors prepared to make significant changes to their lives, including relocating, to protect their jobs and career prospects. This situation is exacerbated by the fact that internal audit departments are heavily dependent on EU migration for their successful operation and ongoing recruitment needs.

Threat to Financial ServicesSome sectors may suffer a greater impact than others. For example, in Banking and Financial Services, if the EU changes the current rules governing the euro-denominated derivatives market and forces “systematically important” clearing houses to operate within the EU, this will have a significant impact on employment numbers in London, which could, in turn, have a negative impact on internal audit departments that face off to these businesses.

Softer Brexit?It is believed by some that the outcome of the general election could lead to what commentators describe as a “Soft Brexit”, where access to the single market, customs union and a more relaxed approach to immigration is prioritised. As this report will demonstrate, and this will come as no surprise to many reading this, a Soft Brexit approach is preferable for the continued viability and success of many internal audit departments.

OutlookIn the short term, we anticipate the internal audit market will remain relatively active, as even during times of uncertainty, companies still need to recruit. Instances of recruitment freezes or job losses due to departmental restructuring and role relocation are balanced by the creation of new roles across all sectors, regions and specialisms. We expect demand to hold up well with a good supply of candidates in all but the most specialist areas.

This is reflected in our survey which reveals that the number of internal auditors who believe their skills have become more valuable has increased. In the longer term, it is difficult to predict what may happen due to the uncertainty surrounding Brexit. In similar periods of uncertainty in the past it has been notable that there has been an increased use of contract and interim auditors to ensure the delivery of short term plans.

6Section 3 | Executive summary


Key issues 4

7 Section 4 | Key issues

WATERS CURRENTLY CALMJob market currently improving for internal auditorsAlthough the number of internal auditors reporting that they are not currently in work has risen slightly from 4% to 5%, no auditors reported being out of work for over 12 months; compared to 16% last year. This is clearly good news and may, in part, be explained by an improving job market, as well as auditors moving away from audit into other areas of corporate governance and also developing their own businesses.

We have seen a steady flow of positions over the course of the year. Some major banking institutions have made multiple hires and notably Asset Managers have been increasing the scope of their audit plans. This has had the knock-on

effect of requiring additional headcount. The number of vacancies registered per month in 2017 year-to-date across the Internal Audit market has held up compared to last year. The same is true across the financial services sector, where the consolidated number of vacancies per month is almost identical this year when compared to the average for last year.

Internal auditors out of work for over 12 months

2016 2017

40%

20%

0 0%16%


As illustrated in section 2 (At a glance), the overall picture in internal audit is one of relative calm, but with increasing pressures due to Brexit and remuneration. Here are the key issues coming out of our survey of internal auditors:

2016 2017

40%

20%

0

Internal auditors out of work

5%4%

8Section 4 | Key issues

Contractor confidence risingContractor confidence is currently rising as 53% of auditors currently working in the interim market believe that the market for their skills is improving (up from 38% in 2016) with a further 30% reporting no change.

Do you think the market for your skills is improving or deteriorating?

This is also reflected in remuneration, as 56% of auditors saw an increase in their daily rate compared to their previous contract, whilst a further 19% saw no change.

Satisfaction with remuneration (69%) is also significantly higher for contractors than for non-contractors (51%), though slightly down on 2016 (72%).

2016 2017

100%

80%

60%

40%

20%

0 38%

53%

Improving

2016 2017

100%

80%

60%

40%

20%

0 72%

Yes

69%

Yes

(Contractors) Overall do you believe you are adequately compensated?


Salary an increasing motivation to change jobThe number of auditors who cited a salary increase as a motivator to change jobs rose from 34% in 2016 to 40% this year. This is now almost as important as career development (43%) which typically is by far the most important motivator. In the public sector, 48% of auditors reported salary could motivate them to look for another job.

It is interesting how different the answers to this question are from people who have actually changed job. Those who have moved seem reluctant to admit the importance of salary in their decision, with most citing career development as the most important factor. It may be that having made their move, salary is less of an issue and they would like to be seen as more professional than mercenary, whereas those who haven’t moved but are frustrated with their remuneration are happier to flag it as an issue.



REMUNERATION STARTING TO FUEL DISCONTENTBig drop in satisfaction with remunerationOverall, salaries are becoming an issue for auditors in permanent employment. The number who feel adequately compensated has dropped significantly from 66% to 51%. This could well be having an impact on motivation and may encourage stronger candidates to think about what options may be available to them in the recruitment market.

2016 2017

100%

80%

60%

40%

20%

0 66%

Yes

51%

Yes

Overall do you believe you are adequately compensated?

Job security Better work/life balance

Salary increase

Career development

2016

2017

34%

40%

4%

2%

44%

43%

16%

18%

If you were to consider looking for another job, or go for an interview, what would be the most likely reason for this?

Key issues 4



Also interesting is the increase in importance of work/life balance (up from 17% to 23% and job security (12% to 16%). We believe the increase in job security as a motivator is due to various factors, including the potential impact of Brexit on the economy which has been a source of insecurity in both Financial Services and the Public Sector in particular; as well as downsizing in banking, due to rationalisation or the relocation of departments.

Unusually, more women entered the recruitment market last year for both career development and salary increases, whereas more men reported entering the market for career development or job security reasons. This is a reversal on previous years where men tended to be more motivated by career progression and salary than women.

Salary top frustration with current job38% of auditors said salary is what they would most like to change about their current job, a big increase from 28% in 2016. Frustration related to career prospects dropped from 28% in 2016 to 22% this year.

Job security Better work/life balance

Salary increase

Career development

2016

2017

17%

15%

12%

16%

53%

46%

23%

18%

What was your primary motive in looking for another job?

5%

28%

6%

20%

28%

2016 2017

7%

6%

What would you most like to change about your job?

Salary

Work/life balance

Job content

Career development

Job security

My manager

Recognition

38%

17%

8%

22%

4%

6%

5%

The answer lies partly in the public sector and partly in financial services. The number of auditors reporting no increase in each sector was 18%. The sustained period of austerity over the past 7 years provides an explanation in the public sector. In financial services, the answer is a little more complex. Investment Banks in particular have had to adapt their business models. They have restructured their business models to improve return on equity and to reduce cost to income ratios. In practice firms, the number was 14% and in Commerce & Industry, only 8% reported no salary increase.

Average salary increase for non-movers down to 5%According to our survey, the average increase for internal auditors who stayed with their existing employer fell from 6% in 2016 to 5% in 2017. Given inflation levels are rising, this represents a material decrease in earnings. However, averages can be misleading as many of the internal auditors who stayed with their employer will have benefited from promotions.

As our comparatives demonstrate, there has been a significant increase in the number of auditors who only achieved a 0-2.5% increase, up from 26% to 35%.

The figure of 15% of internal auditors reporting they received no increase has remained consistent with 2016. This is still a high percentage and, given the recent increase in inflation due to the impact of both Brexit and the uncertain outcome of the general election on sterling, will be of some concern.



Which option best describes your salary increase in the last year?

26%

25%

12%

8%

14%

2016 2017

15%

>15%

10-15%

5-10%

2.5-5%

0-2.5%

The same

8%

9%

17%

16%

35%

15%

Key issues 4 2016 2017

40%

20%

0

Salary increase for non-movers

5%6%

The average salary increase remained broadly consistent across the various sectors, ranging from 6.1% in Banking and 5.8% in Commerce and Consulting, to 2.9% in the Public Sector. There was little difference between men at 5.3% and women (4.9%). In previous years, consultancies have offered the highest average increases. The emphasis on hiring candidates and then training them may have reduced the impact of loss of auditors to other sectors, which in turn may have led to a reduced need to offer above market salary increases.

Average salary increase for job movers down to 17%Our survey shows a drop in the average increase achieved by auditors who have changed employers from 18% in 2016 to 17%. This figure is in line with previous years and last year may have represented a high-water mark for salary increases achieved by those changing jobs.

This drop off may be explained by the reduction in the number of external hires made by Investment Banks in the past 12 months. This is in part driven by the number of auditors in the sector peaking, coupled with an increased appetite for redeploying displaced technical specialists from other parts of the business.



Sub-groups

Banking & Financial Services2017

6.7%20166.1%

Salary increase

20172016 3.9%Commerce & Industry

5.8%

9.2%20172016Consultancy

5.8%

20172016 4.1%Public Sector

2.9%


40%

20%

0

Salary increase for job movers

17%18%

14


There is a significant difference between the 17% average increase in salary achieved by changing job and the 5% average achieved by staying with an existing employer. However, analysing the average, as we do every year, reveals a wide range of increases. It is worth highlighting that whilst 17% may be taken as the average, only 21% (down from 37% last year) of internal auditors actually accepted a salary increase between 10% and 20% and, significantly, 22% of auditors moved for the same money or less, up from 13% in 2016.

Bonuses downThe number of auditors who received a bonus is down from 83% in 2016 to 73% this year: a considerable drop and reversing an upwards trend for the previous three years. In addition, the average bonus level has fallen from 17% in 2016 to 15%.

Section 4 | Key issues

Which best describes how your current salary compares to your salary in your previous role?

2016 2017

>40%

30-40%

20-30%

10-20%

0-10%

Less or the same

18%

37%

16%

6%

10%

13%

14%

11%

14%

21%

18%

22%

Sub-groups

Banking & Financial Services2017

15.8%201613.3%

Salary increase

20172016 16.1%Commerce & Industry

22.3%

16.2%20172016Consultancy

25.5%

20172016 12.3%Public Sector

15.8%

2016 2017

100%

80%

60%

40%

20%

0 83%

Yes

73%

Yes

Does your employer pay a bonus?


The average of 15% is significantly below the average paid to risk managers at 28% and marginally below the average bonus paid to compliance professionals at 18%. The average bonus is not, however, the typical bonus an internal auditor might expect. 31% of auditors reported receiving a bonus of less than 10%, with 9% receiving no bonus at all. Only 12% of auditors reported a bonus of over 30%. The most common bonus level reported by 21% of auditors was between 5-10%.

Bonus levels are more common in Banking & Financial Services, where 92% of auditors reported receiving a bonus, with an average of 20%. Only 34% of auditors in the Public Sector reported receiving a bonus, which averaged at 4%. Commerce and Industry bonuses were received by 81% of auditors and averaged 15%. Only 50% of auditors working for a consultancy reported receiving a bonus, with the average being 9%.

There is also a big discrepancy between bonuses for managers and non-managers. Managers achieved an average of 19% in their bonus, whereas non-managers averaged 10%. There also appears to be a discrepancy between men and women, with average bonuses of 17% and 12% respectively.

Whilst bonuses are a good way for employers to retain staff, they are not an efficient way of attracting them. This is shown in our survey where the average bonus for those who changed jobs was 10% compared to 17.9% for those who did not. Employers have been reluctant to compensate for loss of bonus when changing jobs for all but the most senior members of staff. If an auditor chooses to change employer, it is likely that any accrued bonus will be foregone, with at best just a pro-rata bonus from the new employer. Bonuses are non-contractual, discretionary and subject to all the usual caveats around performance. In some cases, bonuses may begin accruing from the time employment starts, in others there is a qualifying period. Some employers have a cut-off point in the year after which new joiners will not qualify for a bonus in that year’s cycle.


Bonus levels by sub-group

Audit

Risk

Compliance

Banking & Financial Services

Commerce & Industry

Consultancy

Public Sector

Managers

Non-managers

Men

Women

15%

Bonus level 2017

18%

20%

4%

28%

15%

9%

19%

10%

17%

12%


40%

20%

0

Level of bonus

15%17%


Pensions and other benefits stablePensions make a significant contribution to total income and, at 10% of base salary, have remained in line with 2016. 83% of auditors receive additional pension contributions, a fractional increase on 2016 (82%).

Other benefits (which include private health, travel or car allowances, memberships, etc.) remain at an average of £4,300.

Breakdown of total remunerationThe typical relative importance of the different elements of remuneration in audit is as follows:


2016 2017

100%

80%

60%

40%

20%

0 82%

Yes

83%

Yes

Does your employer provide you with any pension benefits above the statutory minimum? Pension

Base salary

Bonus

Other benefits

77%

12%

7% 4%

2017

2016 2017

40%

20%

0

Level of pension contribution

10%10%


DON’T ROCK THE BOATRecruitment activity calm but steadyThe number of auditors who changed jobs in the past 12 months fell slightly, from 28% in 2016 to 25%.

Focus on improving current positionFlexible working (i.e. the opportunity to vary your hours of work or to work from home on either an ad hoc or regular basis) is something that is as easily negotiated with an existing employer as a new employer and is an increasing motivation for internal auditors.

This year 69% of auditors reported that they benefited from flexible working, continuing a rising trend on the past 3 years. Furthermore, 72% of auditors reported they would like the opportunity to work more flexibly. The increased desire to work flexibly is matched by the increase in auditors who have reported an increased work/life balance as a motivator for changing employers at 23%, up from 18% a year ago. For those with a long commute, an opportunity to work from home on a weekly basis or even for a couple of days a month represents a better work/life balance even if the same total number of hours are worked.


Does your employer provide you with the opportunity to work flexibly to any significant level?

Yes No

2015

2016

2017

31%32%

38%69% 68% 62%

Would you like the opportunity to work more flexibly?

Have you changed employer in the last 12 months?

2016 2017

40%

20%

0 28%

Yes

25%

Yes

2016 2017

100%

80%

60%

40%

20%

0 67%

Yes

72%

Yes

Key issues 4

Training is another good motivator for auditors, for those moving job or those staying put. In particular, the Big 4 and smaller consultancies have adopted a policy of recruiting and training candidates without much risk and control experience. This has helped the market as they subsequently become targets for in-house audit departments. Financial Services companies have also increasingly offered training and development for internal applicants as well as being more flexible on hiring candidates with potential rather than necessarily holding out for the finished article.

Holidays are another key factor in quality of life, but tend not to be used as a means of securing or retaining staff as much as other incentives. In 2017, the average number of days holiday has increased from 26 to 27 days, but this only brings it back into line with the 2015 figure and our feeling is that the movement could be more to do with the sample of respondents than a real move in the audit market.

BREXIT A POTENTIAL MINEFIELDBrexit is affecting the work of internal auditorsBrexit is already impacting the work being performed by internal auditors, with 17% reporting a moderate change and a further 2% a significant change, although as yet the majority have experienced no change.

Average number of days holiday

2015 2016 2017

30

28

26

24

22

20

27 2726

Is Brexit affecting the work you do?

2%17%

81%

Moderate change

No change

Significant change

2017



These figures increase in the public sector, with 23% of public sector auditors reporting a moderate change and a further 10% a significant change. The figure for moderate change is comparable to other areas of corporate governance, such as risk management and compliance, with 23% and 24% respectively. It is, however, considerably lower than in legal where 41% of lawyers have reported moderate change to their work and a further 8% of lawyers a significant change to the work they are performing.

Key issues 4

Brexit reducing job security

Brexit is also affecting job security with 14% of internal auditors feeling less secure as a result of Brexit. This is, however, less than in other areas of corporate governance.

Brexit compressing earnings

One clear impact of both Brexit and the recent election result has been a fall in the value of Sterling. This has led to an increase in inflation which currently stands above the Bank of England’s target of 2% and has impacted real earnings. In addition to this, our survey reveals that overall salary increases achieved by auditors who have both changed jobs and those who haven’t have fallen slightly. When compared to national averages, the figures for auditors still exceed those in the wider economy, however, wage compression as a result of inflation has led to an increase in the number of auditors who reported feeling under compensated.

GETTING READY TO JUMPLarge number of EU Citizens employed in audit

29% of the candidates who responded to our survey are EU Citizens (Non-UK). This figure is high and the importance of EU Citizens to the UK internal audit recruitment market is supported by the fact that, in 2016, 38% of our revenue generated by audit placements came from placing EU Citizens. In 2017, the figure to date is 44%. It is clear that internal audit departments are heavily reliant on EU Citizens for their day to day functioning and future resourcing plans. Post Brexit, if the rights of EU Citizens already working here are not guaranteed and we fail to adopt some form of free movement or an efficient visa application system, employers may be faced with no choice other than to relocate roles to the continent to attract and retain staff.

Has Brexit affected your job security?

Less secure More secure

Same

81%

5%14%

2017



Auditors prepared to relocate

Our survey has revealed a potential brain drain, depending on the outcome of the Brexit negotiations, as 45% of auditors have indicated they are ready to relocate if their current role or job prospects are significantly affected by Brexit. Madrid is the most popular destination given, with Paris, Frankfurt, Dublin and Amsterdam all popular choices.

This figure rises to 100% of EU Citizens that responded to our survey and given the heavy reliance on EU Citizens for the successful functioning of Internal Audit departments, this represents a ticking time bomb for employers.

Auditors feeling confident in skills

When the time is right to move, auditors are feeling increasingly confident in their skills, with 68% believing that their skills have become more valuable (up from 61% in 2016).

HOWEVER…

Brexit less of an issue for audit than other areas of corporate governance

Our survey found that only 14% of auditors feel their role has become less secure as a result of Brexit. This is lower than in other areas. By comparison, 27% of lawyers and 25% of risk managers believe their roles have become less secure.

Financial Services auditors feel less secure than their counterparts in Commerce and Industry. Whilst audit is a transferrable skillset between geographic locations, for Financial Services in particular, the depth of the candidate pool in London often dictates where roles are based. London attracts people from around the world so employers, bound by the need to attract the highest quality staff, resist the temptation to hire in cheaper locations and retain roles in London.

If Brexit had a significant negative impact on your career or job prospects, would you consider moving to a country within the EU?

2017Yes45%

No55%

Do you believe your skills have become more valuable?

2016

2017

Same

More

Less

61%

66%

9%

9%25%

30%



Key issues 4

The insecurity in FS Audit may be due to some restructuring of audit departments for cost reasons which has been underway for some time. A number of organisations in Banking and Asset Management have already moved back office or operations audit teams to lower cost locations in the UK and Europe. Dublin, Edinburgh and Belfast, along with centres in Eastern Europe have been popular destinations for some time.

Only a small minority of auditors believe their role may be relocated

Public Sector workers understandably feel the most secure with regard to Brexit, as it is highly unlikely that a Public Sector body will relocate staff overseas. Within the remainder of the Audit community, only 8% believe their role may be relocated. This compares favourably to other areas of corporate governance: 17% of Risk Managers, for example, fear their role may be relocated.

Are you worried that your role may be relocated to another part of the EU post Brexit?

May be8%

Unlikely92%

Will be0%

2017



Audit is increasingly a profession that can be performed remotely and those areas of financial services that need to have departments within the EU for their business to function internationally don’t necessarily need an audit presence. The UK is likely to retain equivalence with the EU in rules and regulations for the foreseeable future. The UK also has a good track record of ‘Gold Plating’ regulatory standards, meaning there shouldn’t be any great divergence of rules and regulations between the UK and the EU. It is therefore unlikely that roles will be relocated due to regulatory pressure in the short to medium term.

Language skills could be a problem

• 54% of auditors do not speak another European language

• 78% of auditors who are also British Citizens do not speak another European language

• French is the most widely spoken European language amongst auditors at 21%, followed by German at 13%

Whilst the international business language is English in many multinational businesses, particularly Financial Services, language skills may prevent the 78% of British auditors who don’t speak a second European language from moving to another EU country. Much of this is dependent on the outcome of the UK Government’s negotiations with the EU and, for the time being at least, London remains the main ecosystem and European centre for financial services. For the better candidates, the perception remains that career opportunities and salaries are better here than in other EU cities.

Sector analysis

23 Section 5 | Sector analysis

CONTEXT

Following several years of sustained earnings growth, the recent rise in inflation, coupled with a fall in the average salary increase achieved by internal auditors, has led to the number of auditors who are satisfied with their salary falling from 66% to 51%.


Salary increases for both internal auditors who have stayed with their employers as well as for those who have moved are down. Higher than average increases for those who have stayed are often linked to promotion or to a counter offer. Promotions are a good way of motivating and retaining staff, whereas counter offers are much less successful. Many auditors who are persuaded to stay purely by a salary increase, with no material change to their conditions or the nature of their job, will choose to re-enter the recruitment market in the following 12 months.

In 2016, when we asked auditors what they would most like to change about their job, salary and career development were equal top at 28%. This year, in light of compressed earnings, salary has risen to 38% against career progression at 22%; and a better work/life balance at 17%. Salary is clearly becoming a more important issue in audit.

Satisfaction with remuneration

2016 2017

100%

80%

60%

40%

20%

0

66%

51%

5

24Section 5 | Sector analysis


QUALITATIVE FEEDBACKIn our survey, we also gave auditors the opportunity to respond qualitatively to the question “If there was something you could say to your employer, what would it be?” There were a number of different themes coming through, with remuneration and working conditions the most common:

“More investment required in people (line management, training, recognition, reward and compensation). Better management of poor performance.”

“Stop penny pinching and appreciate the fact good auditors are hard to find.”

“Reward better to attract and retain talent.”

“The benefits package (non-salary) is not as strong as some of your competitors, to retain good staff it is important to make it difficult to leave.”

“Do you really understand the value of internal audit?”

“Do not put so much pressure on your staff.”

“Use less stick, more carrot.”

There was a feeling that new staff are treated differently when it comes to remuneration from existing employees:

“Year on year compensation considerations should be aligned with compensation of new employees rather than creating a negative and distinct wage gap between new and existing employees.”

And employers were urged to:

“Review the market rate for audit jobs.”

However, it was encouraging to see how many auditors are happy with their employers, with many expressing gratitude, satisfaction, enjoyment of their role and a good relationship with their manager.

“First rate employer; consider myself fortunate.”

“I can say whatever I want to my employer, my boss listens.”

“Fantastic firm, supportive management team, switched on leadership. A great employer. They don’t get everything right but they try!”

“Thank you for your continued support - let’s develop this service area and our roles within the organisation.”

Given the financial constraints many internal audit departments are under, praising employees, recognising the efforts of the team, offering flexible working and providing opportunities for people to develop their careers can make a real difference when it comes to motivating and retaining good staff.

Areas of particular demand have included credit risk, market risk, financial crime, anti-money-laundering and fraud. Incoming regulations, such as CRD IV, Capital Requirements Regulation (CRR), Recovery and Resolution Planning (RRP) and General Data Protection Regulation (GDPR) have also driven demand for auditors.

Employers have been more willing to consider applicants from the 2nd line of defence with subject matter expertise when recruiting for audit roles. The availability of candidates from the second line is generally good, however, there has been concern that some of the people migrating from 2nd line roles, particularly those from highly technical backgrounds, do not always have the necessary stakeholder engagement skills.

The Senior Manager & Certification Regime (SMCR) comes into force for more organisations in 2018, including asset managers and interdealer brokers. We anticipate this will lead to an increased focus on internal audit within these firms. There is the potential for the development of a greater number of smaller in-house audit teams supported by co-source arrangements. This in turn should lead to more opportunities for internal auditors, both in-house and in the consulting firms that support them.

Since the financial crisis, internal audit has been encouraged to review all aspects of business (including culture), and has evolved to be more commercial and consultative with greater added value. With this in mind, auditors are probably correct to feel their skills have become more valuable when compared to a few years ago.



BANKING & FINANCIAL SERVICESThe number of internal auditors in Banking & Financial Services who reported changing roles in the past 12 months was up from 23% in 2016 to 34%. This is a marked increase year on year, but is in line with 2015.

Demand from the traditional London banking market presents a mixed picture, with some firms increasing headcount while others have recruitment freezes in place and there have been redundancies.

Alongside the continuing requirement to replace leavers, other factors driving recruitment in banking have been the introduction of new regulations and a move towards hiring subject matter experts at the delivery manager level rather than generalist auditors.

Changed job in last 12 months

2015 2016 2017

40%

30%

20%

10%

0

35% 34%

23%

Sector analysis 5

COMMERCE & INDUSTRYAverage salary increases for those changing jobs in commerce & industry have remained relatively strong at 22%, up from 18% last year. This was beaten only by consultancies.

The average salary increase for those in this sector who remained with their employer was just 6%, which takes into account higher increases for promotions and counter offers.

Hence the number of internal auditors reporting they are satisfied with their compensation has fallen sharply from 79% in 2016 to 57% this year. Equally, the number who chose remuneration as the aspect of job they would most like to change leapt from 17% to 37%. The squeeze on earnings is clearly being felt by auditors in commerce & industry.

This hasn’t yet resulted in a lot of auditors looking to enter the recruitment market and currently the number of newly registered vacancies far outweighs the number of new candidates coming into the market. This is explained by a variety of factors, including the fact that auditors are naturally risk averse, the broader economic uncertainty is leading to a safety-first approach and because companies are working hard to retain top performing staff. The shortage of candidates has led to upward pressure on salaries being offered to internal auditors who are looking to change jobs, with significant competition for the best candidates.


To counter the positive demands for auditors from SMCR, we are seeing some consolidation within the wealth and asset management industries which may reduce the demand for auditors. The increasing regulatory and operational cost burdens are proving too much for smaller and also some sizeable firms that may have to merge or be taken over to survive. So far, these conflicting forces seem to be broadly in equilibrium, however, we anticipate the number of financial services auditors entering the market because of job security to increase from historically low rates.

Demand in the insurance sector has held up well in the first half of 2017. Following a raft of mergers and redundancies last year, the market seems a little more buoyant. Insurance firms are still very selective when it comes to skill-sets, and knowledge of the sector. Subject matter expertise of areas such as Solvency II remains in most demand, which has led to a number of vacancies remaining open for longer than in other parts of financial services.


Salary increase for movers


Commerce & Industry

Consultancies

Public Sector

13%

26%

16%

22%



Where businesses are strict on their search criteria and skill requirements, the time to hire increases. Relevant sector experience is often a lower priority, particularly in unregulated industries, with the emphasis being on stakeholder engagement skills and commercial understanding. General market uncertainty around the General Election and of course Brexit has meant UK-centric businesses realigning audit team strategies, with some choosing to outsource functions to either mid-tier or Big 4 consultancies. Multinational organisations seem to be more flexible and resilient, with a continuation of opportunities on offer; although they sometimes struggle to attract candidates. Most vacancies continue to be at the delivery focused internal auditor level, which can be frustrating for senior level candidates.

Much of the commentary in the press has been on the reliance of financial services on EU migration. Our survey shows this is also the case for commerce & industry, as 52% of the auditors who responded to our survey are EU nationals. As per our earlier caveat, this is not necessarily reflective of the composition of all internal audit functions, however, it is clear that internal audit in commerce & industry is heavily reliant on migration from the EU, both for current day to day operations as well as future recruitment needs.

CONSULTANCIESThere is currently high demand across the consultancy sector and particularly from the Big 4 who continue to use retention strategies that include accelerated promotions and highly competitive salaries. Mid-tier consultancies are currently engaged in comprehensive recruitment campaigns, with an emphasis on junior level roles, ideally newly qualified, to service contracts across the public and commercial sectors. Both the big 4 and other consultancies have hired candidates without any audit experience and have been prepared to train them, so ensuring adequate resource is in the pipeline.

Internal auditors in consulting are feeling reasonably secure in their roles as a result of Brexit, with just 15% reporting they feel less secure as a result of Brexit. However, this is only beaten by banking and financial services, where 17% feel less secure.

Less secure as a result of Brexit


Commerce & Industry

Consultancies

Public Sector

17%

4%

11%

15%

Sector analysis 5



Pay increases for auditors working in consultancy appear mixed. The average increase in salary achieved by those internal auditors staying with their employer has fallen from 9% in 2016 to 6% in 2017, bringing it in line with internal auditors in banking & financial services and commerce & industry. However, internal auditors with a consulting background have achieved 25% average increases by changing employer, up from 20% last year.

In spite of this ability to significantly increase salary by moving, 43% of internal auditors list salary as the thing they would most like to change about their job, with work/life balance second at 30%. These percentages are far higher than other sectors and, given that internal auditors in the sector believe that their skills are becoming more valuable, it indicates that if consultancies wish to retain their internal auditors, salary pressures within the sector are likely to continue. This is borne out by the fact that, according to our survey, as in the public sector, no internal auditor in consulting entered the recruitment market as a result of job insecurity.

PUBLIC/NFP SECTORIn the past 12 months, we have seen a mixed picture for internal audit in the public sector. The Government Internal Audit Agency (GIAA) was created through the merger of a number of central government audit functions. The GIAA is an executive agency of HM Treasury and employs approximately 450 auditors UK-wide, covering 14 government departments and over 100 associated bodies. Many roles in the GIAA were centralised in London, which led to redundancies in other parts of the UK and the creation of some new roles in the capital. There were also redundancies in councils up and down the country due to cost measures as neighbouring councils pooled their resources to create shared services across borough lines. However, this has been balanced in part by the creation of a number of junior, delivery focused roles in councils across the UK.

It is widely known that local authorities in the UK have been under significant pressure to cut costs wherever possible. We can see from our survey that this has impacted internal auditors working in the public sector, where average salary increases of 2.9% for non-movers are significantly below the average for other sectors. Once we adjust for promotions, the average increase for public sector auditors falls to 1.7%. 18% of public sector internal auditors saw no increase in salary and 52% received a pay rise of less than 2.5%. Given the recent increase in inflation, public sector auditors are most likely to feel the squeeze as real wages are compressed.

Sector analysis 5

IT AUDITVacancy numbers in IT audit have held up well in the first half of 2017. IT audit is no longer seen as a bolt-on to existing audit functions and we have seen the growth of IT audit as a standalone area of specialism. This has been the case in financial services for some time, largely due to Cyber Security, Data and IT Outsourcing being high on the regulatory agenda. IT Audit is increasingly reviewing IT Security and, given the recent high-profile failings in both the private sector and the NHS, it is no surprise that more firms are recognising this need.

IT auditors have noticed this too, with 76% reporting that their skills have become more valuable and, with an average increase of 19%, they continue to benefit from higher salary increases than their colleagues in general audit. Application auditors, specifically with knowledge of complex enterprise software applications such as SAP and Oracle, as well as auditors with infrastructure knowledge remain in high demand. Both are in short supply. Salary increases, promotions, secondments, training opportunities and counter offers are common methods for staff retention.

Public sector workers also registered the largest change to the work they do as a result of Brexit, with 23% reporting a moderate change and a further 10% a significant change. On the positive side, job security as a result of Brexit is highest within the public sector, with no one responding to our survey feeling concerned, understandably, that their role will be relocated to another part of the EU. Public sector auditors also appear to be the happiest with the content of their jobs, with only 2% reporting job content as the thing they would most like to change about their role. Unsurprisingly, remuneration was the thing they most wanted to change, at 34%, with 48% citing salary is the primary motivator for potentially entering the recruitment market.



Average salary increase for non-movers


Commerce & Industry

Consultancies

Public Sector

6.1%

5.8%

2.9%

5.8%

% believing skills have become more valuable

100%

80%

60%

40%

20%

0

63%76%

General Audit IT Audit

As with other specialist audit areas such as risk, internal audit departments are more prepared to recruit professionals from cyber security without prior audit experience. This is a challenge as there is already high demand from the information and cyber security market. Auditors with IT and Change Audit experience are also in demand. Given the scale of the demand, and this is borne out by our survey, more and more employers are looking to fill vacancies with candidates from the EU. IT audit is yet another area where a failure to adopt some form of free movement of people or an efficient visa application system post Brexit is likely to have a significantly negative impact.

CONTRACT MARKET – GENERAL AUDITAlthough demand for internal audit contractors slowed slightly in the first half of 2017 and contractors are anticipating that finding a new contract will be harder than previously, our survey shows that 41% of contractors in work found their next assignment immediately, with none taking over 6 months to find a new contract. Many also report a slight rise in rates over the last 12 months - so the mood is generally good. Furthermore, since the beginning of June, we have noticed an increase in new contract opportunities coming to market, the majority arising from wealth, asset management and broader financial services firms.

The average length of contract is currently 6-8 months and most consultants in work believe they are adequately compensated for the work they do. The current political climate, particularly the uncertainty around Brexit, is having an adverse effect on the broader job market, with fewer jobs being advertised and less movement of internal auditors between firms. That said, the contract market is holding up, with 83% of those audit contractors surveyed reporting not to have been adversely affected. The uncertainty may ultimately benefit the contract market, as companies choose to delay permanent recruitment in favour of interim options.

Demand continues to be greatest in the financial services sector, particularly for contractors with wealth and asset management, investment and corporate banking experience. Demand from commerce & industry is relatively slow, with most activity in retail and distribution. Following the recent tragedy at Grenfell Tower in June, we have seen demand for housing and health & safety auditors from both the public and social housing sectors to risk assess their portfolios and ensure suitable controls are in place around health & safety policies and measures.



How quickly were you able to secure a new role?

Immediately

Less than one month

2-3 months

4-6 months

Over 6 months

41%

23%

11%

25%

0%

Sector analysis 5



Regional demand is a little subdued at present, with most roles tending to be back-filling permanent vacancies which may be taking longer to fill than desired. Regulatory pressure within financial services is leading to more sustained demand for specialist day rate internal auditor contractors. In fact, the trend towards fixed term contracts, rewarding contractors on a pro-rata salary basis, has reversed with traditional day-rates now usual. This is the preferred option for ‘career contractors’ and is a positive for the contract recruitment market.

An important legislative change which is already having a negative impact on the contract market is the introduction of the Public Sector Reform Act 2017 which came into effect in April this year. The current government has had the spotlight firmly focused on the contracting market for the last year or so, and this new Act means that public sector organisations will now be responsible for correctly assessing whether a contractor and/or contract sits inside, or outside, IR35 legislation. This Act shifts accountability from the contractor to the client. Therefore, if a contractor were deemed to fall foul of IR35, the end client would be responsible for the unpaid taxes due. This legislation is initially being rolled out to the public sector (including quasi-public sector entities such as the Bank of England and the FCA, etc.), but there is growing concern that it could next be rolled out to the private sector. The alternative to contractors currently working through a Personal Service Company is either working PAYE or via an umbrella pay-rolling company (still PAYE). If this happens, the benefits of working as a contractor would lessen and may result in some contractors leaving the market in favour of a permanent role. Alternatively we have seen that some audit contractors have had an increase in their daily rate to compensate for lost benefits. This may still be more economical than engaging external consultancy services.

CONTRACT MARKET - IT AUDITWithin IT audit, demand for contractors has been focused on auditors with proven experience in Cyber Security, Data Analytics and Project Assurance. These are currently the most important areas of activity, but the General Data Protection Regulation (GDPR) coming into effect on 25th May 2018, will be robustly reviewed in the final quarter of 2017 and first quarter of 2018, no doubt creating new recruitment needs.

Projects and Change roles have seen a resurgence in recent times, with further resources being used to ensure transformation programmes – particularly those related to technology – are delivered effectively. IT audit consultants have been able to add value throughout the project lifecycle: from inception, PMO governance to closing the project, including addressing legacy systems.

Directors and Heads of Internal Audit are increasingly looking to utilise Big Data in providing more accurate and robust assurance. It is now possible to gather and analyse far larger and more complex data to draw more accurate findings. Contractors with experience in this area have proven a useful resource to those departments who have not previously adopted this tool. Senior contractors can provide the necessary amendments to frameworks and methodologies, as well as helping train and up-skill other members of the team.

Following on from the increased focus and use of technology, the risk of technology failure or an attack on systems has never been greater. Therefore, savvy audit departments have engaged contractors with in-depth and detailed knowledge of Information and Cyber Security to carry out deep dive assessments and provide recommendations for future stability. A significant proportion of internal audit teams have opted to make Cyber Security a continually monitored item on the plan.

Overall, demand for IT audit consultants will continue to grow as businesses’ reliance on technology increases: their expertise to highlight control failings or areas for optimisation becoming ever more critical.

33 Section 6 | Salary guide

Salary guide

Barclay Simpson analyses the salary data that accumulates from the placements we make in the UK. This provides a guide to salaries for internal audit professionals. The salary ranges quoted are for good rather than exceptional individuals and take no account of other benefits in addition to salary that usually accrue to internal auditors, such as bonuses, profit sharing arrangements and pension benefits. For more information on audit salaries, please contact David Jarrold ([email protected]) on 020 7936 2601.


6

34Section 6 | Salary guide

Big 4

Associate (1-3 yrs exp)

Senior Associate (3-5 yrs exp)

Manager (5-7 yrs exp)

Experienced Manager (7-10 yrs exp)

Senior Manager (8-12 yrs exp)

Director (12 yrs exp)

20 30 40 50 60 70 80 90 100 110

General Audit

IT AuditGeneral Audit





IT Audit

Salary £000

++

++

London Regional

120 130

Mid-tier

Consultant (1-3 yrs exp)

Senior Consultant (3-5 yrs exp)

Manager (5-7 yrs exp)




20 30 40 50 60 70 80 90 100 110

General Audit






IT Audit

Salary £000

++

++

London Regional

120 130

Commerce & industry

Auditor (1-3 yrs exp)

Senior Auditor (3-5 yrs exp)

Lead Internal Auditor/ Asst. Manager (5-7 yrs exp)



Divisional Head (12 yrs exp)

Group Head/Director (12 yrs exp)

20 30 40 50 60 70 80 90 100 110

General Audit






IT Audit

Salary £000

+

London Regional

General Audit

IT Audit

120 130

++

++


Salary guide

35 Section 6 | Salary guide

Banking IT Audit & Regional

Auditor (2-4 yrs exp)

Senior Auditor (3-6 yrs exp)

Lead Internal Auditor/ Asst. Manager (5-7 yrs exp)




20 30 40 50 60 70 80 90 100 110

General Audit






IT Audit

Salary £000

+

London Regional

120 130

++

Investment Banking General Audit London

AnalystAssociateAssistant Vice PresidentVice PresidentDirector/Senior Vice PresidentExecutive DirectorManaging Director

20 30 40 50 60 70 80 90 100 110Salary £000

+

120 130 140 150 160 180170

Retail Banking General Audit London

AuditorSenior AuditorAudit ManagerSenior Audit ManagerHead of AuditDirector

20 30 40 50 60 70 80 90 100 110Salary £000 120 130 140 150 160 180170

+


6

36Section 6 | Salary guide

Asset Management General Audit London

AuditorSenior AuditorAudit ManagerDirectorManaging Director/Head of Audit

20 30 40 50 60 70 80 90 100 110Salary £000

+

120 130 140 150 160 180170

Insurance – Lloyd’s Market General Audit London

Senior AuditorAudit ManagerManaging Director/Head of Audit

20 30 40 50 60 70 80 90 100 110Salary £000 120 130 140 150 160 180170

Small Insurance – Life and Non-Life General Audit

Senior Auditor

Audit Manager

Senior Manager

Head of Audit

30 40 50 60 70 80 90 100 110 120Salary £000

London Regional

130 140

Large Insurance – Life and Non-Life General Audit

Senior Auditor

Audit Manager

Senior Manager

Head of Audit

30 40 50 60 70 80 90 100 110 120Salary £000

London Regional

130 140

++


7About Barclay Simpson

Barclay Simpson is an international corporate governance recruitment consultancy specialising in internal audit, risk, compliance, security & resilience, business continuity, legal and treasury appointments.

Established in 1989, Barclay Simpson works with clients in all sectors throughout the UK, Europe, Middle East, North America and Asia-Pacific from our offices in London, New York, Dubai, Hong Kong and Singapore.

We add value by using our unique focus on corporate governance, our highly-experienced specialist consultants and access to both the local and international pools of corporate governance talent.

Our strength lies in our ability to understand client and candidate needs and in utilising this insight to ensure our candidates are introduced to positions they want and our clients to the candidates they wish to recruit.

For more in-depth coverage, comprehensive reports and compensation guides exist for the Internal Audit, Risk, Security & Resilience, Compliance and Legal recruitment markets. These can be accessed from the links below.

www.barclaysimpson.com/internal-audit-mid-year-report-2017

www.barclaysimpson.com/risk-management-mid-year-report-2017

www.barclaysimpson.com/compliance-mid-year-report-2017

www.barclaysimpson.com/security-and-resilience-mid-year-report-2017

www.barclaysimpson.com/legal-mid-year-report-2017

We also produce other specialist reports, each of which can be accessed for free on our website: www.barclaysimpson.com

Barclay SimpsonBridewell Gate, 9 Bridewell PlaceLondon EC4V 6AWTel: 44 (0)20 7936 2601Email: [email protected]

37 Section 7 | About Barclay Simpson


38Section 7 | About Barclay Simpson

Feel free to share our reports with colleagues or friends and, if you would like hard copies of any of the reports, or would like to discuss any aspect of them, please contact the following divisional heads:

Internal & IT Audit David Jarrold [email protected]

Risk Antony Berou [email protected]

Compliance Tom Boulderstone [email protected]

Security Mark Ampleford [email protected]

Legal Jane Fry [email protected]

Interim Andrew Whyte [email protected]

To discuss our international services, please contact:

Europe/Middle East Daniel Close [email protected]

Asia Pacific Russell Bunker [email protected]

North America Gareth Carpenter [email protected]


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