Trimming the ranks in banking and finance

by 26 Nov 2008

The banking and finance sector is the hardest hit by the current global economic downturn. In this second part of a three part series, Craig Donaldson speaks with experts who answer questions from HR professionals in banking and finance about the process of handling redundancies and outplacement with sensitivity and professionalism

Between industry consolidation, which will lead to fewer, larger banks, and the scale, scope and speed of the economic downturn, banks in Australia will slash as many as 10,000 jobs in 2009, according to a recent KPMG study.

Some sectors in banking and finance have been hit harder than others. The fringe players and the firms who relied on secondary markets for credit and finance were heavily affected, according to David Reynolds, executive general manager of Chandler Macleod Consulting.

Firms which were highly geared through debt and those whose customers were highly geared have also suffered heavily, he says. “In particular, those organisations that relied on easy finance and credit and which do not maintain a high level of risk assessment and discipline are the ones that have suffered and will continue to suffer.”

Bruce Anderson, managing director of Lee Hecht Harrison, says all sectors of the banking and finance industry are being negatively affected during the economic slowdown, with decisions around reducing costs reflecting the current and future profitability of specific business units.

“There are few, if any, areas of banking and finance not currently impacted negatively by today’s economic conditions and the current round of redundancies within the sector will reflect the core decision-making process in how to make cost savings without impacting current or near term revenue,” he says.

Questions from HR professionals in banking and finance

Our firm is currently looking at the possibility of making some redundancies. What sort of policies and procedures should have in place?

Simon Moylan, general manager of talent management for Hudson, says that the first step is in deciding which roles will be made redundant in order to match the business needs. The second step is using a robust, fair and transparent methodology to decide which individuals are affected by redundancies.

“Once the decisions have been made, the planning and procedures around carrying out the redundancy notifications are paramount. These include the redundancy notifications to impacted individuals and the broader communication to the business of the changes that have taken place,” he says.

Anderson says that all policy and procedures related to the creation of redundant roles and their implementation should reflect the values and culture of the company. While this is difficult if done during the “heat of the moment” when in crisis mode, he says that they are better created at this time than making “decisions on the run” with no framework in place.

The policy should support the company in its reputation and management of risk, and facilitate the desired outcome for the individuals affected by any decisions and the staff who remain, he says.

If not prescribed already, Anderson says redundancy payments, payment in lieu of notice period, career transition support and the continuation of any employment benefits will require policies to be established.

Reynolds says that any policies related to roles being made redundant need to be well considered and documented. As part of this, redundancy payments and entitlements need to be determined and agreed. For award staff, these are often set down in the awards or the workplace agreements.

The second area for consideration is the extent of support that will be provided to employees affected by redundancies, he says. “This support can vary significantly, but usually ranges from well structured outplacement and career transition management services,to EAP services, to very little support at all. The companies that tend to value their employees and their employment brand are the ones that have well considered support programs.”

Some more progressive companies also provide a level of emotional and coaching support and motivation to the employees remaining, to ensure their concerns and worries are addressed and to ensure that morale is maintained and productivity is enhanced,Reynolds says.

What approach do most firms take? Do they take the minimum legislated requirement, or is there a best practice approach to redundancy?

There are actually no legislative requirements for non-award employees in terms of redundancy, Moylan says, although the Labor Government is planning to introduce legislation that will provide some minimum requirements.

“Unless there are express terms in an award or workplace agreement, it is up to individual organisations to follow ‘best practice’ for their industry,” he says.

“Most organisations recognise the value in providing support to exiting employees; from a humanitarian viewpoint in making sure people are looked after both financially and in being provided with career transition assistance, and in being seen as an organisation that espouses and supports best practice HR policy as part of its employer value proposition.”

Anderson says the manner in which companies approach redundancies is as broad as the culture of organisations and style of managers who lead them,and typically reflects the integration of both these factors.

“The manner in which career transition support is provided will differ from business to business and often within them. Career transition support, outplacement,is generally seen to be a core component of organisational change in large companies,” he says.

Reynolds also says that firms that value their people and appreciate the importance of a caring employer brand are more likely to be more supportive and professional in their planning and provision of professional and independent services.

He also notes that while staff who are covered by awards or workplace agreements will be paid redundancy entitlements in accordance with the award or agreement, the more senior the role and the longer the employee’s tenure and the more mature the employee,the greater the redundancy payment tends to be.

We want to avoid redundancies if possible. What other options can we take, such as reassignments, for example?

First, organisations have to consider redeploying employees into other roles across the organisation by identifying transferrable skills and any training and development gaps, Reynolds says.

“This results in a number of positive outcomes,including an incredible amount of savings such as redundancy pay, outplacement fees and recruitment fees to fill other vacancies, as well as maintaining corporate knowledge,” he says.

There may also be opportunities to put talented people onto projects; reduce hours worked for an interim period; have employees take outstanding annual leave and also consider external opportunities with customers and suppliers.

“The most important advice I could give is to ensure the muscle is not cut and that an objective and well considered equitable process is adopted to ensure the people who do stay are the ones with the right level of skills needed for the organisation to survive, grow and prosper,” Reynolds says.

Anderson says there are alternatives to redundancies when it comes to reducing staffing costs (see box). However, in most instances, he says, these require a longer time frame and greater resources to implement.

“Typically, the ability to consider alternatives and implement them relates directly to the organisational culture and, specifically, the trust by the employees of their leaders and employer,” he says.

Moylan says the best strategy to avoid redundancies is a robust workforce planning strategy. This includes taking a long term-view, using evidence-based decision-making about supply and demand.

“Done well, it aligns the needs of the business with those of the workforce, with the goal of developing a balance between both,” he says.

“It can be used to expand, reduce or better utilise a workforce. Strategies include altering the permanent/contract workforce mix, retraining, reskilling and redeploying staff to growth areas.”

The outlook for banking and finance

The current shake-out of the industry will continue as the economy continues to slow, according to Reynolds.

“Organisations will be able to be more selective in who they employ and retain and will also be able to take market share,” he says.

“The increase in corporate regulation will also bring a new level of pressure on organisations – and the need for a higher calibre of employee and leader will mean that those who get it right will bounce back bigger and stronger.”

Anderson also says that the Australian economy and the banking and finance sector will continue to experience volatility and uncertainty well into 2009. “The difficulty for all those making business decisions in the period ahead is in balancing the ongoing uncertainty,reduced business confidence and reduced revenue against the imperative to optimise current conditions while ensuring preparedness for the future,” he says.

It is during these tough times that the strongest firms will demonstrate the importance of staff in making business successful, according to Reynolds, and a significant means by which they do this is the manner in which they support those whose roles are made redundant.

Next issue: We look at the process of training managers to handle redundancies with sensitivity and professionalism, how to boost employee morale and sustain employee engagement in the wake of redundancies, as well as the process of organisational rebuilding