Article by Karen Higginbottom - 15th January 2015
What are the major challenges facing HR directors at banks in 2015?
2014 was a tumultuous year for the banking sector, which was beset with corporate scandals, the latest one being the recent forex-rigging debacle.
On top of this, the sector is getting to grips with an avalanche of regulations with regard to remuneration and board governance such as the Capital Requirements Directive IV and the forthcoming Senior Managers and Certified Persons (SM&CP) Regime. What are the major challenges facing HR directors of global banks in 2015? Karen Higginbottom asks the experts to look into their crystal balls.
Andrea Eccles, chief executive of City HR Association, said the challenges facing HR came under the categories of regulation, remuneration and restoration. Eccles said that both EU directives and Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) consultation papers had 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 percent of base pay or 200 percent with shareholder approval. Furthermore, the PRA/FCA are also proposing new conduct rules with the introduction of the Senior Managers [and Certified Persons] Regime 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 SM&CP is likely to impact the full employee lifecycle from recruitment and on-boarding to performance management and exit.”
Running alongside regulation will be the issue of remuneration and the proposed changes to the Remuneration Code, as put out to consultation by the PRA and FCA between July and October 2014. “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,” Eccles said.
She said that another remuneration challenge facing HR directors at global banks was the reform to pensions announced in the spring 2014 budget. “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,” she told Compliance Complete.
The third challenge facing HR directors in global banks was the need to restore the industry’s reputation, Eccles said. “Many financial institutions, including those of financial disciplines other than banking, have worked hard to identify or re-emphasise their corporate values and to re-state the behaviours 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.”
Competition with international markets
There is a fear among banks that regulatory restrictions on bonus payments will mean that talent will move outside the EU, said 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 clawback of bonuses to incentivise some intangible elements of the scorecard such as customer satisfaction, as well as the hard cash measures of success.”
Society’s requirements of banks are substantially different coming into 2015, Mark Quinn, UK and Ireland market business leader for talent at Mercer, told Compliance Complete. “If you think back to 2005, societal requirements from banks were about driving economic wealth and about shareholder return. If you reflect to now, the contrast could not be 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.”
Quinn said this had meant the business strategy of a bank had had to undergo major change. “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 organisations 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.”
There is also the challenge of constant regulation in the banking sector, Quinn said. “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 organisation 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.”
Shared parental leave
One area which HR directors of global banks will need to consider this year will be the impact of shared parental leave in UK, said 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 organisations, 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 said that although there had been a huge focus within banks on the women on boards agenda, attention was now moving to the need for boards to be culturally diverse. “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 [in which] 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 diversity challenge facing global banks in 2015 is that a whole range of different generations are now working together following the eradication of the default retirement age, Sweeney said. “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.”
Central role for HR
The HR function has a vital role to play within the banking sector in the coming year, said Rona Beattie, professor of human resource development at GCU London. “The HR function could help banks rebuild their reputation both internally and externally. Some of the banks are working on ethics and values and HR is heavily involved in that.
They also have to look at how they are going to attract young talent to the sector. Banks are trying to educate people in responsible leadership and it’s about using resources in a sustainable way, including people and capital. HR is central to that.”
Karen Higginbottom is a freelance journalist who writes on employment issues for The Guardian and People Management magazine. She has written on a diverse range of topics, from transexuals in the workplace to bullying bosses.
‘First published on Thomson Reuters Accelus on January 15, 2015’