Recruiting and holding onto qualified employees has become a big headache for bankers. Many senior managers are worried they won’t be able to build the right team for the next 10 years from an arsenal of body-pierced tellers, workmen’s comp fraudsters and late-stage job coasters.
Despite rising unemployment, a long-term demographic trend is causing this predicament: there are 76 million Baby Boomers (ages 40 – 57) and only 58 million “Gen X-ers” (ages 22 – 40) standing ready to replace them in the work force. As tens of millions of boomers retire over the next decade, the challenge will only become bigger. The responsibilities of your bank’s HR director will become a royal pain in the rear.
The shortage of qualified bank talent can also be traced back to the mid-1980s, when banks basically obliterated their corporate training programs. Today, we have tons of balding banking experts but far fewer in the 25 – 45 year-old category. In addition, young bankers are becoming more specialized (e.g. retail, mortgage, investment), making them ill-equipped to grow into broader executive positions.
The Boomer/Gen X disparity has resulted in a fierce talent war among banks, especially for recruiting top commercial lenders, investment professionals and sales-driven branch managers. These folks have become the “new mercenaries” of our industry: folding up their own customer franchises at one bank and laying them out in a new bank with signing bonuses and higher salaries. Business and investment customers tend to follow their bankers like hairdressers. In some cases, the price of this talent is being bid up to levels higher than the real worth of the player. It’s getting crazy out there.
Bankers are finding themselves desperately in need of talent to drive their banks into the future. But here’s the problem: we’re employing the old, tired concepts in fighting this new talent war. So, esteemed Gonzo readers, let me summarize the arcane methods banks are using to wage this war and offer the new, improved “Gonzo” way of attracting and retaining top talent:
The Banker Way: In recruiting today, banks place their faith on a curious and pesky group of homo-sapiens known as corporate headhunters. While the slick headhunter can be effective in some situations, many tend to recycle the same cast of B and C players from one bank to another. Banks get caught in the “grass is always greener” syndrome and basically use headhunters as an excuse not to get creative with recruiting.
The Gonzo Way: GonzoBankers are going to get off their butts in recruiting, not just in the HR function, but in all levels of senior management. The winners will employ guerilla tactics like these:
The Banker Way: Bank training programs are too boring and too general, consisting mainly of packaged sales and supervisory training provided by outsider firms. Our industry is dying to make salespeople out of everyone, but we’re doing very little to build professionals who really know banking. In addition, banks actually spend more on equipment maintenance each year than they do on training. Of course we have a talent issue!
The Gonzo Way: This may sound a bit uptight, but I think the winners in training will become zealots for testing and certification. It’s been proven that qualified professionals need to pass tests.
Want to be a doctor? “Got to pass a test.”
Public accountant? “Ditto.”
Banker? “Ugggghhhh……turn the channel Butthead.”
With a narrow focus on sales, we’re building bankers today that are a mile wide and an inch deep in knowledge. Until we actually certify them in lending, investments, fee products, operations, etc., we simply won’t have the depth to implement our strategic plans. GonzoBankers will test and certify for knowledge, and tie certifications to job positions and pay.
A strong training program can pay for itself with employee retention. Rational people will stay around in a bank that offers tangible and measurable development opportunities.
The Banker Way: Ever since the Stone Age, banks have relied on the classic “Compensation Study” to help set pay strategies. In 15 years of consulting, I have never seen a comp study report that a bank is paying above market. How can every bank be paying below market? Someone’s got to be at the top and middle! In the compensation world, we still take a fairly bureaucratic approach to determining how much employees should make.
The Gonzo Way: The future of compensation will be much more entrepreneurial and flexible, relying on the decisions of qualified and tough-minded managers. The key to compensation is not to cram everyone into tidy job grades. The key to compensation is to actually place judgment on the value each individual brings to the organization. For the top 20 percent of bank positions, compensation should be a negotiated process that involves senior management and discloses the pay of individuals across all functions. No hiding big paychecks in the mortgage department. In these negotiations, some up and coming bankers should get mongo raises while other low performers should be told, “I don’t care how much you buddies make at Acme Bank, you’re still awful.”
The Banker Way: Banks have done a good job of broadening and deepening their incentive programs. More employees receive incentives today than ever before. However, these plans are still much too complex (“Managers at Acme Bank who earn enough scorecard points will move to Level 3 and then spin the big wheel for a new George Foreman grill”). In addition, employees simply don’t trust incentive plans when they are tinkered with each quarter, typically right at the point when employees start to make serious money.
The Gonzo Way: Building incentive plans is an art form that requires three critical design elements: simplicity, stability and differences. My partner Terence Roche says the mark of a good incentive plan is that it can be understood by all participants in less than five minutes of explanation – SIMPLICITY. Can your plan meet the five-minute rule? Also, plans should change less than 20 percent each year to build trust in the system and organization – STABILITY. Finally, good incentive plans are not socialistic. There are big winners and big losers – DIFFERENCES. For the whiners, there’s always next month.
The Banker Way: With the exception of a few best practice banks (e.g. Community First Bankshares, First Interstate Bank), most financial organizations simply provide “trial by fire” for executive development. Because of this, most banks feel compelled to go outside the organization when filling open leadership positions.
The Gonzo Way: Banks planning to stay around past the next M&A boom will hand-pick a dozen or so future leaders and begin formal development processes today. We’re talking formal career plans, special lecture/training programs, and rotating managers to broaden their exposure. Succession planning at least two levels down in the organization is a must.
The Organization is the Strategy
Banks that deliver the revenue and earnings growth in the next decade will be the ones who figured out the talent war. The best competitive weapon will be building organizations that are branded in the marketplace as great places to work. Today, mid-size and community banks are having good luck picking off talent from large banks. I believe this is because most large bank organizations are messed up beyond recognition. They are eerie places fraught with politics, fiefdoms, and complex operations that are impossible to meaningfully change. Talent is fleeing from large banks because bankers simply want to get back to work and feel like they have the power to build and change something.
As they grow, community, mid-size, and regional banks run the risk of becoming just as messed up. However, there is still time to grow differently. There’s time to get to work on building organizations that suck in talent like a Hoover vacuum. What should these organizations look like?
Fast Company magazine recently summed it up nicely:
“We believe there is no greater power in the world than the force of a great idea. We believe that people are the lifeblood of every organization. We believe that the best companies are true meritocracies, where people rise and fall through their own contributions, not through game playing or politics. We believe that work isn’t simply a paycheck. We believe that a company’s obligations extend far beyond its bottom line and its shareholders – to a wider constituency that includes employees, customers, suppliers and the community.”
Banks that deliver the shareholder value during the Baby Boom retirement wave will be those that build truly great organizations today – the rest will be left with only a balance sheet and a shortage human capital.