homework

April 2021

This case study is the property of Bruce Thompson and should not be used or duplicated without his consent.

Maine Bank (MB) Case Study

MB is a large American owned bank with a major banking business in the UK. This UK subsidiary has had a recent decline in profits due in part to Covid 19. There are further worries over Brexit and greater regulation of the UK banking industry

A recent attitude survey showed low staff morale in MB in the UK,

As a result, the UK Managing Director has asked you, the Reward Manager, to look at financial reward (FR) in MB in the UK. Your objective is to make recommendations on future reward policies and implementation.

The style and length of your report should be appropriate for the busy UK Managing Director. 2500 words in the main report is a maximum. If you use appendices, these must be less than 2 sides of A4.

You should submit your report electronically through Turnitin via HRM4416 on myUniHub.

The Business

Organisation

In the UK individual customer banking is run by the Retail Banking Department and the small/medium business side by the Business Banking Department. These departments operate at branch locations across the UK.

Banking for large UK organizations is run by the Corporate Banking Department located at the Head Office of MB at Hemel Hempstead (15 miles north of London). Also in the Head Office are the Central Support functions, which include Marketing, Finance and Compliance, HR and Information Technology.

The processing of retail, business and corporate transactions is carried out by 300 staff, located in a Call Centre occupying the same building at Hemel Hempstead. The role of Call Centre staff is to process transactions, answer customer queries and increasingly to sell customers other products or services provided by MB.

In a City of London office, MB has an Investment Banking Department dealing with financial markets, raising capital, acquisitions / mergers, and foreign currency activities. 70% of their business is with companies in the European Union (EU)

MB recruits new graduates onto its UK Graduate Development Scheme.

Profitability

The UK arm of MB was originally very profitable mainly through its retail business. However other organisations e.g. building societies and supermarkets, have entered their markets, and profits have fallen. Also the UK government has increased regulation and the amount of capital they must hold to cushion any future bank losses. There is also a potential cost of compensating customers who previously have been sold unsuitable financial products.

The Board of MB has decided that UK company costs must be reduced by 10%. The UK Managing Director is under pressure from US shareholders to improve profitability and increase the share price.

High Street Retail managers feel that their customer service is poor, and think that if this was improved, they would lose fewer customers. The Managing Director, based on his experience of working in the USA, believes that retail staff, in particular, are complacent, and that a real performance culture needs to be established. He believes that performance can be achieved, provided potential risks are quantified and properly managed.

Business Banking managers feel they are being pressurized by government to lend more to small and medium sized businesses who have suffered because of Covid 19, yet told by the company not to lend to clients who have the risk of going bankrupt.

The Directors of MB feel that investment banking has good prospects but are concerned by Brexit. They fear that the UK will lose its ‘banking passport’ which means its investment arm could be disadvantaged with respect to financial activities in the EU. They are considering moving the Investment Banking staff from London to another EU city.

The MD sees the marketing of new products and services, and the increased use of IT as key objectives for these businesses. During Covid a huge amount of work has been done on-line.

Human Resources

There are 5,000 staff working for MB in the UK, the majority of whom work in branch locations. The same basic HR policies apply to all UK managers and employees in MB.

Staff turnover in the retail branches is very low, whereas staff turnover in the Head Office is relatively high. At the Hemel Hempstead Call Centre, staff turnover is 30% per annum. The Call Centre manager puts this down to increased salaries being offered to clerical staff in central London (within easy commuting distance of Hemel Hempstead).

In Retail and Business Banking, most of the managers were originally recruited via the branches. Most have long service.

There is a lot of staff movement between Retail and Business Banking, but relatively few moves to Corporate Banking and the Central Support functions.

The Investment Banking Department finds it difficult to retain those professional staff who have a good track record. It mainly recruits its professionals from other City investment banks. Uncertainty over the possible move from London to another EU city has made matters worse

A graduate recruitment programme provides future managers for MB. Graduates develop their expertise by moving between Retail, Business, Corporate Banking and the Central Support functions, but not to Investment Banking. UK graduates who show high potential are moved to the USA and Far East to widen their experience.

Financial Reward

The basis for reward in MB in the UK is job evaluation and there are 20 grades within the organisation. Currently there are 14 organizational levels between Director and a junior assistant in a branch.

Each grade has a salary range, and staff progress according to the rating they receive at their annual appraisal. Salary ranges are short and 80% of staff are on their salary range maxima.

The salary review is held every July. Staff are told their appraisal rating, their salary increase, future objectives and their development needs, all at a formal meeting with their manager.

About 30% of MB’s Retail and Business banking staff are members of a Banking Union. The union represents its members in disputes with management. The union would like to increase its membership to nearer 50% so that it can have the possibility of negotiating with the company on pay. The union is particularly concerned with job security, equal pay and staff welfare during the pandemic.

The annual pay increase has two elements, the general increase and the individual merit based increase. In a year where inflation (RPI) is 1.0%, the general increase would be around 2.0% with an extra 0.2% allocated for merit increases decided by appraisal ratings.

There is a general shortage of good finance/compliance, marketing and ‘fintech’ IT staff who are often, because of pay market pressures, appointed at a starting salary which is at the top of their particular (job evaluation based) salary scale maximum.

Head Office managers would like to give more than the normal general and merit increase, but are constrained by colleagues in Retail and Business Banking who say it will put up their costs unnecessarily.

Relatively modest salaries and bonus payments are given to key professionals in the Investment Banking Department.

At the Call Centre, all staff below supervisory level are on the same grade.

Because of difficulties recruiting IT professional staff for Head Office, contract IT staff from an IT contract company are used. Some contract staff have been working in MB for many years.

Basic pay for all staff in MB is supplemented by employee benefits which come in at particular grade levels. Few benefits cover health and general wellbeing. Everyone is in a defined benefit (final salary) pension scheme.

Any merit pay is based on appraisal ratings agreed at an annual appraisal interview. There are 5 ratings but the bottom two are rarely used. 80% of staff are in the ’very good’ or ‘outstanding’ category. Most staff see the appraisal system as a box ticking exercise.

Staff Attitudes

A staff attitude survey, conducted in Dec 2019, has shown the following attitudes within each department.

Retail

Staff believe that there are too many targets to be met. They feel performance has taken over from good customer service. News items on the mis-selling of financial products has caused concern.

Managers are seen as paternalistic (fatherlike). Communication is ‘top down’. There is a blame culture especially when borrowers default.

Staff, in particular in those parts of the country with high unemployment, are very worried that Covid 19 and cost cutting will result in branch closures and job losses.

Generally speaking, staff feel that they are well paid. There was little comment on the benefits package.

Staff isolated at home because of Covid feel that the company has ignored them.

Business and Corporate Banking

Many Business Banking managers are worried about assessing risk. Traditionally they were close to the directors of local businesses and made judgements accordingly. Head Office has now set up metrics to assess risk, which managers find restrictive. Many businesses are closed because of Covid

Staff said they would like more knowledge of other departments. Staff movement from Business to Corporate Banking and Head Office is difficult because of high house prices in Hemel Hempstead.

Young professionals felt that there are too many older managers who are blocking promotion opportunities. They also complain about the length of time to get decisions made.

Business Banking staff are worried about the security of their jobs.

The Call Centre

Most of the staff see their jobs as a short term ‘fill in’. Few see a career in MB.

Nearly all the staff doing processing work said that it was monotonous. A few, who did telephone selling, were more positive.

Everyone thought that their work mates were fun to be with. Attitudes to Call Centre supervisors were that they were target obsessed and inflexible.

There is a rumour that MB is thinking of relocating or outsourcing its Call Centre.

Head Office Support Functions

The marketers are happy working for MB and have a good level of job satisfaction. The Marketing manager was rated very highly. The marketers thought their own pay was only average.

They felt that their on-line banking developments will increase profitability provided Retail and Business Banking implemented them properly.

IT staff employed by MB enjoyed their work and saw the potential of new developments in technology. They were envious of the contract IT staff, who they believe have a higher basic pay than themselves.

Financial IT specialists (often called Fintech staff) were difficult to recruit and retain.

Investment Banking

Many staff were working at home and complained of working very long hours. All said that staff in similar jobs in other organizations were paid more, and had much higher bonuses than themselves.

Few had any loyalty to MB. All wanted to remain in the Investment Banking sector. High performing staff felt that they could obtain better jobs elsewhere. There was concern about the effect of Brexit and where Investment Banking would be located .

Young Graduates on the Graduate Development Scheme

Most graduates said that their training in MB had been good. All wanted to develop their professional skills.

Several graduates saw Investment Banking as their ultimate goal, although they knew little about its activities.

They said that their pay was average and saw assistance to get on the housing ladder as their most desired benefit (not currently provided by MB). Pensions provision was of little interest to them.

All wanted secondments to the USA and/or the Far East

ADVICE FROM BRUCE

YOUR APPROACH

Your ‘customer’ is the UK Managing Director (MD). His/her prime concern is profitability. He/she wants to reduce costs, improve performance, and create an environment which attracts, retains, and motivates staff. He/she must also comply with current and potential regulation of the banking industry, and avoid the mis-selling of financial products. He/she is looking at relocating the Investment Business to another EU state. Which one has yet to be decided.

Your start point is to look at each business and department and decide what their business objectives are. Then you decide on which FR strategy and policies will achieve this end.

You are looking primarily at FR but you can refer to other aspects of HR if they are related to FR and could save money and/or improve staff morale and performance.

You will need to research what other banks are doing in the area of FR in order to support your recommendations. Look on the internet to find out which are the major investment banks. Other banks are mainly retail/business/corporate banks. They can have quite different FR.

You can come up with radical proposals especially if they reduce the payroll costs. Do not be afraid of recommending tough decisions, but if you make these, do have plans to minimise any resulting problems.

Have a section on how you would implement your recommendations. This should include timescales and who is responsible.

SOURCES OF INFORMATION

Financial Reward

Bruce will issue a separate sheet on sources of FR information.

Companies publish director’s pay, but you are not looking at the directors. Sometimes they have a graduate recruitment page which includes aspects of HR.

Note that Investment Banking jobs are often referred to as ‘City’ jobs.

Do quote from any guest speakers we have, or those who address the North London CIPD Branch.

COMMON MISTAKES

Not customising your recommendations to the various businesses in MB. Different businesses and different employees need different solutions, although some across-company recommendations may be appropriate.

Not recognising that MB has low profitability. Cost savings are essential.

Quoting chunks of theory from a textbook. The MD wants practical proposals.

Having analysis, conclusions and recommendations that could apply to any company . You have been asked for a report on MB.

Not supporting your comments / recommendations with any reasoning or best practice of other companies

Not putting in the source of a statement that you make. The MD needs to know if what you say is your opinion, or from someone’s lecture, or from articles about other bank’s reward practices. Hence the need for proper referencing.

Not having an implementation section. Recommendations are fine but the MD wants to know how these will be carried out.

MISTAKES IN YOUR REPORT

Filling out the report with irrelevant information. 2500 words is an absolute maximum. Ideally you should be nearer 2000 words. Appendices, if any, are not part of your 2500 words, but should not be more than 2 sides of paper.

Not in a form suited to a Managing Director. He/she is a busy person. Be businesslike.

Poor English. If your Executive Summary is poor, the MD may not read the rest of the report

The Summary should include your objectives, key findings and recommendations.

Lack of structure. I do not mind what structure you use, provided you have a suitable structure. I have shown a typical structure below.

Use of bullet points. Bullet points are very appropriate for your Recommendations. However in the Discussion, where you do your analysis and give your reasoning, a business essay style is best.

Tables can be appropriate for recording/comparing the practices of other banks, and for implementation plans

A TYPICAL STRUCTURE

Executive Summary

for an MD with little time. Give key objectives, findings and recommendations

Introduction

Best practice of similar organisations

Analysis/discussion

divided into across the company

by individual businesses/department

Recommendations

Implementation of your recommendations

References

THE MARKING CRITERIA

Assessment Elements	Maximum Mark %
Presentation	15
Researching best practice	15
Knowledge & understanding	15
Reasoning and analysis	15
Meeting business objectives	15
Recommendations	15
Implementation	10
Total Marks	100

FURTHER ADVICE

Bruce is available at the end of each lecture to give advice on MB. He can be used as a ‘sounding board’ for your ideas. However, he cannot comment on drafts as this would be pre-marking which would be unfair to others. He will also not give advice within 1 week of the submission date (by then it’s too late for you to make any changes).

Bruce is part-time and is best contacted by e mail [email protected] or speak to him on line after your lecture. You can phone him on 0208 411 5870 provided by e-mail you first agree a day and time for the call.