Thursday 28 May 2009

Risks and rewards in banking (continued)

 

   The Economist also notes that one reward / HR strategy that’s going to be more popular in banking is a focus on critical talent.

“Some banks will be more sophisticated still.  With costs and capital under so much pressure, the incentive for executives to identify those who add genuine value to a bank has rocketed…

Some employees really are worth lots of money.  Asked to defend levels of pay prior to the crisis, many in the industry would reach for the analogy of film or sport, two other industries where talented individuals are critical to success and are richly rewarded as a result.”

 

I’ve got no problem with this.  The proviso has to be that these individuals really do add value, ie not just in terms of revenue, but in risk-related, and longer-term returns.  I suspect that once these factors are included, the variance may be much less than is often thought.

However, the Economist continues…

“The trouble with this defence is that it was not just the big-name stars who got really rich in financial services; the extras did too.”

 

So a further criticism is that bankers’ pay structures inflated the compensation of everyone around them.  I think there’s a lot of truth in this, and that is has had a negative impact on the banks.

Take HR.  Now there are some great people working in HR in the City.   Some really great people.  But there are quite a few who still haven’t understood what strategic HR / HCM is all about.  In fact, I’ve often thought that despite the high salaries, there’s a higher proportion of these HR folk in the City than there is elsewhere.

City firms have paid higher salaries to HR people in the City than in other sectors for a number of reasons.  Firstly, because they could.  Secondly, to reduce any potential discontent due to the huge variance in compensation paid within these firms.  Thirdly, to make up for what have often been fairly unappealing cultures to work within.  And fourthly, to ensure they had some of the best HR people they could get.

But these high salaries often haven’t been accompanied by robust performance management / other HR processes.  So often, firms have ended up with decent but not stellar HR professionals who haven’t been able to afford to leave the sector.  Over time, this has often meant the quality of HR support within banking has deteriorated rather than improved.

Perhaps this is one reason that HR never tacked the ineffective and hugely damaging compensation programmes and cultures that have existed in the banks.

And perhaps it’s about time we see a change in those job ads that state “prior experience in investment banking is required”.  If ever there was a sector in which new blood is required, surely it is this?

Comments?

 

 

Picture: Massys, Quentin

 

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