Author: James Rust, Partner, Leathwaite. 

The head of a leading City lobby group, Gerry Grimstone, recently gave voice to a common complaint held by many in the financial services sector– that the actions of a few ‘bad apples’ have tarnished the entire profession. Considering the drastic and far-reaching consequences these bad apples had on the whole financial market, it’s understandable that large steps are being taken to prevent further problems. However, the measures firms are taking to meet external regulatory requirements are causing serious repercussions on their staff. Leadership must find ways to enact needed change without alienatingthe ‘good apples’ in their workforce.

Fuelled by constant negative rhetoric around misconduct and an unending tide of new regulation, firms are battening down the hatches. The cost of doing business is increasing as firms dedicate more resources to regulatory controls whilering fencing capital. Fewer hires are being made and salaries and bonuses now come with far more lock-in clauses and caveats. Workers are therefore being paid less outright and more through deferred stock options. This has left many in financial services with the feeling they are constantly pedalling harder to stand still–which can have a number of repercussions.

The first, most obvious and direct effectof this pressure has been the flight of the salary-chasers. Some employees are quite naturally reacting to the weightof depressed salaries and bad employer-PR by leaving their jobs or the finance industry all together. It is natural for people to look for the next ‘big thing’ and right nowthe tech sector is winning. Tech jobs have the pull factor with generally high salaries, exciting work and the potential to work forhigh-profile brands.

This notion is not only seen inlong-standing employees but also entry-level candidates. Young, promising professionals who might have considered a career in the financial services sector are looking elsewhere, earlier. After nearly a decade of post-crisis strain,a lack of fresh blood for firmshas started to form a generation-gap in employee demographics.

Not all employees will jump ship, however. Others will take lock-in clauses and deferred payment as reason to bed down in order to make the best of a bad situation. This isn’t necessarily a bad thing. Long term employees are valuable and will, as the regulators intended, be less likely to take the risks characterisedby ‘bad apples’. However, they canalso create a stagnant, apatheticand potentially underperforming layer within workforces. This layer can overbalancethe decision-making culture in teams towards conservatismputting more pressure on firms to cultivate ambition.

Between these two extremes, the ‘flyers’ and the ‘nesters’, are the rest: workers with the aptitude and interest to build careers in finance who aren’t content to rest on their laurels. This group is suffering the worst from the ‘bad apple’ effect, as an increasing focus on regulation has left them squeezed. As staff are hired into compliance roles to deal with the increased regulation, headcount in the front office, where money is traditionally made, is being significantly reduced. These staff are seeing their salaries held back and opportunities for promotion and advancement condensed. As a result, they can feel like they are ‘peddling harder to stand still,’ which can lead to burnout, disengagement and departure.

The challenge banks now face is how to motivate their staffand provide routes for them to excel. HR teams are being coerced into being creative in how they do this. The demand for new risk and compliance skills-sets provides the opportunity fornew career development and training programmes. These can help staff seek evolution in different areas of the banks’ operations and discover new pathways to promotion and career advancement. It also makes sense from an organisational standpoint. By providing training across various teams, banks are able to avoid any individual team being over or under-tasked. Regulation has completely changed financial services’ organisational structures, but it hasn’t utterly taken away opportunities for progression.

The ‘bad apple effect’ is set to remain. Regulators around the world are all on course to introduce more stringent regulations and the current public sentiment towards the financial services sector is unlikely to dissipate quickly. For leaders in financial services, it’s important to avoid falling in to the same trap, focusing so much on the actions of a small minority that the vital workforce majority is obfuscated, ignored and alienated.

This article was first published in Global Banking & Finance Review.