The Bonus Revolution - are big cash payments a thing of the past?
Can non-financial rewards motivate employees?
There’s plenty of action going on at 1 Churchill Place, Canary Wharf. Modus operandi is out of the window and a great phase of change is coming. Barclays bank is on the hunt for a better way.
The bank has come under a lot of pressure lately having been embroiled in a number of significant scandals. One of the main structures under the microscope at the bank is in staff incentives. Yep, bonuses – that most hated of words.
The details of the revolution however will remain under-wraps until next month. “We won’t discuss bonuses and remuneration at the moment because we are currently undergoing a major project to look at how our systems work – including renumeration,” says a spokesperson for Barclays. “The details will be unveiled in February.”
Barclays aren’t the only ones looking at how their bonus system works. Lloyds TSB announced in October last year that is was changing the way it incentivises its staff. It planned to make its bonus system more transparent and client-led. Barclays too made the same announcement.
These changes didn’t come out of the blue however. Regulating body Financial Services Authority (FSA), soon to become Financial Conduct Authority, has been getting hot and heavy about incentives since September.
“We have looked at lot at incentives and the risks that they pose,” a spokesperson from the FSA tells me. “We have asked firms to look at how they incentivise sales staff and to make sure that they are looking after their customers properly.”
Sure enough, Martin Wheatley, managing director of the Financial Services Authority (FSA) and chief executive officer designate of the Financial Conduct Authority (FCA) made a powerful speech at a Thomson Reuters Newsmaker event in September. He called for a change in the way banks incentivise from rewarding for high sales, to rewarding for performance in customer service.
“This bonus-based approach has played a role in many scandals we have seen over the years,” said Wheatly. “Incentive schemes on PPI were rotten to the core and made a bad problem worse.
“I expect those running firms to start looking at what their schemes are set up to do. The dictionary tells us incentives are something that incites an action, so firms need to ask what type of action it is they incite. Is it to get the best deal for the customer, or is it to get the best deal for the person or firm selling it?”
As these changes and reviews are underway to look at the bonus system, we are also acutely aware that bonus season is upon us. At a time of year when bars, restaurant, car dealerships, even estate agents used to prepare themselves for the onslaught of sales generated by cashed-up bonus happy bankers, the situation this year is somewhat mute.
“Bonus notes have not started coming through yet but the general view we get is that they will be poor,” says Geoff Fawcett, Director at Hays, the leading recruiting expert.
“We are certainly expecting a level of dissatisfaction among financial services employees and with that will come with some movement in the jobs market as people seek other opportunities. The banks and other institutions that we speak to however are doing a good job of cushioning employees from a big blow. They are warning them which is a good move when it comes to retention of staff.”
It seems that when it comes to employee retention and the attraction of the top talent bonuses and other incentives are still important. Regardless of how much the banks change their systems, there will undoubtedly still be a significant reward system in place.
“Financial institutions would be foolish not to use bonus systems as they are important from a commercial perspective,” says Kuljit Kaur, an incentive expert from P&MM Motivation, an organisation which designs incentive and recognition schemes for many blue-chip businesses.
“The press blew the whole bonus issue out of proportion. Saying that, many financial institutions hadn’t put the measures in place to make sure that people were getting renumberated fairly and transparently – that is where they went wrong. The fact of the matter is though as a business, you have got to attract the best sales people.”
Is it enough to simply chance the incentive system to one which rewards customer service, like Lloyds TSB and Barclays have already done. Or like Barclays insist it is, should institutions be looking further into the measures they have in place?
“Bonuses are not always the most effective incentive; this will vary between employees and will depend on what appeals to them and the design of the scheme itself,” says Stuart Hyland, UK Head of Reward consulting at global management consultancy Hay Group.
“Many people have found the prospect of non-financial rewards offered through various recognition schemes (for example city breaks, meals out or time off work) to be more exciting and motivating. These often have the added advantage of being cheaper to offer as well as living longer in an employee’s memory.”
Could a simple move away from big, cash incentives be an answer? Martin Wheatly at the FSA has already suggested bringing in strict regulations to curb and monitor the way financial institutions reward their staff.
Can the banks show enough initiative to keep the FSA happy and avoid onerous caps and regulations surrounding their renumeration packages? Only time will tell but February looks to be an explosive month.
Bonus watch is on.