Financial services talent models are unsustainable in the new business climate

Worldwide CEOs in the financial services sector view the shortage of talent and skills as the biggest threat to growth in the industry, according to research carried out by professional services firm PwC. The report titled, ‘Seizing back the people agenda,’ also suggests that the current models for people management are unsustainable in the face of new market realities and that rebuilding trust and re-engagement with employees, customers and society as a whole is required.

Tom Winterboer, PwC Leader of Financial Services for Africa and Southern Africa, says: “Rather than actively shaping the people strategies that financial institutions need to move the business forward, many are reacting to immediate pressures. But the upheaval in the marketplace and challenge of re-engaging with customers and staff are making the need to regain control of the people agenda ever more pressing.

“To get their people strategy onto the front foot, executives need to know what the new objectives for the business are and what people strategy components are needed to support and deliver them.”

Martin Hopkins, PwC Leader of the Reward Consulting Team says: “Addressing these questions will make sure businesses are more likely to have the right people, with the right skills and motivation to contend with the new market realities and take the business forward. Underpinning this will be a clear statement of why people would want to work for the business, which is capable of attracting and retaining talent without simply relying on pay.”

South Africa’s CEOs are contending with the same issues as their global counterparts, with the majority viewing over-regulation as a threat to business growth. Half of CEOs in the financial services sector believe that a lack of trust in the industry is holding back growth. The report states that rebuilding trust with disenchanted customers is going to be vital in enabling business to strengthen customer loyalty, retention and growth. The challenge is exacerbated by the extent to which trust between employers and employees in the industry has been shaken by retrenchment and organisation upheaval.

The reputation of the industry is also making it difficult to attract talent. A recent PwC global study of college leavers joining the workforce found that 20% would no longer even consider a career in financial service because of its image. Jobs with meaning and interest are considered a key attraction for this millennial generation.

A considerable amount of the employee value proposition within financial services has been built around financial reward. However the sharp falls in returns since the financial crisis mean that there simply are not enough funds available in the industry to sustain the old levels of compensation. Nevertheless, more than 70% of CEOs in the financial services sector say that they have to match the pay of peers to retain top talent.

Hopkins says that the recent economic uncertainty has resulted in an increasing scrutiny of executive pay, particularly in the financial services sector. “There is an increasing trend for companies to turn towards incentive pay for a number of reasons.” Performance pay tends to provide flexibility in times of uncertainty. Furthermore with governance becoming a global issue, shareholders in many markets have become active in pressing companies to link pay to performance.
Companies are also tending to change the way in which they set executive reward remuneration packages in response to pressure from shareholders and other stakeholders. These demands are leading to a huge and complex overhaul of reward policies, with implications for the balance of fixed, variable and deferred pay and the governance, communication and employment engagement procedures that surround this.

Hopkins concludes: “A culture of integrity, customer focus and risk-awareness is critical in re-engaging with customers and rebuilding confidence in the industry. There are clear competitive advantages for getting this right including better targeting of products, stronger reputation and more effective retention of key people.
“Pay is still important, but not at the expense of everything else. There needs to be a more viable balance between risk and capital demands, employee reward and the returns needed to attract investment and fund future growth.”