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Summary of Key Points

Maine Bank

· Decline in profits

· Low staff morale

· Covid 19, Brexit and greater regulation

Retail Banking

· Saturated market and increased regulation

· Too many targets led to low customer service

Business and Corporate Banking

· Promotion blocked for young professionals

· Staff prefer knowledge of other departments

Investment Banking

· 70% of investment banking is affected by Brexit

· Long hours of work

Call Centre

· Staff considered their jobs as repetitive

· 30% staff turnover per year

Head Office Support Functions

· Online banking makes way for profitability

· Retention of IT staff

Graduate Development Scheme

· Develop professional skills

· Prefer an attractive reward package

Recommendations

Maine Bank

· Pay structure changed to broad-graded pay structure

· Changing the Defined Benefit to Defined Contribution Pension

· Decoupling performance management from compensation

Retail Banking

· Shift to digital banking methods

· Team-based performance pay

Business and Corpoate Banking

· Profit-related pay for managers of Business Banking

· Competitive basic pay

· Career development for young professionals

Investment Banking

· Work-life balance

· Relocating MB’s investment banking from UK

Call Centre

· Individual and team-based performance bonuses

· Key performance indicators

Head Office Support Functions

· Red circling highly paid staff

· Invest in Fintech

Graduate Development Scheme

· Flexible benefits

· Career development

2. Introduction

The following report reviews the Financial Reward (FR) in Maine Bank in the UK and recommends altered reward policies and implementation to the Managing Director of MB. Maine Bank (MB) is an American owned bank with its subsidiary in the UK. MB has 5,000 employees with six departments, which are retail banking, business and corporate banking, call centre, head office support functions, investment banking and, graduate development scheme. MB has been experiencing a decline in profits due to Covid 19, Brexit, and banking regulations.

The report provides details of the industry best practices concerning analysing top banks and their reward policies, evaluates Maine Bank’s financial reward and, provides recommendations on future reward policies and implementation to retain and motivate staff, improve performance, improve staff morale, and reduce costs by 10%. According to Armstrong and Brown (2019), reward management ensures that people are valued, and their contributions to the organisation are appreciated and rewarded through strategies and policies.

3. Industry best practices

Deloitte (2019) states that the global financial crisis had harmed the banking industry. The banking industry was recovering and growing moderately with the activities in the retail and commercial banks. According to IBISWorld (2020), the banking industry’s average growth in the years 2015 to 2020 is 1 percent. The UK banks had challenges due to Brexit and stricter regulations, such as increased capital requirements (Deloitte, 2019). The outbreak of coronavirus (COVID-19) has created a massive negative impact on the banking industry, due to which bank timings have reduced to minimise personal interaction with customers (IBISWorld, 2020). The UK government has developed a Furlough scheme to support employees and businesses closed due to the coronavirus (Partington, 2020). Jenkins (2010) mentions that investment banks in the UK are determined to pay higher salaries and lower bonuses. The UK's leading banks are Lloyds, Royal Bank of Scotland, Barclays, and HSBC, and they have a total market share of 62.7 percent (IBISWorld, 2020).

i. The Lloyds Bank

The Lloyds bank provides a reward package that offers flexibility to the employees according to their needs (Lloyds Banking Group, 2020). Lloyds puts forward a competitive salary based on job grade and employee contribution with benefits, including performance-based variable pay, pensions, group performance share plan bonuses, financial products, and medical benefits (Lloyds Banking Group, 2020).

ii. HSBC Bank

HSBC’s reward strategy intends to attract and motivate people with high potential despite the diverse workforce (HSBC, 2020). HSBC formulates a pay strategy for the individual’s performance in line with the organisation’s values and business strategy. HSBC’s employees are rewarded based on their performance, and the value added to the firm. HSBC (2020) mentions the main rewards components, which are basic pay, annual leave, share plans, and benefits based on personal development such as work-life balance and flexible working.

iii. Goldman Sachs

Goldman Sachs is an investment bank, and its reward strategy is based on employee commitment and performance of individuals, divisions and firms (Goldman Sachs, 2020). The bank focuses on providing a competitive salary along with allowances. The benefits include healthcare insurance, holiday policies, fitness, childcare, and retirement planning (Goldman Sachs, 2020).

4. Discussion

i. Total reward

According to Armstrong and Brown (2019), total reward is a combination of financial and non-financial rewards. Financial rewards include base pay, variable pay, pensions, and more comprehensive employee benefits, whereas non-financial rewards comprise recognition, career development, and work environment (Armstrong and Brown, 2019).

ii. Pay structure

Maine Bank’s reward is based on job evaluation. MB has applied a narrow- graded pay structure as they have short salary ranges with 80% of the staff at the top of the range. A narrow-graded pay structure leads to employees reaching the top of the range quickly, which causes an expectation for employees to have a constant upgrade, which ultimately raises the firm's cost (CIPD, 2019).

iii. Employee Benefits

MB’s employee benefits include healthcare, pensions, and general well-being. The two types of pensions are defined benefit (DB) and defined contribution (DC) scheme. MB has a defined benefit scheme for its employees. A defined benefit scheme is claimed to be expensive to the organisation, adding costs to the MB (Peachey, 2020). An outstanding pension scheme can act as a source of attraction and retention of high potential staff (Armstrong and Brown, 2019). Deloitte had switched from the DB pension scheme to the DC scheme. Maine Bank could save costs by shifting to the defined contribution scheme as it ensures that the pension is based on the employer and employee's contribution, whereas the defined benefit scheme depends on the employer’s contribution.

iv. Pay review

Maine Bank has a pay review meeting once a year where the staff is informed about their appraisal, pay increase, objectives, and development. Carroll (2009) discusses that the salary pay review must lead the employees to achieve organisation’s goals. The report further states that managers must evaluate the employees’ performance and communicate employee achievements and ways to improve performance. Such a practice would retain employees and encourage employees to focus on performance rather than pay. It would be advised for MB to decouple performance management from compensation.

v. Brexit

According to Tims (2020), Brexit forced UK banks to close accounts of customers living in the EU. Brexit has hit the banking industry. MB’s Investment Banking Department’s business activities with companies in the European Union (EU) has been affected by 70% due to Brexit. MB will have to move from London to an EU city to gain back its customers.

vi. Covid-19

KPMG (2020) lists the areas impacted by the banking industry as profitability and customer relationships, as it gives rise to digitisation. Profitability has decreased due to Covid-19, and digitisation has increased. Covid-19 has led to remote working and worries of job security among employees in MB.

5. Maine Bank Departments

a. Retail Banking

MB’s retail business was profitable until the market was dominated by other organisations. The retail banking (RB) of MB are worried by the lowered standards of customer service, mis-selling of financial products, the number of targets to be achieved, and job security due to Covid-19. MB’s remote working staff seem to be disengaged.

According to McKinsey (2020), 60 to 85 percentage of the people in Western Europe prefer to move to online banking for regular transactions. Fig. 2 shows that customers of all ages prefer online banking. The retail banks can also have shorter operating timings.

b. Business and Corporate Banking

The managers of Business Banking must be diligent in assessing the risk of lending to small and medium businesses due to government pressures. The business banking staff prefer to know more about the other departments; however, the high housing prices act as a barrier. The promotion opportunities for younger staff seem to be blocked due to older managers.

c. The Call Centre

MB’s call centre staff process transactions, answer customer queries, and sell the products and services of MB. The employees consider call centre work to be repetitive. The annual staff turnover in the Hemel Hempstead Call Centre is 30 percent. This shows that the employees are dissatisfied and will cost MB if they are unable to retain staff. According to Armstrong and Brown (2019), call centre employees must be rewarded to improve the quality of service.

d. Head Office Support Functions

The Head Office Support Functions consist of Marketing, Finance and Compliance, HR, and Information Technology. The finance, marketing, and fintech staff are paid higher than their starting salary due to a shortage of good staff in these departments. This is costly to the firm, and MB must red circle these employees. Red circling is the best way to cut costs when the employee’s pay is overpaid compared to the market (Carroll, 2009). Fintech has gained high importance during Covid-19 as customers shift to online payment features like contactless payment (Forbes Advisor, 2020). Therefore, it is key to invest in Maine Bank’s fintech.

e. Investment Banking

The Investment Banking Department functions involve activities relating to raising capital, acquisitions and mergers, and foreign currency. MB’s investment banking was disrupted due to Brexit as they lost 70 percent of the business. As most of MB’s investment banking business was from the European Union (EU), it is advisable for them to move from London to another EU city. According to Carroll (2019), about 250 companies have relocated from London to the Netherlands to gain their business within the EU. Investment Banking staff complained of having to work long hours.

f. Graduate Development Scheme

The graduates at MB wanted to progress professionally. Young graduates would prefer receiving training opportunities and career development (CIPD, 2019).

6. Recommendations

i. Maine Bank

· Shift from the defined benefit pension scheme to defined contribution pension scheme.

· Ensure decoupling performance management from compensation.

· MB should minimise hierarchy in their organizational structure from 14 levels to ensure control and efficient communication (BBC, 2020).

· Execute broad-graded pay structure by replacing the narrow-graded pay structure to reduce the number of grades and the grade-drift that arises in narrow-graded pay structure (CIPD, 2019).

ii. Retail Banking

· Switch to digital banking methods and reduce the operation timing of the bank branches to promote a cost reduction and to ensure flexible hours of working.

· Encourage a team-based performance pay to build customer service as a team.

· Avoid paying sales commission as an incentive to the employees to discourage mis-selling unsuitable financial products to customers.

· Engage with the remote working staff through direct communication and involvement in retail banking decisions to increase staff morale.

iii. Business and Corporate Banking

· Managers can be offered profit-related pay with the share purchase scheme. HSBC uses profit-related pay as a reward to increase their contribution and assess risks (HSBC, 2020).

· Offer competitive merit pay for experienced staff.

· Ensure young professionals are motivated and can be retained by providing opportunities for career development through a mentorship program.

iv. The Call Centre

· MB can reward the call centre employees with a low basic salary along with individual and team-based performance bonuses as it will increase teamwork (CIPD, 2019).

· Employee recognition will boost employee performance and ensure that targets are met.

· Focus on developing a career path for employees by developing them through the other departments at work.

· Review Key performance indicators to achieve goals (Avital, 2020).

v. Head Office Support Functions

· MB should consider red circling the marketing, fintech, and finance staff who are paid higher than their market pay to save financially.

· Prioritise and invest in fintech in Maine Bank.

vi. Investment Banking

· Work-life balance must be introduced as a non-financial reward, as shown in (Fig.1) Tower Perrins Model (Armstrong and Brown, 2019).

· Share schemes can be rewarded to retain and motivate the high performing staff (CIPD, 2019).

· Relocate MB’s investment bank from London to the Netherlands to increase profitability in the EU.

vii. Graduate Development Scheme

· Provide cafeteria benefits to young graduates.

· Offer opportunities for career development.

7. Implementation

Figure 3. table provides an implementation plan for the four quarters in MB’s financial year. The Maine Bank can implement the policies in each quarter to achieve desired objectives.

References

Avital, O. (2020) An Introduction to Contact Centre KPIs and KPAs. Available at: https://www.callcentrehelper.com/contact-centre-kpis-kpas-137496.htm (Accessed: 4 December 2020).

BBC (2020) Organisational Structure. Available at: https://www.bbc.co.uk/bitesize/guides/z6v847h/revision/1 (Accessed: 3 December 2020).

Carroll, L. (2019) 'Brexit: Netherlands talking to 250 firms about leaving UK', The Guardian, 9 February.

Carroll, S. (2009) PayScale. Available at: https://www.payscale.com/compensation-today/2009/05/the-salary-review-process (Accessed: 27 November 2020).

CIPD (2019) Pay structures and pay progression. Available at: https://www.cipd.ae/knowledge/factsheets/pay-structures (Accessed: 26 November 2020).