The Troubled Waters for Retail Banking

Published: October 2016


For Retail Banking, let us remember the lessons we learned previously from the sub-prime mortgage, LIBOR gate, and other industry scandals. It will require collaboration, adaptation, and effort by regulators, leadership, investors, and probably most importantly managers and staff. We need to have a helpful discussion, not divisive finger pointing. We have to determine the best path forward that balances customer needs, regulatory guidance, and investor demands.

There are many challenges confronting us, many passionate beliefs on the cause, and many areas of the business that ultimately need to change.

My point of view is that after all the dust has settled, and we hold the people accountable for instances of true fraud, we still need to focus as an industry on how we move forward. There are two things we should accept:

  1. Past sales practices are not tenable given the lack of transparency, risks, administrative burden, and confusion most retail banking incentive plans have instilled.
  2. We need innovative, game changing thought on how we move forward from here.

Based upon my history of working with firms in challenging environments and data collected through our unmatched database of pay practice and compensation levels, here is my list of the top five areas we should focus on:

  1. Increase transparency: Many Retail Banking plans are the most complex in the financial services industry. We need to develop programs that are easily understood by participants, governance, and customers.
  2. Remove unneeded incentive programs: Many existing programs do not deliver significant monetary value to employees. We should thoughtfully ask why the programs exist and determine ways to ween ourselves off of an incentive focused culture.
  3. Invest in staffing, training, and holding governance roles accountable when things go wrong: This will require management teams, risk and control functions, regulators, and Board of Directors to work together to build competencies that prevent the past from repeating itself. Clear rules, proper internal governance, and strengthened ethics, culture, and behavior will mitigate the risks... or at least make them easier to find.
  4. Be wary of the double edged sword of moving away from productivity incentives: Yes, over weighting productivity measures can cause improper behavior, but so can incentives that are too focused on customer experience. What if they are willing to do anything for a customer?
  5. Redefine the sales culture within Retail Banking: Is it the sales person, the bank's brand, or its products that attracts and retains the customer? With the deployment of more digital platforms we need to reconsider the source of the sale and align incentives accordingly. Design your programs for 3-5 years from now, don't just react to the recent challenges we are confronted with.

There is no easy fix. It will take forward looking thought, change management, and patience.

Start with a comprehensive understanding of your Retail Banking programs versus market practice and regulatory guidance.

Then make bold decisions on where we can go from here.

To learn more about participating in the McLagan Retail Branch Incentive Plan and Trends Study, please contact our team.

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