Bank Bonuses - Where Is HR?

Posted on 16th February, 2009
So this week we see banking chiefs humbled (kind of), and admit some mistakes (kind of). Sir Fred “The Shred” Goodwin, Sir Tom McKillop, Lord Stevenson and plain old Andy Hornby did their best (kind of) to sound contrite.

The vagaries of the definition of ‘personal culpability’ to one side, one thing we do know about senior people is that, for better and for worse, they do not and cannot do everything on their own. The essence of leadership, we are told, is delegation and creating a framework within which others can excel.

So whether or not the four individuals above are personally culpable is actually a distraction. Thousands of mid to senior managers at these institutions (along with countless other lawmakers and irresponsible borrowers - but that's a different story) share responsibility for the current situation. Whilst there is no doubt that those are the top are by definition accountable for the lion’s share, another equally distinct group has been strangely silent.

Practitioners of Human Resources (‘HR’) have, for the last decade or so, inspired by ‘gurus’ such as Professor Dave Ulrich, been battling to prove their worth as ‘business partners’. Gone, we were told, were the days of HR being a purely process function. Instead, the way in which people behaved and performed at work would become a board level issue. HR was keen to show that in service-oriented economies, people were the key asset and that the effective management of that asset had become even more crucial. HR had come of age, they said.

Quite right. I was, and remain, part of that movement. The logic is inescapable. If we are to base our economies to such an extent on organisations which depend on people (rather than, say, manufacturing, which typically depends much more on other assets) then we do genuinely need to move HR from being a reactive, papering and processing function to a fully-fledged strategic and proactive partner in charting the future growth and development of such organisations.

So, said the gurus and their disciples, we will make this transition. We will provide the ‘architecture’ of these people dependent organisations, ensuring that the right people are hired, and that they are motivated, appraised and rewarded in the right way.

Erm, failure on pretty much every count then.

In many cases, the wrong people were hired - people who had an over-exuberant appetite for risk and too scant an understanding of what banks were for. Indeed we heard also this week of a senior manager at RBS allegedly being fired for pointing out that his bank was running too much risk.

So what?

Well the (grossly underreported) point is that in almost every case, managers were doing what they were asked to: to be fair to them, they were doing exactly what their 'HR architecture' was requiring of them.

Architecture that was fundamentally flawed, in my opinion. People were motivated, appraised and rewarded in the wrong way. Just look at the headlines surrounding bonuses. Bonuses that, in my experience, were usually never related to the immensely bureaucratic, sneered-at appraisal systems and competencies. Bonuses, indeed, that existed, bizarrely, alongside and in addition to existing performance metrics. Bonuses which were guaranteed for goodness' sake, with no regard to delivery.

This might be acceptable if all this flawed 'architecture' had been free. But it wasn't. Banks spent millions of dollars on consultants and so-called experts to produce this 'architecture', and still the building has fallen down.

There is a very simple rule in management. What You Measure Is What You Get. It holds good whatever the latest ‘management’ whimsy.

The banks were measuring the wrong things, in the wrong way. It is that simple.

And HR has had a huge hand in that.

So where is HR now, now that - certainly for the first time I can remember - the issue of performance and reward (the 'classic' HR topic) is headline, international news, and may well bring down more than one national government?

If HR matters as its practitioners say it does, where is the voice of HR standing up and being counted, showing that it will be part of the solution as well as the problem?

If HR is genuinely a 'business partner', this is starting to look like a very one-sided partnership.

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Comments (3)

Morning all. Has HR had a huge hand in it? I\'d be amazed if HR \"architecture\" had any significant role to play in shaping bankers pay. It was driven by a hunt for profit and an asymmetric risk profile for the participants.
Spot on Nick. We are all culpable of course. \"I was only following orders\" wasn\'t good enough in the post World War analysis and it certainly isn\'t now.
Hi Nick, I\'m honoured to be the first person to comment on your blog. Great take on this situation, and I look forward to more posts. Here\'s my take incidentally: HR\'s got a lot to do.<br />