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.