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Thursday 22 January 2015

HR CHALLENGES FACING THE BANKING SECTOR IN 2015

Karen Higginbottom Contributor
I write about the junction between being human and the workplace
It’s been a tumultuous year for the banking sector which has been beset with corporate scandals, the latest one being the recent Forex-rigging debacle. On top of this, many banks which are headquartered in the City of London are grabbling with a raft of regulations such as Capital Requirements Directive IV and the forthcoming Senior Managers’ Regime. What are the major challenges facing HR directors of global banks in 2015? I asked the experts to look into their crystal balls and offer their thoughts.

There are a number of challenges facing HR directors in the banking sector in 2015, according to Andrea Eccles, chief executive of City HR Association. She believes that these challenges come under the categories of regulation, remuneration and restoration. With regards to regulation, Eccles argued that both EU directives and Prudential Regulation Authority (PRA) and Financial Council Authority (FCA) consultation papers have had a major impact on people management activities within banks. “These include the reward elements arising from the Capital Requirements Directive (CRD) IV and the introduction of bonus caps of 100% of base pay or 200% with shareholder approval. Furthermore, the PRA/FCA are also proposing new conduct rules with the introduction of the Senior Managers Regime (SPR) which will hold employees –particularly those at the top end-more accountable for their actions. This will result in seismic changes in HR strategy given that the SPR is likely to impact the full employee lifecycle from recruitment and on-boarding to performance management and exit.”

The banking sector faces a constant challenge of new regulations, comments Mark Quinn, UK and Ireland market business leader, Talent Mercer. “The HR function is facing constant application of regulatory rules. There has never been so much external intervention in banking. There is a lot of stuff to do for HR directors because regulatory change is driven heavily by political change and subject to constant change. That constant change feeds into the organization and they have to deal with it all the time. HR directors will spend far more time dealing with implications of regulatory issues in 2015 than they would like.”
There is a fear among banks that regulatory restrictions on bonus payments will mean that talent will move outside the EU, commented Mark Thompson, associate director for the Hay Group. “The challenge is therefore to compete with international markets within the new restrictions. The banking industry is responding by introducing new reward elements that are not fixed or guaranteed like base salary but paid as an allowance which can be adjusted depending on the performance of the business and the contribution of the individual. They have also responded by increasing base pay to make up for the lower bonuses. The challenge that reward managers have is to leverage these new approaches and the new terms around claw-back of bonuses to incentivize some intangible elements of the scorecard such as customer satisfaction as well as the hard cash measures of success.”

The second major challenge facing HR directors in banking are the proposed changes to the Remuneration Code as put out to consultation by the PRA and FCA between July and October 2014, commented Eccles. “Among many proposals, this is likely to see changes to bonus deferrals, clawback, malus and potentially bonus buy-outs, with tougher financial sanctions aimed at the top management of any future bailed-out banks.” Another remuneration challenge facing HR directors in the global banks is the reform to pensions as announced in the Spring 2014 budget, remarked Eccles. “The introduction of flexible access on the drawdown of funds within defined contribution schemes will see the need for workplace pre-retirement education of employees up to five years before their actual retirement date.”

The third HR challenge facing HR directors in global banks is the restoration of the industry’s reputation, argued Eccles. “Many financial institutions, including those of other financial disciplines other than banking, have worked hard to identify or re-emphasis their corporate values and to re-state the behaviors required of their employees. As the custodians of most aspects of culture, HR will have its work cut out for it in terms of looking to align performance management schemes to the corporate values and to ensure that reward is allocated accordingly.”

The requirements from society to banks are substantially different coming into 2015, remarks Quinn. “If you think back to 2005, societal requirements from banks was about driving economic wealth and about shareholder return. If you reflect to now, the contrast could not been starker. In 2015, there are questions of protection for customers and risk with tier 1 capital requirements imposed onto banks in a different way. A completely different regulatory framework drives banks to be thoughtful about risk appetite.”

That means the business strategy of a bank has had to undergo major change, added Quinn. “It’s not about being an engine for growth but it’s about being a steady custodian. What does that mean for the talent strategy? Banks are there to make money but not in a risky way and they require a different profile for success. The template model for the senior leadership in banks has changed radically. Increasingly, there are requirements for people who rise in organizations to have the ability to lead on a generalist basis. Banks are looking for different leadership qualities. It’s about how the business interacts with customers rather than innovation with products.”

One of the areas for consideration for HR directors in global banks next year will be the impact of shared parental leave in UK, argues Charlotte Sweeney, founder of Charlotte Sweeney Associates, diversity, inclusion and wellbeing experts. “This allows eligible women to curtail their right to maternity leave to enable their partners to take shared parental leave. Although this is UK law, there are a number of potential ramifications across global organizations, which include creating the right cultural shift which means that effective shared parental leave is important. For HR directors that are serious about creating inclusive cultures, this is a key area of focus.”

Sweeney argues that although there has been a huge focus on the Women on the Board agenda by banks, attention was now moving to cultural diversity on the boards. “Cultural diversity is the quality of diverse or different cultures as opposed to monoculture. For global companies where there cannot be a single definition of who is or isn’t an ethnic minority because of the countries it operates, cultural diversity gives a sense of wanting to bring people in who have different cultural backgrounds and experiences. Regardless of the focus at the board level, the key has to be focusing on the talent pipeline and ensuring talented people, regardless of background, are filling the spaces ready to progress to the senior roles.”

Another key diversity challenge facing global banks in 2015 is that there are now multiple generations working together following the eradication of the default retirement age in the UK, remarks Sweeney. “In the coming years, we will experience for the first time, five generations in the workplace together,” she said. “What’s important for the HR director is reflecting on the culture of the company and identifying what is important for all. Given the multiple generations in the workplace and the increased ageing demographics in many countries, this will have a knock-on effect for employers to ensure they are really thinking of how they support their employees who have caring responsibilities and those who have some form of disability.”

Professor Andre Spicer, professor of organizational behaviour at Cass Business School believes that many of the issues troubling the boards of major banks are HR issues. “This is an opportunity for HR. How does HR work with other functions, systems, risk and compliance? HR needs to work alongside risk and compliance to make sure that HR issues don’t get patronized.”

Forbes

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