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Like RDR, Your Bonus is a Regulatory Concern


The increase in sweaty palms this time of the year has nothing to do with rising temperatures and climate change. It’s performance review time. Depending on which side of the table you’re on, you either have to convince someone that you have met your goals, or if you are a manager of others, motivate staff and convince them that they can do better. After all, the individuals seated on both sides of the table were once appointed solely because they outshone every other applicant and employers definitely want to keep it that way.

Irrespective if you are the assessor or the one being assessed, your performance over the period being reviewed is directly related to your salary increase, chances of promotion, or that year-end bonus you planned to spend over the festive season. As much as we love our jobs, are committed to what we do, without profit, there is no purpose. We do what we do to get paid so that we… to call a spade a spade… can live. We work to earn a living and it’s these discussions that could dash any hopes of an exotic holiday, that big screen TV, the tennis lessons you promised your young hopeful or simply putting food on the table.

Why would the Financial Services Board (FSB) be so interested in regulating the rewards for South African financial services employees? The financial services space is a risky business. Firms cannot afford the reputational and financial loss and similarly, neither can you. The industry is reeling with the advent of Retail Distribution Review (RDR) which proposes some major changes to the sale and compensation of financial services products. But, an area of focus in the FSB Treating Customers Fairly framework that is often overlooked by financial services providers – possibly because it is such a contentious issue – is the matter of how firms reward and incentivise staff. And bang! We come full circle to the performance review discussion.

Barclays has currently received a slew of negative media attention due to its involvement for what the UK regulator quite simply reviewed as dodgy business practice.  The UK Market Conduct regulator, the FCA, fined Barclays a whopping £3.9bn in 2015 and more recently, the US is reportedly seeking to fine Barclays (amongst others) billions of US dollars for the illegal sales of mortgage bonds during the 2008 financial crisis.

Barclays reported in 2009 “substantial profit generation” in difficult financial times in their Annual Report for 2008. In 2015, Barclays announced a drop in profits and a restructuring of their operations. What happened between 2008 and 2015? Barclays have been hauled across the coals by the regulator and parliament. Yet, from 2007 to 2012, Bob Diamond, their former superstar CEO reportedly took home approximately £120m in salaries and bonus. Barclays even defended the £6.5m bonus he was paid in 2011.

Now, we’re not all sitting in the pound-seats like Bob Diamond but in the financial services space you could very well find yourself in a hot seat because of Treating Customers Fairly. I can just imagine Bob’s performance review discussions:

Board: How have we done, Bob?

Bob: Well, despite difficult times, we have seen significant profits.

Board: Congratulations, Bob. You have met your goal we agreed on.

Had anyone even applied the principles of TCF, or even outcome 1, which encourages a culture of fair treatment of its customers across the entire organisation, perhaps Barclays could have saved a few pennies and Bob would not be just another fallen star in the financial services universe. On notification of the probe into Barclays’ business activities, Bob Diamond was asked to resign. Lord Turner, the chairperson of the FSA (now FCA) at the time of Bob Diamond’s tenure, told the members of the commission that Barclays followed the “letter of the law and not the principle of the law”.

In principle, TCF should be part of performance review discussions. Staff performance should be monitored on an ongoing basis to ensure that any operational issues are dealt with so that customers are treated fairly in terms of the outcomes. Firms and their staff should ensure that they have the proper skills to identify and resolve TCF risks to their customers and the business (Our website offers free downloads that could grow your TCF knowledge and information about our skills-building events).

And if someone displays behaviour that threatens the organisation’s TCF efforts, they should in essence not be rewarded. Incentive structures should also ensure that they drive the correct behaviour as prescribed in outcomes 2 to 6. That is, designing products and the servicing, distribution, and communication before, during and after the point of sale so that customers are treated fairly and do not experience any post-sale barriers to access or exit the product.

As firms evolve their TCF efforts, staff (regardless of level) should ensure that their TCF skills have evolved and remain relevant. You wouldn’t want to be another “Bob”.

About the Author:

Jann Weeder is the director and founder of TCF Institute South Africa. TCF Institute South Africa offers TCF skills development opportunities to individuals while they are advancing their careers. Contact the Institute or connect with Jann on LinkedIn for more information on how to turn principles into practice.

In our next segment, we share Our Top Five Tips for TCF Performance Reviews That The Regulator Will Love