From excesses and the City to a new reward approach

Charles Cotton, CIPD Reward Adviser  

The Employee Outlook:  Focus on rebuilding trust in the City throws up some interesting findings regarding financial sector workers’ (brokerage and investment, banking, and insurance) attitudes to their and their colleagues’ pay. For instance, 75% think that some people in their organisation are still paid excessively, 64% believe how some of their colleagues are rewarded and for what is still not clear, and 32% regard the new rules and regulations around reward as a disincentive. But how, in the future, should we think about rewarding those working within this sector?

Traditionally, financial service organisations have often used financial rewards to manage employees and, to a certain extent, employees themselves have come to expect to be managed through salary rises and bonuses. The theory was that the opportunity to earn good pay meant that individuals would be self-motivated to perform and would only require ‘light touch’ supervision. HR focused on talent attraction and development and reward was often a case of ensuring pay was market competitive. Employer concerns about talent being tempted away by rivals tended to encourage firms to be coy when communicating to staff about pay, as well as deferring reward for seniors.

However, this approach is having to change. The current economic downturn and increasing regulation and legislation are restricting how much employers operating in this sector can reward their staff and for what.

The challenge for likes of banks and insurance firms is not to create even more sophisticated and complex structured compensation packages to counter these restrictions, which may be self defeating if they are hard for staff, or shareholders, to understand. Instead, they should review their total reward packages and how employees are managed, other than through carrots and sticks.

This is not to downplay the disruptions that will be faced by those working in financial services as they transition from the old to the new approach and the challenges posed by ideologically-driven, rather than evidence-based, legislation and regulation. It will be difficult to change some employee expectations and create new reward approaches that are transparent, felt fair and are aligned to the new drivers of the business.

We should accept that some bank employees will feel betrayed that their effort is no longer financially recognised as it once was and may be tempted to leave the sector or move overseas to escape the new restrictions. However, the question is whether such individuals possess the new attitudes, behaviours and skills that are now required by a banking system moving towards long-term sustainable performance.

There is the danger that talented individuals may be put off from entering financial services now that the potential rewards are lower. However, while some may be put off, for others the attractiveness of this sector is not solely due to its financial rewards. Instead, career opportunities, interesting and challenging roles, status and values are seen as important and firms should look at how they can leverage these elements.

Of course, one of the unintended consequences of increased legislation and regulation is that it reduces the ability of senior workers to exhibit autonomy, mastery and purpose in their jobs. So, senior employees are in danger of seeing their jobs becoming both financially and non-financially less rewarding. It could also mean that the gifted and talented are put off from applying to work in that sector as the jobs are no longer exciting. To counter this, employers must look at work and job design and career opportunities to ensure roles remain challenging and interesting.

There is also the opportunity for financial service firms to review those tasks lower down the pecking order. As more focus is given to the how as well as the what, front line roles can be redesigned to make them attractive to those who do these jobs.

To conclude, it is going to be tough for employers in this sector to re-evaluate their core purpose and the values which should define behavioural expectations and norms. However, it is also an exciting time for HR professionals working in this sector as they create new approaches to reward and recognition that support the new expectations that both the organisation and employees now need.

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  • Some interesting points, Charles!

    In my view, the real challenge will be to change those strongly-anchored mindsets which have been conditioned to believe that extremely high levels of remuneration are required to attract talent.

    I have no doubts at all that suitable talent can be found at significantly lower levels of remuneration - managing expectations and the necessary transition from the old to the new world will be key factors. If they are not sufficiently well handled, then we could easily see a significant part of variable pay being incorporated into fixed pay- this is not really what is intended by the new regulations.....

    Personally, I don't believe that we will see a massive migration of talent, leaving not only the City but also leaving Europe. The number of people willing to relocate to other continents to work for local firms that are not subject to the CRD4 requirements is likely to be relatively low.

    On the other hand, I do have concerns for European based companies who will find it extremely difficult to compete for staff in overseas markets when faced with competitors who are not subject to the same constraints.

  • I agree Ray. However, I wonder whether the lure of working in London or Paris will be diminished by these restrictions. Despite the regulations around pay, I'd imagine that Asian talent will still like to come over to London for the experience. Though whether the UK government will allow them in is another issue! The bigger challenge facing European financial institutions will be competing for talent in Asia to work in Asia against local employers unaffected by the restrictions, as you point out.