Is it worth the risk? Salaries in risk management 4.0

2024: VUCA (volatility, uncertainty, complexity, and ambiguity) world meets risk management. Why do organisations still find it difficult to prioritise effective risk management? Have we learnt nothing? From global pandemics and supply chain disruptions to cyber threats and climate change, organisations are faced with an ever-increasing number of risks that derail their strategies and undermine their success. And the pace at which the risk landscape is evolving is anything but slow.
This also applies to professionals, who need to evolve at the same speed. But first and foremost: the companies. Yet despite the increasing importance of this function, many organisations are still failing to attract, develop and retain risk management talent. This article examines the changes in the risk management salary structure and highlights the current trends and driving factors that are shaping income dynamics in this important discipline.

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The Evolving Risk Landscape

In just one decade, the risk landscape has been fundamentally transformed. Companies have to deal with a multitude of new and complex risks. Traditional risk management practices, which used to focus primarily on financial and operational risks, are now simply inadequate to deal with the myriad challenges of the modern business environment.

COVID-19 has made us forcefully aware of how interconnected risks are and how great the potential for cascading effects is. Supply chain disruptions, workforce issues and volatile market conditions highlighted the vulnerability of companies that were unprepared for such far-reaching and systemic risks. At the same time, increasing digitisation and growing reliance on technology have ushered in a new era: cyberattacks, data protection and the need for robust cybersecurity measures. Cybersecurity is becoming the big issue of the era of artificial intelligence, machine learning and the Internet of Things (IoT).

In addition, the increasing impact of climate change has brought environmental, social and governance (ESG) risks to the forefront of risk management discussions. Companies are under increasing pressure from stakeholders, regulators and the public to reduce their carbon footprint, adopt sustainable practices and mitigate the risks associated with climate change.

In this dynamic landscape, risk management has evolved from an isolated function to an integral part of strategic decision-making. Risk managers are now expected to have a thorough understanding of the organisation's entire value chain, anticipate emerging risks where possible and provide actionable insights to support high-level risk-based decisions.

As a result, the skills, competences and yes, the compensation structures of risk management professionals need to evolve. Organisations that fail to adapt and invest in building a solid risk management capability will be ill-equipped to meet the challenges of the future.

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Redefinition: Risk management 4.0

Redefining it as Risk Management 4.0 requires them to have a broader set of skills and take on more strategic responsibility. Traditional risk management has focussed on identifying, assessing and mitigating risks in specific areas - such as finance, business operations or compliance. However, the interconnected nature of modern risk requires a more holistic and integrated approach.

This is also the conclusion of the 2023 Risk Salary & Recruitment Trends Guide from Careers in Risk. The role of risk managers has changed from pure risk consultants to strategic partners in decision-making processes. They are increasingly expected to provide insights and recommendations that contribute to overall strategy and the achievement of organisational objectives.

Developing a diversified portfolio of competences that go beyond traditional risk management skills is becoming increasingly important. Risk managers are now required to have strong analytical and data-driven skills that enable them to use advanced analytics, modelling and data visualisation techniques to effectively identify and quantify risks. In other words, skills that fall into the area of data science.

Samantha Beavers from NC State University (Master of Management, Risk and Analytics) confirms this: "We are seeing that these companies are not just looking for any kind of risk management officer, but for professionals who are formally trained in risk management and in analysing data to support strategic decisions."

FINANCE magazine also emphasises that risk managers must have a comprehensive understanding of the company's business operations, processes and strategies. This holistic perspective enables them to assess risks in the broader context of the company's objectives and make recommendations that are in line with the organisation's overall risk appetite and tolerance.

And it doesn't stop there: Risk managers need to develop exceptional communication and stakeholder management skills to ensure they can effectively promote risk information to different audiences - from employees to leaders and the board. They must be able to translate complex risk data into actionable insights and recommendations that resonate with diverse stakeholders.

Other soft skills, such as critical thinking, problem solving and adaptability, are also required. Risk Management 4.0 professionals need to deal with ambiguity, think creatively and develop innovative solutions to address new and complex risks. Typical requirements that match the current list of skills predicted by the World Economic Forum.

As a result, organisations are increasingly looking for risk managers with cross-functional expertise gained in different areas or industries. Their ability to recognise and address risks from a multidisciplinary perspective means that such individuals are highly sought after.

This development has led to a recalibration of salary - as organisations are not only keen, but in some cases forced, to attract and retain top talent for this important role. In the next section, we will look at the specific compensation trends and drivers that are shaping the risk management profession.

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Salary Surge: Factors and Figures

The increased demand for qualified risk management professionals, combined with the growing scope of their responsibilities, has led to a significant increase in salaries across various industries and regions. According to the RIMS 2021 Compensation Survey, the base salary of risk professionals in the US increased by an average of 14.4% in 2021 compared to 2019, with the median annual base salary rising to USD 135,000.

Salaries have also risen in Germany. The annual salary for a risk manager at the start of their career is around 65,000 to 70,000 euros gross. After 2-3 years of professional experience, it often rises to 85,000 to 90,000 euros plus bonuses. Experienced senior risk managers with 3-7 years of professional experience earn up to 120,000 euros plus bonuses. Salaries of up to 150,000 euros are possible in management positions, while C-level risk managers such as Chief Risk Officers can earn between 140,000 and 250,000 euros. The sharp rise in demand for risk management expertise due to crises such as the coronavirus and the war in Ukraine has favoured this salary increase.

The factors already discussed are responsible for this upward trend in risk management salaries. The shortage of qualified risk management professionals, the growing scope of risk management and the increasing strategic importance of the function. In addition, the demand for specialised skills such as data analytics, cyber security and ESG risk management. Risk managers with expertise in these areas are highly sought after and receive higher salaries and bonuses.

Industries that are subject to increased scrutiny by regulators or have a complex risk environment are leading the way when it comes to offering competitive compensation packages to secure top risk management talent. These include the financial services, healthcare and energy sectors, among others.

It is essential to note that compensation trends can vary based on factors such as industry, geographic location, company size, and individual experience and qualifications. However, the overall trajectory points to a sustained upward trend in risk management compensation, driven by the increasing value placed on this critical function.

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Preparing for the Future of Risk Management

Given that the risk landscape is evolving at a rapid pace, organisations need to proactively prepare for the future of risk management. This preparation involves not only attracting and retaining top talent - but also investing in developing risk management capabilities and fostering a risk-aware culture across the organisation. This means embedding risk management principles and practices into the DNA of the organisation. This is to ensure that risk considerations are incorporated into all decision-making processes, from strategic planning to day-to-day operations. It also ensures the ability to think critically, one of the top soft skills on the World Economic Forum's current list. 

Speaking of soft skills, effective communication and stakeholder engagement are also key to fostering a risk-aware culture. Risk managers should develop strategies to communicate risk information clearly and persuasively, tailored to the specific needs and perspectives of different stakeholders - including senior management, board members and employees.

Learning and development (L&D) is the next big topic of the hour. Organisations would do well to prioritise continuous learning for their risk management teams. This includes access to online courses, certifications or workshops. But also coaching or mentoring programmes (read the article on employee development by our colleagues at Foxio Consulting). This way, you can ensure that risk managers stay up to date with the latest methods, tools and best practices in their field. Risk managers need specialised additional knowledge in financing and quantitative methods such as simulation, rating and valuation methods. According to Werner Gleißner (among others on the board of the EACVA (European Association of Certified Valuators and Analysts), we are heading towards a bottleneck in the area of simulation methods. And without this knowledge, it is impossible to assess the degree to which a company's existence is at risk - and that is a fundamental task!

Promoting cross-functional collaboration and knowledge sharing can also increase the effectiveness of risk management. By breaking down silos and fostering collaboration between risk managers, specialists and business units, organisations can gain a more comprehensive understanding of risk and develop holistic risk mitigation strategies.

In addition, organisations should consider introducing risk-based performance metrics and incentives to align risk management objectives with overall business goals. By linking compensation and performance evaluation to risk management outcomes, companies can emphasise the importance of proactive risk management and encourage the desired behaviours.

Last but not least, organisations should of course use state-of-the-art technology and data analytics to improve their risk management capabilities. Investments in advanced risk management software, data visualisation tools and predictive analytics tend to provide valuable insights and enable more informed decision-making. More expenses you ask? Don't worry, these investments are quickly amortised.

To summarise, the future of risk management lies in a highly proactive approach. By investing in developing talent, technology, fostering a risk-aware culture and aligning risk management with business objectives, organisations can put themselves in a position to manage the complexity of the evolving risk landscape and succeed in the long term.