1 Copyright © Resolve 2004 Resolve Group HUMAN RESOURCES BENCHMARKING IN THE BANKING SECTOR Lindsay Falkov Executive Director: Resolve Group

1Copyright © Resolve 2004

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HUMAN RESOURCES BENCHMARKING IN THE BANKING SECTOR

Lindsay FalkovExecutive Director: Resolve Group


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Outline of Presentation

Introduction

Methodology

Benchmarking results

Main conclusions

Introduction

Methodology


Main conclusions


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Introduction

Methodology


Main conclusions

Introduction

Methodology


Main conclusions


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Introduction

The purpose of the exercise was to strengthen data driven HR strategies and business alignment in the banking sector

Quantitative and qualitative data and benchmarking

Data issues:

Certain data were not sufficiently robust to use

General concerns regarding the data

Aggregate data skewed the results and limited analysis

Agreed that a good first round baseline is now in place

Focus Groups:

Encouraged dialogue on people measurement

Focused attention on internal benchmarking & measurement systems, and

Addressed the application of benchmarking results


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Introduction

Methodology


Main conclusions

Introduction

Methodology


Main conclusions


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Saratoga human capital benchmarking measures key human resource management practices

CompareCompare: Set performance standards for human capital management. What have others achieved?

UnderstandUnderstand current HR performance & its impact on organisational performance. What are others doing?

Strategically alignStrategically align HR interventions with organisational objectives

Saratoga human capital benchmarking measures key human resource management practices

CompareCompare: Set performance standards for human capital management. What have others achieved?

UnderstandUnderstand current HR performance & its impact on organisational performance. What are others doing?

Strategically alignStrategically align HR interventions with organisational objectives

Methodology Why Saratoga?


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Largest database of HC metrics in the world representing over 20 million employees

Represented across Europe and the United Kingdom, the United States, Brazil, Mexico, Argentina and the Southern African Development Community

Standard methodology applied worldwide, guaranteeing

Validity and integrity of data Comparison of like with like

Private, public and parastatals

Largest database of HC metrics in the world representing over 20 million employees

Represented across Europe and the United Kingdom, the United States, Brazil, Mexico, Argentina and the Southern African Development Community

Standard methodology applied worldwide, guaranteeing

Validity and integrity of data Comparison of like with like

Private, public and parastatals

Globally AppliedGlobally AppliedGlobally AppliedGlobally Applied

Saratoga Institute and Dr Jac Fitz Enz ‘founder of human performance benchmarking and assessment’

Preeminent provider of human capital measurement and research in the world

20 years of longitudinal data collected

Comprises 7 measurement categories:Organisational Effectiveness Remuneration, Compensation & Benefits Recruitment Absence and Retention Training and Development Structure of the HR Function Occupational Health and Safety

Saratoga Institute and Dr Jac Fitz Enz ‘founder of human performance benchmarking and assessment’

Preeminent provider of human capital measurement and research in the world

20 years of longitudinal data collected

Comprises 7 measurement categories:Organisational Effectiveness Remuneration, Compensation & Benefits Recruitment Absence and Retention Training and Development Structure of the HR Function Occupational Health and Safety

Established CredibilityEstablished CredibilityEstablished CredibilityEstablished Credibility

MethodologyWhy Saratoga?


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MethodologyWhy a Bank Sector Seta study?

Removed the risk associated with a piecemeal approach

Ensured local & international comparisons

Allowed for more targeted measurement

Facilitated sector-wide analysis of results and implications

Addressed contextual factors such as:Employment equity and scarce skills

Location with Bank Seta assured individual anonymity


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MethodologyResearch Focus

Sample consisted of the four largest banks

Sector compared with European & US benchmarks

Individual banks compared with sector & international benchmarks

Benchmarking supported by qualitative research

Group level data collected for the 2003 financial year

Sector reports available to all participants & results presented in consolidated form only

Banks receive own reports


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MethodologyReports

Sector Report Human capital scorecards

Comparative analysis of SA & international bank sectors

Diagnosis of gaps & good practice analysis

Individual Bank Reports Human capital scorecards

Comparative analysis of individual bank, SA & international banking sectors

Diagnosis of gaps & good practice analysis


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Methodology

The benchmarking project process

Scorecard Scorecard productioproductio

n & n & verificatioverificatio

nn

Data Data collectiocollectio

nn

Gap Gap analysis analysis

&&ddiagnostiiagnosti

cc

Final Final ReportReport

Continuous Continuous ImprovementImprovement

Agree Agree basket basket

of of measurmeasur

eses

Focus Focus GroupGroup


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Introduction

Methodology


Main conclusions

Introduction

Methodology


Main conclusions


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Main Findings

The SA banking sector’s per capita financial performance was relatively weak, while

The sector’s revenue and profit return on remuneration was comparatively high

The retail cost-to-income ratio was average, while the wholesale ratios were good on average

Average remuneration was comparatively low

Investment in training was comparatively good, though below average in relation to the management and professionals cohort

Incentive pay levels were on a par with peers

There was a strong focus on internal recruitment. One in four employees in the sector were affected, compared with an external recruitment rate of 12%


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Main Findings

Resignation rates were low, but for management and professionals they were still double the European rate

Around one in every five employees resigning were in their first year of service, while one in every 2½ had a tenure of between 0 and 3 years

Absenteeism was very low

Time-to-fill and acceptance rate data were not available from SA sector


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The Executive ScorecardLeveraging Human Capital Performance

Headline People MeasuresHeadline People Measures

HR DeliverablesHR Deliverables

Income per FTE

Income per FTE

Net operating costs per FTE

Net operating costs per FTE Profit per FTEProfit per FTE

Human Investment

Ratio

Human Investment

Ratio

Wealth Created per

FTE

Wealth Created per

FTE

ProductivityProductivity Value CreationValue Creation HR EfficiencyHR Efficiency

Remuneration / Revenue

True Labour Costs

Remuneration. / Costs

Average Remuneration

Outsource Rate

Training hours per FTE

Performance pay / Rem.

Resignation rate

Recruitment & promotion rates

HR Costs / Total Costs

FTE / HR FTE

HR Professionalism

Acceptance Rate & Time to fill

Absence rate

Demographic Representation

What

you have

What

you want


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Benchmarking Results

Executive Scorecard


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Executive Scorecard

Headline MeasuresHeadline Measures


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Headline Measures

Average Revenue, Cost and Profit

1,293,106

1,680,1101,760,589

1,136,675

1,367,834

1,155,925

139,571

388,139

573,616

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

SArevenue

Europerevenue

USrevenue

SA cost Europecost

US cost SA profit Europeprofit

US profit

Av. Revenue per FTE Av. Cost per FTE Av. Profit per FTE

Ran

ds


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Headline MeasuresNet Income and Net Operating Costs per FTE

593,447

968,195

404,182

538,920

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

SA income Europe income SA costs Europe costs

Net Income per FTE Net operating cost/FTE

RA

ND

S


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Headline MeasuresAverage Cost-to-Income Ratios

67%

58% 59%

67%

87%

46%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SA Retail UK Chile US Brazil Best inWholesale

Cost-to-Income Ratio


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Headline MeasuresHuman Investment Ratio

2.19

2.86

2.42

2.622.46

3.17

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Mean 75th

SA Europe USRevenue – non-wage costsFTEs X average rem.


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Executive Scorecard

ProductivityProductivity Measures Measures


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Productivity MeasuresAverage Remuneration by broad occupational

category

134,598

285,973

76,708

287,424

414,241

146,045

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

All employees Mgmt & Prof Non-Mgmt

Ran

ds

SA Europe

47%

70%

53%


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Productivity Measures Remuneration to Revenue & Cost Ratios

10.8%

20.5%

24.2%

12.5%

18%

29.8%

36.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

SA Europe US SA SA TP Europe US

Rem/Revenue Rem/Costs

% o

f Rev

enu

e an

d C

ost

Rem + outsource costs total costs


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Executive Scorecard

Value Creation Measures


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33

38

24

36

24

2829

32

0

5

10

15

20

25

30

35

40

All employees 75th All Mgmt & Prof Non-Mgmt

SA Europe

Value Creation MeasuresTraining Hours per FTE


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Value Creation Measures Performance Pay to Compensation Ratio

13% 13%

25%

0%

5%

10%

15%

20%

25%

30%

Mean 90th

Performance pay as % compensation

SA Europe


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Value Creation Measures Resignation rates

10.9%

8.8%

11.7%11.7%

3.8%

20.3%

17.8%

9.90%

21.90%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

All employees Mgmt & Prof Non-Mgmt

SA Europe US


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Value Creation Measures Resignations by length of service

0%

5%

10%

15%

20%

25%

30%

35%

40%

0 - 1 years 1 - 3 years 3 - 5 years 5 - 10 years 10+ years

SA Europe US


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Value Creation Measures

Absence rate: The SA sector average rate was 1% compared with 3.6% in the European

sector

Time-to-Fill: The European and US mean scores were 40 and 32 The European and US 25th percentile scores were 22 and 25

Acceptance rate: The average acceptance rate the European sector was 92%

Cost per hire: SA average was R4,782, European average was 13,432 and the US

average was R11,516


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Executive Scorecard

HR Efficiency Measures


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HR Efficiency

The SA Banking sector: had an HR professional complement of 51%, which is just below the

European average of 54%,

had a slightly lower average HR remuneration of R251,518 that is 88% of the European average but less than two thirds of the US rate,

had a higher average HR capacity of 75 FTEs per HR FTE compared to 84 in the US and 118 in Europe, but the SA sector tends to outsource more of its HR than European banks

had marginally lower HR costs than its peers in Europe and US, HR costs as a proportion of total costs equal to 0.5% compared with 0.5% and 0.75%, and HR costs per FTE of R7,360 compared with R8,676 and R7,734.


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Management & professional Scorecard


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High-end skills performance

Management and professionals in the SA sector constituted ¼ of all employees compared with over 40% in Europe & the US

The average wage for this cohort was 70% of their European & US peers

They received 3 days training per FTE compared with 3.6 days in Europe

70% of the cohort had access to at least one training intervention in 2003,

There was a strong focus on internal recruitment, 23% of headcount, compared with an external recruitment rate of 10%

There was a net outflow of this cohort of 1% compared with a 5% increase in Europe

There is a healthy spread of youth & maturity in the tenure of executives in the sector – 29% between 0 and 3 years and 71% above 3 years

Absenteeism amongst this cohort was 1%


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Management & professional resignations

8.8%

3.8%

9.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

SA Europe US

SA Europe US


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Management & professional resignations by length of service

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0-1 years 1-3 years 3-5 years 5-10 years 10+ years

SA Europe US

1 in 3


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Training & Development Scorecard


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Training and development performance

SA sector’s training was on average more efficient than Europe but less so than the US, i.e. less spend for more output at less cost & with a lower capacity:

SA sector’s training spend of 2.8% purchased 4 days training per FTE & covered 73% of the workforce at a cost of R2,864 per FTE, with a training capacity of 252 FTEs per training function FTE

The European sector’s training spend of 2.6% purchased 3 days training per FTE & covered 67% of the workforce at a cost of R5,864 per FTE, with a training capacity of 306 FTEs per training function FTE

The US sector’s training spend of 1.9% purchased 5 days training per FTE at an average cost of R3,771 per FTE, with a training capacity of 247 FTEs per training function FTE


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Training and Development ScorecardAverage training hours per FTE by broad

occupational category

33

24

36

24

2932

41

0

5

10

15

20

25

30

35

40

45

All employees Mgmt & Prof Non-mgmt

SA Europe US


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Equity Scorecard


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Employment Equity Performance

The banking sector’s workforce was 50% Black, one fifth African, and two thirds Female

According to the Saratoga benchmarking data the sector’s profile improved during 2003

The resignation rates for Black employees were just below the average for all employees, while the White employee rate was above average

One in four African and Indian employees resigning had a tenure of less than one year and 1 in 2 had a tenure of between 0 and three years

Training for African employees in 2003 was marginally below that of other groups in the sector

The average remuneration of African and Coloured employees was 50% and of Indian employees 68%, of the average White cohort wage. The Female cohort wage rate was 56% of the Male wage.


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Equity ScorecardCohort Stability: Cohort Recruitment and

Terminations

16%14%

16%

10%

14%13%

11%

14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

African Coloured Indian White

External recruitment Total terminations


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Equity ScorecardCohort Flows

Proportional Effects Cohort Effects

Recruitment Terminations

African = 28% African = 21% +2.0%

Coloured = 20% Coloured = 16% +1.0%

Indian = 15% Indian = 11% +4.5%

White = 36%

SA

Banking

Sector

White = 51% -4.0%

100% 100%


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Equity ScorecardCohort Resignation Rates

10.9

10.3

10.6

9.7

11.5

8.5

9

9.5

10

10.5

11

11.5

12

All employees African Coloured Indian White


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Equity ScorecardCohort Resignations by length of service

0

5

10

15

20

25

30

African Coloured Indian White all employees

0-1 years 1-3 years 3-5 years 5-10 years 10+ years

1 in 2

1 in 2


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Equity ScorecardTraining hours and Learning coverage by race

32.3

34.0

35.0

34.2

74.3%

73.5%

70.0%

72.8%

30.5

31.0

31.5

32.0

32.5

33.0

33.5

34.0

34.5

35.0

35.5

African Coloured Indian White

67.0%

68.0%

69.0%

70.0%

71.0%

72.0%

73.0%

74.0%

75.0%

Training Hours Learning Coverage


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Equity ScorecardAverage remuneration by Race and Gender

R 85,768

R 86,700

R 117,339

R 173,004

R 187,303

R 105,000

R 0 R 20,000 R 40,000 R 60,000 R 80,000 R100,000

R120,000

R140,000

R160,000

R180,000

R200,000

African

Coloured

Indian

White

Male

Female

50%

68%

56%


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Agenda

Introduction

Methodology


Main conclusions

Introduction

Methodology


Main conclusions


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Main Conclusions

The results are largely related to retail banking

Grow revenue per capita and focus on higher margin activities

Increasing revenue is needed to sustain good revenue and profit return on remuneration

Continue good cost management, but reduce unit costs by raising the efficiencies of of IT platforms and core processes

There is still room for improving the resignation rate of the management and professional cohort

The tenure of resignations, especially amongst Black employees needs attention

The focus on internal recruitment should continue

Time to fill and acceptance rate data needs to be collected


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Main Conclusions

Training investment, outputs and efficiencies compare well with peers in Europe and the US, though there is a need to increase training for African employees in the sector

Race and gender remuneration disparities will need to be addressed through progression and external recruitment strategies into higher occupational brackets

The flow of employees in and out the sector, by levels / occupational categories, needs to monitored for equity and FSC purposes

The sector’s HR functions require regular review to be sure they have the capacity and skill-sets to respond to ever increasing and new demands

Interestingly, the SA sector appears to outsource more of its HR service than its European peers


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Lessons

Adequate time is needed for data collection and verification

Focus Groups to verify and engage data essential

Setting the baseline was difficult compared with future exercises, which will also compare and contrast external and internal longitudinal benchmark data

Future rounds must disaggregate – retail and wholesale and micro-lending sectors

Important missing data must be added next round

Workplace skills plan data, equity data and Saratoga data must be aligned to respond to the employment equity, skills development and human resources elements of the Financial Services Charter

Documents

1 Copyright © Resolve 2004 Resolve Group HUMAN RESOURCES BENCHMARKING IN THE BANKING SECTOR Lindsay Falkov Executive Director: Resolve Group