The Fourteenth Banker Blog

April 14, 2010

The Employee on the Front Lines of Character and Trust

Filed under: Running Commentary — thefourteenthbanker @ 11:48 PM

This is the second in the series on Responsibilities. Several excellent comments have addressed Character and Trust among the employees. We have addressed several ways in which this is compromised. First of all, there will never be perfection in this area as there is never perfection in the human race. There will be human error in hiring and managing. There will also be changes in the life circumstances of employees that cause them to not be able to hold up their end of the bargain. Those things being a given, the question I want to address is what is particularly wrong with the management employee relationship in large banks today. I will define all individuals below a EVP/SVP/MD level as employees. Many of these are managers, but generally they are heavily under the influence of senior management and it hard for them to buck the trend when senior management is like an immovable block.

First, the management should fairly compensate the employee with a salary that is sufficient relative to their skills and experience and should make adjustments to that salary as necessary to maintain that sufficiency. Too many banks have made incentive comp such a large portion of total comp that it is absolutely essential for the employee to make sizable incentive dollars for a comfortable standard of living. Incentive dollars should be a reward for going above and beyond for the client and bank. They should not be what puts the bread on the table. Incentives can be sizable when the contribution is sizable.

Second, management should not hold to a short term ranking system that creates fear for job security based on rankings on sales production.
Thirdly, management must not equate incentive goals, reporting, ranking, recognition, etc. with overall performance or value to the firm.

Fourth, management must not align the goals of different groups in ways that cause them to support ethical compromises or “quid quo pro” arrangements. These are particularly dangerous because the support a culture of cheating that becomes the accepted norm. Once this happens, the lines of ethics are very blurry.

Most importantly, management must not combine the four errors. In some percentage of the cases, excessive incentive compensation leads to either greed or, when salaries are too low, fear. Bell curves based on sales production lead to fear for those on the bottom side. Most companies now identify a bottom 10% and use severe measures in regard to the bottom 10%. It may not matter if the employee is bottom 10% on a short term, for specific reasons, because of different opportunities to excel, because of their own development track, because of ill health, because their manager or department stinks, or for whatever other reason. The very arbitrariness of such systems magnify fear. Making data based incentive goals effectively the full basis on which performance is judged makes the incentive drivers the only measures that matter. All subjective accomplishments and characteristics are effectively made null.

When you combine fear and fear, or greed and fear, you get the same result. The mind responds in a way that triggers different judgments and decisions to be made and the employee’s interest is elevated relative to the customer, bank, or shareholder.

These also puts the collective employee interest at odds with society.

Next, management has a responsibility to have an “open” organization rather than a “closed” organization. A closed organization presents few options to the employee in terms of roles and behaviors. Actions, thinking, speaking are only acceptable in narrowly prescribed ranges in a closed organization. One of our commenters referred to “drinking the cool aid” as a term used at her former bank. If you had something to say that was not what a manager did not want to hear, you were not “drinking the cool aid” and therefore were subject to sanctions. Please know that these characteristics of a closed organization are common in disaster scenarios historically. It prevents the combined wisdom of diverse people from being brought to bear and promotes group think. Group think and a closed organizations negate the benefits of various forms of diversity.

Closed organizations create confusion and various thinking errors. A bank is the last kind of organization that should be a closed organization.

An open organization for my purposes is one that invites, welcomes, and tolerates the free sharing of ideas and information. It allows dissenting views, discusses them openly and may ultimately reach consensus or not, but at least it has respected the individual.

An open organization will also not engage in mis information or promoting confusion among any of its stakeholders including the investment community and customers. Recent accounting revelations bear on how our organizations have become too closed.

Finally, management cannot wash its hands of the acts of its employees when it creates an atmosphere in which bad actors proliferate. Management generally declares that it is open, but that is not something management can determine. It must be determined by the employees, customers, and the public at large.

This post is just in introduction and invitation for comment and discussion, in the spirit of an “open” organization.

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9 Comments »

  1. […] reason I am writing about this today is that the fourteenthbanker mentioned a culture of cheating in their blog and how it can get established in the banking industry. It seemed so […]

    Pingback by Kathy's Blog › culture of cheating — April 15, 2010 @ 1:46 AM | Reply

  2. I came upon your blog yesterday thanks to the good folks at Huffington Post, and have been completely intrigued at what’s been written so far. In a former “life” (I am a stay at home dad now at age XX) I was a Vice President (for 1X years at the same Bank) in Incentive Compensation for one of the major Wall Street Banks that took TARP funds. My position involved financial modeling, creation of and maintaining an Incentive budget for the XXXXXXXXXXXXXX Incentive Program, and payout of the incentives. My position was downsized in 20XX after we bought another large bank (and their guys took over Retail, which spelled doom for a lot of us when they IMMEDIATELY implemented their Incentive Program). If the shareholders knew the waste I saw and the casual and flippant attitude at PAYING someone who CLEARLY didn’t deserve it (but was, because of the lawsuit threat). I tried in vain to stop this (and other) practices which I saw as not only wasteful, but immoral as well. It was practically legal theft, with SVP’s gladly participating to ensure that their people ALL get something, despite them not actually EARNING it.

    Obviously, I am still under a gag order that I signed (in order to receive a most generous Severance) so I cannot go into detail here. When I just read this last post, I could swear that we probably worked for the same organization…unless these practices are incredibly widespread across various Wall St Banks.

    Comment by Arkangel3 — April 15, 2010 @ 9:57 AM | Reply

  3. What sort of nonsense is this? Are we supposed to be convinced that you are some “good banker” and because there are some “good bankers” that we can all just laugh off the situation that we find our country, our economy, and our democracy in?

    The ridiculousness of this particular blog post is astounding, if you had the courage of your convictions you would have made your views publicly known to your boss, his boss, and or the press long before now. Instead, you’re riding to our salvation “in secret” ??

    You’re here to dazzle us with your “integrity” and your philosophical mumbo jumbo? Oh, please.

    Listen, sonny. I’m gonna give it to you straight, you got no balls, you’ve got no heart, you’re a phony.

    There is no salvation for the USA, decades of neglect by its very own Citizens is what allowed you bankers to rob America, and to continue to do so.

    Yes, some people like to think that we’re past the financial cataclysm, that we can breath a sigh of relief, but they’re wrong. The pain has only been delayed, our pound of flesh has only received a temporary reprieve.

    You banker and wall street types, don’t know the half of the pickle that we are in. Our economy has multiple “negative-feedback” loops with powerful and wealthy interest groups attached to them, they aren’t going to allow changes to these systems. Why? Because they play both sides of the game, they win on the way up and on the way down.

    All these systems are tied in to two main industries:

    1. Big Oil
    2. Military Weapons Systems (aka Military Industrial Defense Complex )

    Big Oil has a standing army to do its bidding anywhere in the world all paid for by the US taxpayer, we are now fully engaged in the militarization of the last significant oil reserves in the middle east. Without Oil you cannot wage a modern warfare war.

    Its also no secret that the two most populous states CA and TX have the largest number of Weapons Manufacturer Jobs and Military Bases, these two monsters and mutually dependent, you cannot win a presidential election without the support of those two states. Nor can you get any bill through congress that limits or reduces the influence of the Military Industrial Defense Complex in these states, by cutting spending or by closing bases.

    We currently spend more than $1 BILLION a DAY on imported oil. Even the slightest negative fluctuation in the supply of this resource will plunge the global economy into depression.

    America is a FAILURE because of Bankers, Televangelists, Wars of Stupidity, Oil, Cars, and Wall Street Greed-Monkeys.

    But mostly because cowards like you didn’t speak up when you should have.

    Comment by Jake — April 15, 2010 @ 3:01 PM | Reply

    • You have made a lot of assumptions here.

      Comment by thefourteenthbanker — April 15, 2010 @ 3:49 PM | Reply

      • Well, then please spell them out for me.

        Comment by Jake — April 16, 2010 @ 12:38 PM

  4. What some people need to understand is this: there are people who work for these institutions (by choice or happenstance) that genuinely believe in what they are doing. I’ve known Small Business Bankers who have gone to weddings of their customer’s kids, become distraught when someone died, or became even more upset that they could not get someone a loan despite their customer having excellent Financials due to a tightening of credit. To assume that every single person who works at a Bank to be “evil” is absolutely short-sighted and ludicrous. There are people who are Bankers because it is their chosen profession, and they regard what they do with pride…just like anyone else who does a good job at their own chosen occupation. Yes, there are absolutely those who either game the system for personal benefit (or in extreme cases almost bring down an entire Economy).

    There were days when I would come home completely incensed at what some people were doing in the Bank. Did I make my superiors aware of the behavior? Yes, and in some cases the individual was terminated or had other action taken against them. In other cases, there were those employees who were (for lack of a better word) “protected” by their SVPs, regardless of whatever immoral (and illegal in some cases) activity they were engaged in. Why this was the case, I could not even begin to surmise. Even worse was the complicit nature of Senior Management as a party to some practices; i.e. paying a bonus to someone who CLEARLY did not deserve one. I was told to pay them, that the instructions came from this SVP and that was the end of it. This meant that any arguments to the contrary would not be looked at by them, and it would in fact be detrimental to my career if I perused the avenue further. It would have been a waste of time anyway, because one level above the SVP in question would have backed the decision anyway.

    Did I hate my job after a while? Absolutely; as a matter of fact, they did me a favor by downsizing me. I can now watch my kids grow up and stop and enjoy my life a bit more than I used to (although I am now also Disabled, for reasons which I will not elaborate here). I worked very happily and made a great career for a good many years. It was a huge personal sign of success when I finally got my VP. I truly liked what I was doing and who I was working with. But I realized that the higher you go in an organization, especially when you reach what I call “The Adminisphere”, things are vastly different than when you are not privy to (and part of) large decisions that are made. Sometimes, it pays just to be a blissfully ignorant worker bee happily doing their own thing. This was not for me as I truly believed in myself and what my Bank was doing…until things began to change right around the time Glass-Steagall was broken. And what had become a great career started to become a great burden. I became conflicted in what was happening and was I was asked to do sometimes. And that is another story for another time…

    In the long run, I realized the truth to a story told by Charles Beaumont, a writer of many famous “Twilight Zone” episodes: success is sometimes achieved by climbing a mountain of cow flop just to pick out the perfect rose at the top…only to realize that when you’ve gotten there, you have lost all sense of smell.

    Comment by Arkangel3 — April 15, 2010 @ 11:01 PM | Reply

  5. You have brought me into the light. I am in such a familiar place as a middle manager on the verge of losing his position based on these same sales production goals you are speaking, but I refuse to compromise my integrity and become “the home of the $1 dollar checking account just to achieve some sort of unrealistic goal.

    Back in the day, it was expected of a branch manager to know his/her demographics of the area in which they served, what the landscape of the economy was and what the strengths and weaknesses of their area was. Today that is no longer the case. The only thing you hear about today is numbers, numbers, numbers and why aren’t you making goal.

    As stated, does that suddenly make you a bad manager? A rogue? All you hear day after day is “No excuses!” Well, here’s a riddle for you: When is an excuse not an excuse? Answer: When it’s the truth. And that’s the problem in the banking world today…senior management can’t handle the truth.

    Comment by V — April 16, 2010 @ 9:11 AM | Reply

  6. As a retired VP, ex-systems manager of one of those big banks I have to agree with you. After being merged (aka acquired) in the nineties things changed rapidly. The incentive pay algorithms dropped the quality measures (e.g. is this a good mortgage, loan, transaction) and only looked at volumes of sales – in fact operational measures dropped the quality aspects as well. Managers no longer had tools with which to manage – budgets were set and you had to come in +/- 1% – save the company a bundle and you were in big trouble…how else could they make sure they pegged Wall Street’s expectations? Metrics on groups who did not receive incentive comps were measurements of stuff that was unimportant to the business, and again, volume based, which led to extreme gaming of the metrics. There were no points given for running a good operation and no sense of how to run an operation. I quickly bailed out of management, continued to stand up for and do the right things for the right reasons until I was forced out with no severance comp for 20 years service. Life is far better now.

    Comment by oldgal — April 17, 2010 @ 6:46 AM | Reply


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