The Last Bastion of Benchmarking – Management

“We recently received a memo from senior management saying: ‘This is to inform you that a memo will be issued today regarding the subject mentioned above.’” (Microsoft Legal Affairs Division)

Gonzo groupies, we have spent no small amount of time writing about – and you have spent more than that thinking about – efficiency, staffing and benchmarking. We have counted, compared, adjusted and (in the overall) improved staff productivity. There is a lot of credible peer data available (some of it ours) that can be used as a basis for setting the right levels of staff by department or function.

However, there is one big area in banks that frankly has not received as much focus and discussion as others, and that’s management. While we have often been asked whether we think a bank’s team is top-heavy or whether there might be too many managers in a particular function, most banks have not looked at or benchmarked overall management count.

Why not? Well, there are several reasons, many valid. First, “manager” is not a discreet function in many areas of the bank. While there are jobs, mostly senior, that are 100 percent management, there are many more that are not. A branch manager, for example, spends part of his/her time managing but also performs sales, lending and other functions that are not management activities. Part manager, part sales and fulfillment. A senior commercial manager might spent part of his/her time supervising other lenders and support staff but also manages a portfolio. Part manager, part lender. The head of human resources certainly manages but might also interview new job applicants. Part manager, part recruiter. So, in the end it can be hard to know exactly what the real management headcount is.

Second, benchmarking is an easier and more accurate activity when looking at non-managerial jobs. There is a pretty common definition of teller, or loan processor, or call center agent. It’s not hard to compare these jobs across many financial institutions because there is both a common identification of the people performing the function and clear production metrics against which they can be analyzed. In other words, peer data is good. That same capability doesn’t exist with, say, a senior management group.

Third, we have to be a wee bit honest here and recognize that most staff and analysis is performed and decisions made by senior managers, and it’s not common for them to reduce or eliminate themselves, n’est-ce pas?

Nonetheless, maybe it’s time to pause and consider:

• A lot of the benchmarking and rightsizing at the lower job point rungs of the company is basically done. Truth is, branch staffs are lean, and many are managed by staffing models. Call center staff counts are solid, and productivity is measured closely. Many lending groups have gone through the process improvement/automation/efficiency and are right-sized. So who haven’t we looked at? (Hint: gaze upward.)
• The impact of incorrect management counts is far bigger. We all know enough about salaries to know that one manager has a comp package 5-10 times that of a support employee.
• As difficult as it may be to do, most banks simply have not looked at management across the org chart in a holistic fashion. Many banks could not even answer the question of how many managers they actually have. In fact, Cornerstone does not have many ratios/numbers particular to management in our benchmarking numbers.

“I’m never gonna work another day in my life. The gods told me to relax.”
–Monster Magnet, Powertrip

Well, even admitting that, we are not going this far into a rant without the goal of providing some ideas on what a bank team can do about it. Here are some ideas we have utilized when working with our clients to try and gauge whether management staff levels might be too high.

1. Measure span of control. First, count managers. This needs to be the combination of a) full-time managers and b) the percentage of time other employees spend managing. Take our previous examples of a lender/manager or a manager/underwriter or a small branch manager. The goal is to answer this question: if you add up all the percentages of time people say they spend managing, how many FTE (full-time equivalents) does that equate to? If you have 25 employees who spend 40 percent of their time managing, you have 10.0 manager FTE.Second, measure that number against the remainder of the employee base and determine span of control, or the ratio of managers to employees managed. In our experience, that number should be somewhere between 1:8 and 1:12. Anything less can indicate manager heaviness. (Note to HR managers slapping their heads in disbelief at this target – if you have a better, more proven ratio, do the same exercise using it instead.)A side benefit to this is that it provides an opportunity to ask whether there are too many people spending too small a percentage of their time managing.
2. Count levels from the top manager of a function to the lowest level – one version of a “flat organization” test. One of the examples of this we have applied is counting the job levels between the head of retail and a teller. While this target can vary based on the size of the bank, we usually start asking questions if we see more than 4-6 levels in any function. Too many levels in an org chart is a pretty good indicator of too many manager levels.
3. Count the number of employees who make $75,000 a year or more and what percentage of the total employee base this represents. From FDIC and other sources, we know that the average salary/benefits in the industry is right around $60,000. That makes $75,000 or a number close to it the beginning of the top third tier of wages at most banks. Too many employees in the top third tier is an indicator of too many management jobs. This may be more instructive if commissioned sales people who make that much are eliminated from the calculation.
4. Calculate what percentage of all salaries is earned by the top 10 percent of employees. Again, while there is no detailed industry study to back this up, we at Cornerstone have found that if the top 10 percent of the employee base earns more than 26-28 percent of all salaries, banks run the risk of top-heaviness.
5. Look at bunching of job grades, job levels or salaries at the top of organization charts. Often, and particularly when there is long tenure in a business group, the number two, three and four person will be very close to the top person in their job points or grades. Again, this can be an early indication of too many management jobs in a line of business.

These are some examples of areas worthy of exploration. For banks that are off the mark in several of them, a more focused look at the total management FTE may be in order.

The truth is that, unlike many areas where more specific benchmarks can apply, getting management levels and mix right is as much art as science. In addition to looking at staff counts and functions, it also involves factoring in the experience and skills of the managers in place and the amount of management needed in a particular group. Not an easy task. But we have right-sized the front line and we have right-sized ops. We hold most of our lines of business accountable for justifying staff and staff adds. Scrutiny at the management level is just as valid and important a focus.
–tr

 

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Cornerstone Advisors helps financial institutions improve processes and implement formal scorecards that “strip the onion” across all major institutional functions. Armed with this type of information, financial institutions can work on fundamental enhancements that establish a sound foundation for higher performance levels and future growth.

Here are just a few of the benefits your organization can realize from Cornerstone’s Performance Assessment:

• Efficient and optimal staffing scorecards;
• Reduced operating expenses and increased revenue;
• Improved productivity and processes to avoid future cost increases as the institution grows;
• Improved quality and consistency of sales and service delivery; and
• Disciplined growth and expansion.

Contact Cornerstone today to get started on optimizing your organization.