06Jun

Squeezed by low interest, constrained by competition from raising prices and facing shareholder pressure to improve returns, the banking industry is struggling to control costs while labor shortages and public sentiment is pushing for higher wages.

American Banker says the $56.7 billion banks spent on salary and benefits in Q3 last year was 18.4% higher than in 2014.

Those expenses are expected to rise even more this year, as industry leaders prepare to hike their minimum pay. The Bank of America is raising its minimum $17 an hour wage to $20 by the end of this quarter. JPMorgan Chase is raising starting pay about 10% to at least $15 an hour and up to $18 depending on the market. Bank of New York Mellon already raised starting pay to $15 an hour.

Wealth management firm Janney Montgomery Scott estimated that non-interest expenses for some 100 of the nation’s public banks would rise 3.64% this year, much of the increase due to compensation costs.

Christopher Marinac, director of research at the investment firm, told American Banker, “Can you also attribute [the rise] to salary increases? I think you can.

“Banks have to be thoughtful about what they’re paying employees. … It’s easier to pay workers slightly more — give them an increase or a rate change or change salaries — because it’s expensive to replace them.”

Like most industries, financial institutions have found it tough to recruit workers. A report last fall from the accounting and consulting firm Crowe Global said recruiting and retaining workers, especially younger workers, was a challenge for most banks. The cause, said Crowe Global, was pay, which, according to the firm’s survey, averaged $30,000 for entry-level positions.

With almost half of all bank employees over 45, the industry has been forced to raise starting pay to attract entry-level workers.

That’s made reining in costs difficult, given that wages and benefits accounted for 59% of banks’ total non-interest expenses last year.

As James Chessen, chief economist at the American Bankers Association, told American Banker, “This is a tough situation for banks and all businesses, managing expenses when it’s hard to raise the prices of the goods you sell.”

Photo by Dmitry Demidko on Unsplash

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Green Key

Banking’s 2021 Outlook: Transformation and Resilience

When the pandemic forced the shutdown of businesses across much of the world, one of the sectors that adapted quickly was finance.

In a detailed forward-looking article, Deloitte applauded banking’s response calling it “notable… Banks effectively deployed technology and demonstrated unprecedented agility and resilience.” Looking ahead, the report says now is the time for the industry to institutionalize what it learned about engaging customers, digital transformation, finance and talent, among others.

While COVID impacted so many areas of the global economy and work, perhaps the most highly visible is in workforce management.

“Banking leaders around the world have faced an array of challenges on the talent front, from shifting to a remote, distributed workforce to finding ways to keep employees engaged and productivity high,” says the report written by two of Deloitte’s most senior leaders in its Banking & Capital Markets practice: Mark Shilling, a vice chairman, and Anna Celbner, vice chairman of Deloitte UK.

A majority of banks adopted flexible schedules and focused on employee safety and well-being. However, the economic fallout also led many to implement layoffs, furloughs and voluntary time off. Further “hard decisions on optimal talent models” may need to be made in 2021, the writers acknowledge.

But as uncertainties continue, “Bank leaders should continue to proactively recognize employee concerns, be sensitive to their personal/family needs, and prioritize physical and psychological health efforts that can also help maintain employee productivity.”

To improve retention and engage workers, especially the many that work, and may continue to work remotely, banks must “transform their talent strategies to enable employees to learn better, faster, and more frequently.”

Teaming needs to change to “facilitate flexible, self-organizing teams that come together for a common purpose,” the authors write. “Boosting productivity, creativity, and collaboration should be the ultimate goals.”

The lengthy report addresses multiple other areas of banking operations, suggesting how the industry can build on the lessons of the last year, as well as proposing ways to manage the uncertainties ahead. Resilience, a recurring theme throughout the article, is the overall message.

Acknowledging that, “Uncertainty about the effects of the pandemic will likely remain for the foreseeable future,” Shilling and Celbner, say “This should not prevent bank leaders from reimagining the future and making bold bets.

“They should institutionalize the lessons from the pandemic and build a new playbook by strengthening resilience now and accelerating the transformation in the post-pandemic world.”

Photo by Sharon McCutcheon

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