3. The Why and How to Retaining Valuable Employees in the Banking Sector.

 

The flip side of the coin is equally however important: what will become of good employees who remain. Retention is considered not a soft, nice-to-have goal at master level, but rather a key element of organizational performance. Evidence continues to point to the fact that an organization may be more productive and better service delivery due to efficient retention practices (Allen et al., 2010; Hausknecht, 2017).

The benefits of keeping good employees are especially high in people-intensive industries such as banking, where the product is mostly knowledge that an individual brings to the company. This blog describes such benefits in a number of major headings.

 

 3.1 Reduced Costs and High Return on Investment on HR Investment.

 It is a well-known fact that turnover costs a lot. Direct financial costs of recruitment, selection, medical check-ups, training and induction are involved. Besides that, there are indirect costs; lost productivity during position vacancies, employees working overtime, and new staff learning curve (Ongori, 2007).

As organisations achieve longer retention of employees, such costs are amortized over longer years, and the human capital is returned more with the increase. It takes months and at times years before new employees can attain full productivity. Retaining them after such a ramp up period enables the bank to benefit from them to a greater extent. Allen et al. (2010) point out that retention is the most useful when done on high-performing and high potential employees, as the cost of losing their productivity is significantly greater than the costs of losing average performers.

This reasoning is particularly strong in a banking situation where training consists not only of technical systems, but also of regulatory compliance, credit analysis and risk awareness. Each departure of an officer who has been trained is a kind of write-off of the training expenditure of the bank and a compulsion to incur anew.

3.2  Greater Customer Relationships and Increased Loyalty.

Financial products are sold by banks but banks are competed based on relationships. Customers have been remaining customers with a bank not necessarily due to interest rates but due to their trust of particular employees, the relationship manager who comprehends their business, the branch officer who gets things done in a short time or the call-center agent who has given them the proper answers.

These relations become stronger when valuable employees remain. Permanent employees develop credibility, they are aware of the history of the customer and are able to foresee the requirements. This often leads to:

•           The increased cross and up-selling prospects.

•           More stable lending bases and deposits.

•           More customer leniency in terms of the occurrences of occasional errors.

Empirical research on service organisations indicates that retention of employees is positively related to customer satisfaction and customer loyalty which are in turn related to financial performance (Heskett et al., 1994). In the banking context, the loss of a known relationship manager can result in the loss of an entire portfolio of customers, but the maintenance of such a manager does reinforce the bottom line as well as the reputation.

 

3.3  Increased Service Quality and Reduced Operational Error.

 

Experience matters. The long-term employees are familiar with systems, products, the route of escalation and other common exceptions than recruits. As a result, they tend to:

•           Attend to process transactions more quickly.

•           Make fewer mistakes

•           Deliver improved data of customers.

•           Deal with complex or uncharacteristic cases with greater confidence.

Hausknecht (2017) also observes that when the overall turnover at the unit is high, then the performance indicators will tend to decrease, in part due to the loss of experienced staff that generates more errors and derails the workflow. This is vital to banks, in which a single mistake in a loan document or compliance measure can result in severe legal and financial consequences.

Retention hence assists in operational booms. When teams are stable, they know how to co-ordinate with each other, know the strengths of others and less time is needed to synchronise. They will be able to concentrate on the process and service quality improvement as opposed to training newcomers all the time.

 

3.4  Risk Management and Compliance.

 

The contemporary banking is highly controlled. The fields like credit risk, anti-money laundering, market risk and operational risk require the highest degree of expertise and judgement. The benefits of retaining experienced personnel in such functions are enormous:

•           They perceive suspicious trends faster.

•           They are also familiar with the letter and the spirit of regulatory requirements.

•           They are able to mentor the new employees in the implementation of rules.

The studies of financial institutions highlight that risk events have a higher probability of occurrence in the circumstances of the lack of experience and poor internal controls (BCBS, 2011). Risk and compliance teams are the teams that have high turnover and cause precisely those vulnerabilities. In comparison, well-established and educated teams will lead to the robust risk culture which minimizes the risk of fines, penalties or reputational losses.

Strategically speaking, retaining key risk persons is not only an HR success, but also a fundamental element of organisational resilience.

 

3.5  Knowledge and Organisational Memory Preservation.

 

Each skilled employee has a load of explicit and unspoken knowledge. Explicit knowledge is what is written in the policies and manuals, whilst tacit knowledge, the way things are and what to do when something is not going as planned, informal market knowledge, is often in the heads of the people.

This tacit knowledge is lost when the valuable employees move away. According to Hausknecht and Trevor (2011), collective turnover leads to losses in the human and social capital and forces organisations to re-establish essential know-how. Examples of tacit knowledge in banking are:

•           Delicate signals of credit risk of specific industries.

•           How to negotiate with regulators or big corporate clients well.

Lessons learned in the past crises and system failures.

This knowledge can be retained within the bank. It can be gradually codified and disseminated via mentoring, documentation and training and enhance the learning ability of the organisation.

 

3.6  Better Culture , More Engagement and Better Employer Brand.

Whenever employees witness that the high performers and long serving employees are getting well treated and decide to remain, this sends a strong cultural message. It gives an impression that the organisation is where individuals can get a meaningful career and not merely an earning.

Literature demonstrates that engagement and turnover intentions are high in organisations that possess favourable cultures and perceived organisational support (Eisenberger et al., 2002). The engagement, in its turn, correlates with the improved performance and the reduced absenteeism (Harter et al., 2002). A positive cycle of retention and culture fosters culture and culture fosters retention, then, then, and so on.

On the outside, the high retention of key talent helps in positive employer brand. In the age where candidates have easy access to employee reviews and unofficial opinions, banks that have an image of building and retaining their staff have a higher chance of attracting new talent. Allen et al. (2010) observe that through the visibility and credibility of the practice, retention practices are included in the value proposition of the organisation in competitive labour markets.

 

3.7  More Succession Pipes and Leadership Consistency.

 

In most organisations, the issue of leadership succession is a strategic risk. The banks require an unending pool of future branch managers, regional managers and top executives. When the high potential employees who move before they can be put in these positions, the succession plans fail and the bank has to depend on external recruitment and this will further expose the bank to cultural misfit and delayed adaptation.

By keeping talents and core experts, HR can introduce systematic succession strategies: they see new leaders early and provide them with specific development initiatives and increasing their tasks step by step (Charan et al., 2011). Such continuity helps to conduct the strategic implementation in a more stable and even-tempered way, as leadership transitions become less disruptive and smooth.

 

3.8  Enhanced Innovative and Change Capacity.

Banking innovation, either digital channels, or new products or process-redesigning, requires people who are knowledgeable on both the old systems and the new technology. The longer the employees remain in the organisation to gain the rich organisational knowledge and then deploy it to change projects, the more the bank is well placed to deliver effective realistic innovations.

On the other hand, high turnover means that the teams waste a lot of time in hiring and regaining basic competence. Time and energy to experiment or to continue on improving are less. According to Hausknecht (2017), high collective turnover may undermine the adaptability and learning capacity of a unit, which would decrease its long-term efficiency.

The agility of strategy is therefore contributed by retention. Considering the perpetual digital disruption and regulatory change in a financial sector, stable, competent teams are able to internalize change, learn how to improve upon it, refine it and build upon it, which is also an essential benefit.

   References 

Allen, D.G., Bryant, P.C. and Vardaman, J.M. (2010) ‘Retaining talent: Replacing misconceptions with evidence-based strategies’, Academy of Management Perspectives, 24(2), pp. 48–64.

Basel Committee on Banking Supervision (BCBS) (2011) Principles for the sound management of operational risk. Basel: Bank for International Settlements.

Charan, R., Drotter, S. and Noel, J. (2011) The leadership pipeline: How to build the leadership-powered company. 2nd edn. San Francisco: Jossey-Bass.

Eisenberger, R., Stinglhamber, F., Vandenberghe, C., Sucharski, I.L. and Rhoades, L. (2002) ‘Perceived supervisor support: Contributions to perceived organizational support and employee retention’, Journal of Applied Psychology, 87(3), pp. 565–573.

Harter, J.K., Schmidt, F.L. and Hayes, T.L. (2002) ‘Business-unit-level relationship between employee satisfaction, employee engagement, and business outcomes: A meta-analysis’, Journal of Applied Psychology, 87(2), pp. 268–279.

Hausknecht, J.P. (2017) ‘Collective turnover at the group, unit, and organizational levels: Evidence, issues, and implications’, Annual Review of Organizational Psychology and Organizational Behavior, 4, pp. 527–550.

Hausknecht, J.P. and Trevor, C.O. (2011) ‘Collective turnover at the group, unit, and organizational levels: Evidence, issues, and implications’, Journal of Management, 37(1), pp. 352–388.

Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schlesinger, L.A. (1994) ‘Putting the service-profit chain to work’, Harvard Business Review, 72(2), pp. 164–174.

Ongori, H. (2007) ‘A review of the literature on employee turnover’, African Journal of Business Management, 1(3), pp. 49–54.