Three Way Mirror – Global Talent Challenges in Financial Services
The Financial Services sector has seen its fair share of media attention around trading scandals, bonus payouts and LIBOR rigging. We pick up the Newspaper and read about how Banks are never going to change, but is this fair? Is this accurate? What effect has it had on attracting and retaining talent in the industry? In order to get a truly global view of some of the key talent challenges financial services is currently facing, three of our Directors, Tim Spriggs (Asia Pacific), Dona Battat (UK & Europe) and Alan Mait (Americas) interviewed a number of senior HR Leaders across their respective markets. Following is an overview of the key discussion points in each region.
Time to Move on
From an Asia perspective there is a sense that financial services, particularly banking, is falling behind the times, most notably when it comes to career development. Unlike in the U.S. and Europe where analysts and associates in the banks are arguably more prepared to ‘do their time,’ we are seeing a real impatience in the APAC markets. Generation Y talent in particular wants more career choices quickly, and they aren’t prepared to sit in an all-consuming junior role for 3-5 years working tough hours, without seeing progression and variety. This of course varies around the region, and markets like Japan and Korea still have a more traditional feel in this sense. Singapore and Hong Kong appear to be somewhere in the middle on this front, and China is at the other end of the scale with Gen Y talent having significant choice.
In addition, we are seeing more local, third party and Internet financial services companies coming through that can remunerate more attractively and also offer a more diverse, dynamic and flexible career path. Increasingly, these types of organisations are no longer viewed as any more risky from a career security perspective. As Caroline Wang, HRD Standard Chartered, China summed up, “These new third party and Internet financing companies need credit, product and risk people, so they can set up robust and well-rounded finance companies. Their technology infrastructure is more advanced than traditional banking, but they are light on the knowledge and knowhow so they are looking to the banks for their talent. This is happening a lot and it’s hard to retain them – these companies can offer double or triple the salaries when you look across the fixed compensation and stock. A lot of local Chinese companies are at the infancy stage, so stock is a major attraction.”
One financial services organisation we spoke to is actively trying to stay away from the traditional ‘career roadmap’ type of approach. When they rely on a roadmap, their talent only has one option, and it is harder to move up the pyramid. This company embraces the concept of a ‘career partnership,’ where HR/ talent teams focus on the people who are open-minded to different opportunities and to developing diverse skillsets, so they can move into different areas of the bank in future. By assessing interests and capabilities, HR can start to shape a varied career that is suited to the individual’s passions. The one challenge with this is to educate the Executive Committee members effectively on this approach — they also have to be more versatile and offer variety, as opposed to simply focusing on technical competence and short-term needs.
Increased regulation is also affecting the landscape in APAC, as it is around the world. Employees themselves are more cautious about working in certain areas of the banks, Fixed Income Currencies and Commodities (FICC), in particular. Conduct and culture are now reviewed and assessed by regulators, and this is requiring a behavioural shift, which some employees do not view favourably. The Foreign Corrupt Practices Act (FCPA) requirements around bribery and accounting standards are big concerns for large multinational banks, and if there is any question of an issue not being appropriately handled, the repercussions can be severe.
In ambiguous markets like China and Indonesia, this can lead to a more cautious and risk-averse approach, which can stifle innovation. As one HR Leader aptly put it, “Regulation in Asia is more multi-faceted and complex, so organisations need people that understand regulation – people who can work with regulators and clients alike. These regulations have changed the talent that financial services companies want. Talent used to be more front office and revenue-focused, and it was all about the big bucks. Now it’s more about compliance and legal.” Furthermore, it’s not just a compliant mind-set that is needed – whether the lens is on junior or more experienced talent, it’s important to demonstrate good citizenship. Banks can no longer tolerate people who are reckless. They will promote people for good citizenship, transparency and their ability to comply effectively with legislation, which is a fundamental shift in the culture.
Talent Changes and Challenges
The ubiquitous challenge then is to balance this risk-averse culture with more innovation and flexibility. One financial services organisation we spoke to is now driving a Volatility Uncertainty Complexity Ambiguity (VUCA) strategy when assessing talent. Due to the level of change, financial services companies in the region need people that can deal with high levels of ambiguity and uncertainty. In interviews the company is starting to spend more time assessing this ability, rather than purely looking at technical expertise.
It’s not only banks that are experiencing these challenges – insurance companies are finding themselves fighting their own war for talent. As Annabelle Thebaud, Regional HR Director of Insurance firm SCOR commented, “Economic growth in Asia has created market opportunities for the insurance industry. Many households with rising incomes that could previously not afford insurance have now become potential customers, and many more Asian companies have seen the need for specialist insurance products. But without talent, the industry cannot realize the potential for growth, and without quality talent, insurance companies will not be able to innovate and manage growth. With nearly all insurance companies in Asia focused on growth, dealing with the talent gap in quality and quantity has become the main priority for the industry.”
Turning to Employee Engagement
With the increased challenges around attraction and retention in the region, Employee Engagement is becoming an increasingly important priority, particularly when banks can no longer rely on pure compensation hooks. We are seeing a number of companies drive progressive initiatives. As one organisation shared: “In terms of new initiatives, we have a focus currently on generational diversity (among other initiatives), and what each generation requires. Are we addressing these needs, what else do we need to do, how do we tweak our existing programmes? These are some questions we are asking ourselves.”
Again, banks are not the only ones having to reflect on these softer areas such as engagement and benefits. One insurance organisation has introduced a benefit called COYou2, which is a subsidy scheme to motivate their employees to invest in measures to reduce their own carbon footprints. The company supports a subsidy of up to 50% of the amount employees invest in carbon-friendly items. These sorts of initiatives are really appealing to Gen Y, who particularly in Asia is starting to think more about CSR initiatives. However, in an industry where cash has always been king when it comes to attracting and retaining talent, it is an on-going struggle for financial services organisations to compete with other industries like technology. This is particularly magnified in Asia, although Hong Kong and Japan remain exceptions. There simply isn’t the same level of prestige in banking and financial services following the global financial crisis, and that is seriously impacting talent attraction, particularly at the Generation Y level.
The Regulatory Effect
It is clear that since the Financial Crisis, the ability to attract and retain talent has become more difficult for the industry as a whole. The mindset of those looking to enter or already working in the profession has changed. Increased Risk and Regulatory focus have of course led to an inevitable increase in hiring for compliance, legal and risk, and control practices, but what about the wider impact? We have seen front office talent moving out of the traditional investment banks and into lesser regulated Hedge Funds and Private Equity Houses, and even into smaller family offices. Why? Simply put by a Senior Leader from a global corporate and investment bank, “They feel squeezed by additional regulations around deal flow. They are looking for action, a place where they can execute.”
However, the effects of regulation are not all bad, and some view the increased focus on risk and regulation as a positive thing for the industry. Marc Grainger, Global Head of Diversity & Inclusion, Human Capital Management and Talent for IB/PBWM Products at Credit Suisse, stated, “Regulators are now much more interested in how we evaluate and reward positive changes in culture and behavior.” Marc sees culture and behavior as two primary focuses of successful Talent Management. “Regulatory impacts have [also] raised key questions as to how we evaluate success.” Financial Institutions must now look at how to be entrepreneurial in a more tightly controlled environment.
The Market — and the Talent – is Changing
For new joiners, the Financial Industry Regulatory Authority (FINRA) has placed tighter controls around onboarding, which represent additional hurdles such as fingerprint records to be taken. More junior bankers who are working 80 hours plus a week are asking themselves, “What’s in it for me? Why should I work these hours and jump through these hoops?” Investment banks in particular, were once able to stand by the ‘work hard and be rewarded handsomely’ philosophy, but controls around pay mean that this is no longer the case. Nor is this all that is driving high achievers anymore. Asked if the change is due to millennials, a senior HR Leader said that it is not just a generation thing, people’s perceptions of where they work are changing. “We all want to work in a company with a sense of purpose, its place in the world and its place in society.” For some this is banking, but for many it is not. Competition for the best talent, particularly in the technology space is fierce. Competing with high tech companies such as Facebook, Google and Apple, which have far-reaching effects on our daily lives is difficult. Employees in these organizations often feel that they are part of a conscious and empowering movement to bring people together. As well-respected senior HR Leader Anika Gakovic, a 15-year veteran in Human Capital, put it, “It’s tough to pull off learning and talent management in a business which is built to create results that are financial in nature. This is why it is important to articulate the talent value proposition in the context of a company’s competitive advantage.”
The Culture Challenge
The number one challenge noted by FS HR Leaders we spoke to was Culture and how to create a culture of success against a backdrop of risk. These are in fact intertwined. Success in establishing the right risk mindset should plant the seeds to enable a successful business and talent culture. As Luis Rojas, Head of Learning & Development and HR Effectiveness, Consumer Lending Group (CLG) at Wells Fargo correctly states, we are now seeing the adoption of an “If you see something, say something” culture. But will we always say something? Do we feel comfortable raising our hands and challenging the status quo? Communication, it appears, is central to the evolution of a successful Talent Management program. Employees are calling for greater interaction with managers and vice versa. Luis explains, “One of the most important things about having a culture of innovation is to have your employees speak up about ideas and things that they are seeing.”
Communication From the Top
Austin Dowling, Head of Human Resources, Americas at Macquarie feels that although communication is a two-way street, any change in mindset needs to be driven by the senior leadership. If a manager is displaying that a certain behavior is acceptable, a junior team member will assimilate this behavior to the point that it becomes a natural occurrence. Austin and his team are looking at many intelligent ways to subtly influence behaviors that breed good and long lasting habits.
Performance Management Showdown
Taking it one step further, Marc Grainger, Global Head of Diversity & Inclusion, Human Capital Management and Talent at Credit Suisse, says that “Getting Talent Management right is not just because of the process itself, it’s also down to the mindset of the senior executives who work through talent decisions.” Senior managers are now being asked to think about their leadership styles, how they convey messages to team members, and not only how, but the frequency with which they do this. The traditional time to have this dialogue was during a performance review. Managers sat down with their employees and often reviewed ratings on 5 or 7-point scales, the impacts of which could have far-reaching consequences in terms of career and rewards. This is now largely a thing of the past for the more innovative employer.
At Oppenheimer Funds, EVP, Chief Human Resources Officer, Andy Doyle said that the Fund has stopped performance ratings altogether, and now has employees and managers meet four times per year. “We don’t keep a shadow rating in the background, we truly have no ratings. It’s been a huge hit with employees. Rather than the performance appraisal becoming a showdown and debate about the rating, the manager and the employee are having real discussions about performance.” Anika Gakovic, an HR Leader with 20 years’ experience in Leadership and Organizational Effectiveness confirmed, “If you want a more dynamic and relevant performance dialogue, or succession planning dialogue, or any kind of talent intervention, while employees need to have their say and be engaged in the conversation, people managers have to know their people. They have to put aside their spreadsheets and really get to understand who is on their team.” This culture of openness and dialogue cannot just be an HR process. It must be endemic in the business in order for a culture to develop and truly become part of the fabric of the organization. There are positive signs that this is happening.
Master of Your Own Destiny
Another change we are seeing is that employees are now being asked to be the masters of their own destinies, rather than relying on their managers for career development opportunities. According to Luis Rojas of Wells Fargo, “All employees are being asked to take ownership for their careers. They are now being asked to act, to make decisions, to interpret.” Luis refers to these changes as the ‘Spartan Analogy’. “The industry is getting fewer and fewer people, which means that every single individual has to be a leader and a professional in his or her own right. As we get smaller and more efficient, any gap is a massive gap. Leadership is not just about the level in the organization, we are all leaders.”
Own Your Work-Life Balance
Work-life balance, or traditionally the lack thereof, is a concept we hear a lot about in financial services. Austin Dowling at Macquarie asks his teams to consider, “Who is responsible for your work-life balance?” He asks his employees to be responsible for their own agenda. “It is important for the individual to speak up and make the manager aware of what is important to him/her. One individual’s concept of work-life balance is likely to be different to another’s.” The challenge is, of course, creating a safe environment in which staff feel empowered to meaningfully engage in a dialogue around what work life balance means to them. In this regard, Macquarie is encouraging senior managers to actively role model, encourage and celebrate flexible work choices. Macquarie has seen some real progress with this approach, which has led to a greater respect for individuality and thus increased the sense of community within the broader population.
Following the crisis, banks have needed to find increasingly innovative ways to attract and retain top talent. With new limits on monetary rewards, they are often looking to Employee Engagement practices to deliver. We have been hearing about many useful tools for this, such as cross-functional Managing Director lunches, Associate and VP International Exchange programs and off-site social gatherings. All of these are designed to promote a platform for dialogue and collaboration, which is a big step forward. One however, stood out.
Andrew Doyle of Oppenheimer Funds took me through a simulation exercise, which was set up by the Fund and run by an external provider. The Fund took the top 500 performing employees (1/4 of the firm) off-site. They were divided into teams of five and were given a case study designed around company strategy. The goal was to have each team enter into a simulation where they had to make business decisions as to how to run the company, compete against other companies in the industry, and ultimately come out on top. As there was a real mix of talent in the teams, all from different functions and levels of seniority, the employees learned to appreciate the skills that each individual brought to the table. They learned about functions that they would not normally come on contact with in their day-to-day jobs, from Front Office Finance to Marketing, HR and Legal. They also gained a greater understanding of 1) how the business makes money 2) how everybody contributes to this and 3) why the fund is investing in certain areas. This example illustrates that Employee Engagement efforts work best when embedded in the business context, versus being solely an HR intervention push. The business simulation design involved senior leaders and CEO kick off for the program, which made the learning relevant and sustainable for participants. Having one quarter of the firm offsite is a huge investment in Employee Engagement, but the feedback has been “fantastic” Andrew said.
Although it is becoming clear that many financial services companies are putting into place processes and policies to affect change, limits remain as to what can be achieved. Indeed, as Anika Gakovic puts it “A dynamic and relevant approach to Talent programs is hard to create as the cycle time has decreased. The amount of time we have for people to sit in a training course or a talent dialogue keeps getting shorter and shorter, and so the things we do as talent professionals have to be clear and compelling.”
There is no doubt that the banking sector still has enormous challenges to overcome post the financial crisis. HR realises that there is a lot to do, and the general consensus is that there is now a huge amount of good intent, in the form of both the desire and the will to move in the right direction. The pace of change in the banking industry remains high, and the banks are evolving extremely fast, but of course the pace of cultural change takes longer to achieve. We are still seeing some high profile entries and subsequent exits as the industry is tested against a backdrop of high expectations. It remains a challenge to achieve the changes needed, and this must be driven from the top of the organisation. In businesses where the focus is on individual teams and bonuses, if people don’t feel part of the bigger organisation, it is difficult to realise a genuine collective culture. Some notable high profile people have achieved a lot, but we need to be realistic about time frames.
Risk and Regulation
UK Risk and Regulation is undoubtedly having a continued and profound effect on talent across the banking sector. Regulation in the UK has done a lot to ensure the rules of engagement are now the same across the board. After the annual banking bonus cycle in early 2015, the general consensus is that people are moving less within the sector. With capped bonuses, banks have less opportunity to attract talent and turnover is lower as a result. Compensation structures also have a much higher element of deferred compensation over three or even five years, wrapped up in Long-Term Incentive Plans. The way people are compensated has changed with much more complicated compensation packages in place, and there is now an increased need for new employers to buy out a number of years of deferred stock, making it less attractive to buy out talent.
Culturally, regulation has meant that daily life has changed, with many more controls now in place and populations being managed much more closely. There are increased expectations for managers and a far greater need for accurate data. Banks are reliant on specific data, but for some banks that have merged over time there are still multiple systems in place, and this makes it harder to correlate data, representing further challenges for the organisations seeking these controls. There is also an increased need for better manpower planning and control, as well as an understanding of capability and skills, as talent organisations focus more closely on the underlying people issues.
For some organisations regulation continues to remain relatively off the radar. For tier three firms, for example, regulation has affected reporting, but there has been far less impact on the ability to attract and retain talent. For those who are staying with, or considering joining the large banks, many are openly asking for indemnities and insurance to cover their day-to-day work, which effectively translates to an extra cost on the legal bill for banks.
Engagement — Generation Y and Beyond
For Generation Y a sense of pride is high on their list of priorities, and for many it’s no longer enough to be paid the big bucks. In fact, incentivising through compensation is generally insufficient for millennials —they look at the banking sector with lifestyle top of mind, and on a reputational basis. They are still not necessarily convinced, and cannot be bought, as was arguably the case with previous generations. Gen Y is very well informed with a lot of information readily available to hand to make decisions. They also don’t believe in waiting and show much less loyalty than their predecessors. One organisation that will consist of 50% millennials by the summer of 2016 remarked that millennials may get paid large amounts, but if their lifestyles and cultural expectations cannot be met, many will leave. Certainly we are seeing an increase in requests for flexible working and career pathing.
The good news is that as a result of these changes, financial services companies are now really thinking about innovation across their people strategies, and this is starting to translate into actions and behaviours. They are asking, if lifestyle is a concern what can we do to address this? They are not just focusing on technical skills, they are talking about wellness and trying to think flexibly around powerful retention hooks like sabbaticals in an industry which has traditionally been more conservative. They have gone through a period of self-examination on their work environments and how these can be improved to address the concerns their people have always aired, but that have never really been heard. Today the onus is not solely on the individual to manage the huge pressures of a high-octane career – the companies themselves are taking some responsibility. How people are managed, developed and nurtured in the wake of the financial crisis has become more important. With steady increases in risk and regulatory controls, it’s become a priority for organisations to look internally and ensure they are creating the ideal environments for their people to foster the desired attitudes, behaviours and cultures, to ensure the right approaches and outputs. There is still some way to go, but this self-reflection is pulling HR to the top table in financial services to help plan the road ahead.