Banking crisis: Should staff pay be linked to customer service?

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'Banking' and 'customer service' aren’t generally words that go together harmoniously. 
A recent survey by Avanade found a third of banking customers have lodged an official complaint with their primary bank in the last five years, generating a total of 30 million for the industry.
 
According to the report, overdraft and late payment fees were the most common cause for complaint, with customer service issues following close behind.
 
Grass Roots’ survey of 5000 banking customers also showed that customer loyalty towards banks is at a worrying state with 54% of respondents claiming that they would switch bank if tempted today.
 
Forget the 2008 financial crisis, the past week's banking disasters are enough to show the strained relationship between customers and their banks. Natwest's technical 'glitch' was dubbed by boss Stephen Hester as "one of the most widespread customer service failures we have had in recent memory".
 
Barclays' chief executive Bob Diamond and chairman Marcus Agius resigned less than a week after US and UK regulators fined the bank £290 million for attempting to manipulate Libor rates.
 
Following the small business interest rate row last week, outgoing head of the Financial Services Authority, Hector Sants, called on banks to reform their relationships with customers by linking staff pay to customer service.
 
According to the Guardian, Sants claimed that there was a “commercial opportunity” for banks to improve their customer relationships.
 
Linking pay to customer service
 
He said: “It’s clearly an opportunity for banks to respond positively, pro-actively and with the right attitude and get on and do something about it. There is an opportunity to demonstrate a new approach. We need to work with industry to give more thought to how customer treatment is reflected in the compensation culture.”
 
So would this approach to customer service boost relationships? And is it likely the banks will agree to linking the quality of care provided to pay? Claire Richardson from Verint claims that linking pay to standards of service would result in accurate measurements of the service provided.
 
“This would obviously be a huge benefit to customers, but would need to be implemented carefully by the banks,” she says. “Done right, banks would benefit from hugely motivated, well-trained and engaged staff, with near real-time customer service insights driving the whole process forward.”
 
Sarah Cook, managing director of the Stairway Consultancy, explains that most major high street banks already link pay to service for customer-facing managers and include a service element in incentive schemes.
 
“The benefits of this should be that excellent service is seen as an essential element in everyone’s job roles and that the delivery of exceptional service carries a financial reward. Theoretically, it should encourage everyone to deliver excellent service,” she says.
 
However, Cook adds that, if incentive payment schemes also rolled out to sales staff, the danger is that the drive for sales may counteract the drive for excellent service. Such an approach also does not encourage a culture of customer focus.
 
Cath Everett, editor of HRZone.co.uk, agrees that incentivising employees to provide good customer service may work, but points out that organisations must be careful to define what  ‘good customer service’ means and how it should be translated into people’s behaviour on the ground.
 
“Targets/incentives notoriously skew behaviour and can generate all kinds of unintended consequences so you’d really need to do an awful lot of risk analysis/management before you go and change processes. It’s frontline stuff, so it’ll be very visible if you get it wrong,” she says.
 
Jo Causon, chief executive of the Institute of Customer Service, believes banks could signal a genuine cultural change, and rebuild trust with their customers by giving customer satisfaction measures more prominence in performance management and pay at all levels in the organisation.
 
The situation for other sectors
 
She says: “Including customer service measures in executives’ pay and bonus contracts would increase the focus on customer service at senior levels in the organisation. It would demonstrate to customers, employees and shareholders that the organisation has an authentic commitment to its customer.”
 
Marc Bishop, director of HR consulting at plusHR, believes that deploying such a scheme would ensure that employees focus on providing customers with services that meet their needs rather than being placed under pressure to achieve a certain revenue or product sales target.
 
But what about those sectors that aren’t awarded fat cat salaries? P&O Cruises recently came under fire for withholding tips from staff paid a basic salary of 75p per hour unless they hit performance targets.
 
P&O boss David Dingle told the Guardian the decision was intended to “make crew more responsive” and was a win-win for the employees, customers and company.
 
But passengers on a P&O ship told the paper that members of the mainly Indian crew – the restaurant staff and cabin stewards – seemed upset by the deal, with one passenger calling it “an absolute scandal”. 
 
Stairway's Cook believes that the scheme could work in other sectors and is already in use in many large organisations.
 
However, this doesn’t necessarily mean that customer service in the UK has necessarily improved. She says: “Being customer-focused is something that needs to start from the top of the organisation and all the elements need to be aligned: for example recruitment, training and development, talent management and career development, pay and reward.”
 

The Institute of Customer Service's Causon believes that linking customer satisfaction to performance and pay can work in a number of scenarios.

“It’s important that organisations assess how improving customer service will help them achieve their business goals, and then set appropriate measures which can be effectively measured and incentivise the right behaviours,” she concludes.  

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09th Jul 2012 20:25

Your article is clearly well researched, but there seems to be a lot of mixing between retail banking and other types of banking (mainly investment banking). The customer service issue at RBS is in retail Banking, which largely speaking is an industry that works. Barclays executives are not resigning over retail banking, its activities in the investment banking side that has caused the problems. Also, retail banking doesn't pay "fatcat salaries", that is investment banking.

Your title meant the banking crisis. If you are referring to the RBS glitch as a crisis, then fair enough (which is a serious glitch, but not economy threatening); but if you are referring to the broader Banking Crisis, I haven't anyone link that to customer service. Sorry for being the pedant, but I just wanted to clarify it as I think the differences are important.

I do totally agree the retail sector should link remuneration to pay if it wants long-term growth. Sales targets can be useful for when you need to push up short-term growth (there is a place for both, such as when a Company needs more cash).

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10th Jul 2012 10:55

Thanks for your comment. 

Just to clarify a few things, the article was an offshoot from Hector Sants' call for customer service-related pay following the interest rate row. We were looking to garner opinion whether this would work in the banking sector (both investment and retail) and if it could be extended to other sectors.

I agree, the customer service issues at RBS and Barclays are very different; Sants talks of the scheme in terms of providing better service for small business customers and given the time-sensitive news of the RBS technical glitch, we wanted to explore if consumers would agree with such a scheme.  

I hope that makes sense and explains things a bit more. 

Natalie 

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10th Jul 2012 12:36

Thanks for that, I understand where you're coming from now. I can see where Hector Sants is coming from on that, but the idea that the FSA can regulate and determine the scorecard for remuneration just doesn't work. If a car manufacturer was told its performance metrics by the government, we'd all consider it ridiculous. So whilst I agree on customer service featuring, the FSA should not have a say (I do however agree on regulating the amount of bonus that can be paid in cash, but that is not about the scorecard, merely the long-term profit incentives vs revenue incentives, which again only came about because the investment banks failed to get that right).

Personally I consider the FSA is relatively impotent, and Hector Sants is just deflecting the incompetence of the organisation (one of the jobs of all the regulators was to stop financial crashes, so none can claim they succeeded). His focus on customer service is missing the key issue that the Banks are in an oligopoly and they are too big to fail. If the market was competitve, some banks would use customer service as a way of winning business (Metro Bank is trying to do this).

As for connections from the retail side and the investment side of Banking, the concept is like trying to stop Tesco's influence on its suppliers by improving times at the checkout. The two are not related. Until relatively recently retail banks and investment banks were separated and both profitable in this way, so they can clearly work independently of each other. 

The reality is that Hector Sants is playing with the edges, where we need somoeone to get stuck in and change things for the better from a wholesale perspective. Its not happening because the Banks have put so much much money into "lobbying" that its a disincentive to change the industry. If a developing country had an industry that "lobbied" the government with £92m then it would be considered bribery and corruption. Here it is apparently legitimate business. See this link: www.guardian.co.uk/politics/2012/jul/09/finance-industry-lobbying-budget-revealed

The Customer Service angle is needed, but as a private sector management decision (sometimes customer service is bad, because its expensive vis-a-vis Ryan Air posting better growth than British Airways).

In an HR perspective, our job is to support managers in managing low performing bankers and ensuring that the good ones get the remuneration (they are generally worth the money).

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11th Jul 2012 14:28

 

 

As someone who has both worked in and consulted to the banking sector, covering both retail and investment banking, I have to wonder what the hell[***] has been happening within HR depts at times as many of these discussions really fall into performance management 101 yet are being presented as if they've just landed from Mars!!

There's a great deal of focus on "bonuses", yet very little on performance management. This sector used to have fairly well defined performance contracts based on relatively simple balanced scorecard criteria:

- financial goals

- customer service goals

enablers inc:

- process goals

- people and organisation development goals.

These were linked to the core job competencies and the values and behaviours of the organisation.

Sometimes, in the more enlightened organisations, they were linked to a defined ideal culture.

All of the above was the basic performance contract.

Bonuses were discretionary and were entirely linked to:

1. The overall performance of the business

2. The performance of the unit

3. Individual performance over and above the above (hence the term "bonus")

Bonuses couldn't be guaranteed and were engineered to foster medium term focus and a team mentality (if I gain, you gain etc).

It was the investment banking operations that introduced a hybrid notion of the performance contract, as it became a bi-word for:

1. under-performance (I'm "on a performance contract" or am "being performance managed")

2. the "up or out" culture

3. quarterly "appraisals"

4. intense internal, often "macho" competition

5. "guaranteed" bonuses, regardless of group performance

It's the last point that has probably attracted most of the obvious venom from external critics but it's arguably the culture that this change created which has caused the most insidious damage.

Sure, basic salaries were generally increased across the banks to what was termed "market rates" but benefits were eroded, tenure declined and internal competition increased exponentially. Clearly short-termism became the focus and notions of "team" became secondary considerations, none of which has been good news for the sector and the pension fund managers who rely on steady performing stocks.

There has clearly been a clash of cultures, especially where former investment banking heads have taken over retail operations. Efficiencies and the blend of the best of both cultures is fine. But the markets, pension funds, customer perceptions and psychological contracts with employees have never been adjusted/re-negotiated.

Sadly, the 140000 Barclays employees, for example, are being tarred with the same brush as the 400 or so, largely investment banking uber earners, a small proportion of whom are responsible for the current problems, yet each of whom (according to their accounts) appears to take home in excess of £4m in bonsues per annum!

I'm afraid however, to read comments from the FSA and customer service consultants that simply by introducing customer satisfaction stats into bonus negotiations,there will no longer be a problem. It's unfortunately naive, ignorant of the past and belittling to the workaday employees.

It would appear that the term culture is in grave risk of being abused and the point lost. It's simply the sum of the way an organisation does things; behaviours; norms linked to values. It can be defined and shaped but only if it's role modelled and rewarded. Provided the right blend of enablers and goals are reflected in the performance management contracts of the first line managers and they're properly engaged, any business can turn around its internal culture. Turn around enough organisations and with the right structural changes to complement the process the sector will recover. But it's a waste of time doing one without the other!

  

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