Korean Banks’ Job Field HRM Systems for Developing ... · Woori Bank, Kookmin Bank, and Shinhan...

Finance VIP SeriesVision, Insight and Policy

2011- 04

www.kif.re.kr

March 2011

Hyoungsik Noh

Korean Banks’ Job Field HRM Systems for Developing Financial Professionals

Author Hyoungsik Noh Research Fellow 02-3705-6272 [email protected]

01

Summary

Summary 02

Ⅰ. Discussion & Background 04

Ⅱ. Job Field HRM Systems of Korean Banks 07

1. Concept of & Need for Job Field HRM Systems

2. Job Field HRM in Korea

Ⅲ. Problems with Current HRM Systems 13

1. Lack of Job Field Career Development Systems

2. Inefficiencies in the External Hires Market

3. Inadequate Career Vision Offered for Professionals

4. Inadequate Differentiation of Performance Pay

Ⅳ. Possible Improvements 18

1. Reformulating Job Field HRM Systems

2. Organizing the Internal Development & External Hiring Systems

3. Differentiating Compensation in the Professional Job Fields

Ⅴ.Conclusions 24

02


■ The financial industry functions as a future growth driver and as a

sound intermediary for the real sector. This makes securing a solid

base of financial professionals a key task. In particular banks that

offer a range of financial services for financial consumers need a

diversity of expertise.

■ One common way of doing so has been job field HRM (human

resources management). This paper shall evaluate this approach and

explore future tasks surrounding it.

■ Job field HRM is presently conducted primarily at commercial banks,

which has exposed the following problems:

○ Career development systems that conduct job field HRM from the

hiring stage are inadequate and the implementing of individual

performance pay is limited by technical and other reasons.

○ The internal labor market makes it hard to present a career vision

for professionals, and since the external hiring market is still in its

early stages, the supply of and demand for talent is still handled

inefficiently.

■ In light of this, banks should consider the following to improve their

job field HRM systems for cultivating professionals.

○ Setting banks’ long-term vision and establishing hiring and

development plans accordingly.

03

Summary

○ Systematizing job tasks, families and fields through more elaborate

job profiles and descriptions.

○ Classifying job fields into ones for hiring based on job fields and

the others for mapping after hiring according to detailed job fields

or families. Professional fields have to be managed from the hiring

stage and promotion, compensation, etc. must be differentiated.

○ Organizing performance/job value based compensation schemes

into incentive systems for attracting and retaining talent.

○ In terms of offering career development paths for professionals,

banks should introduce a new executive program for professionals

or programs to raise social position.

○ Compensation and promotion may be differentiated by strictly

categorizing specialized job fields and families so long as limited

horizontal movement is allowed while taking into account the

efficient allocation of professional talent.

○ To deepen expertise and convey it within the organization,

internal education programs should be formulated and a learning

organization should be pursued.

04


Ⅰ. Discussion & Background

■ The financial industry functions as future growth driver and as

a sound intermediary for the real sector. This makes securing a

solid base of financial professionals a key task.

○ Attracting and cultivating financial professionals is a core

prerequisite in bidding to become a global financial hub and

national growth driver.

○ High quality human resources are needed to accomodate

foreign financial institutions and for the further growth and

development of Korean financial institutions.

○ As the financial industry is a knowledge-based industry,

practitioners’ knowledge and skills have to be quite specialized

to fulfill the intrinsic function of resolving information asym-

metries in the financial markets.

■ Banks offer a range of services for financial consumers, and thus

need a diversity of expertise.

○ To preserve banks’ core function of serving as a sound inter-

mediary for the real sector, they must possess financial pro-

fessionals with better screening capabilities.

* Credit analysts’ expertise serves as a second opinion for corporations’

or households’ investment decisions.

○ Further, banks that cross-sell various financial products such

as funds and bancassurance to cater to the diverse demands

of customers must in turn have a diversity of financial pro-

fessionals.


05


* For PB services, some sales branches have staff who do not even have

as much expertise as certain customers with financial knowledge.

○ Owing to the Capital Market Act, the competitive environment

is intensifying across financial subsectors, so banks must

bolster their core competitiveness by securing talent.

■ One common way of securing professionals has been job field

HRM (human resources management). This paper shall evaluate

this approach and explore future tasks surrounding it.

○ Since outside access of HRM-related data is limited, we

explore the status and implications based on the perspective

of existing companies and on the results of interviews with HR

professionals from major Korean banks.

06


Ⅱ. Job Field HRM Systems of Korean Banks

<Reference>

■ The term financial professional has no scholarly definition,

but may be defined as persons who possess a high level

of theoretical knowledge as well as a certain amount of

experience in a given field that has strategic value for a

financial company’s strategy and has high specificity.

○ A financial professional is also defined as someone who

has the relevant degrees or certifications and who has

5-6 years of experience in a particular field, as well as the

relevant foreign language proficiency.

○ Financial professionals work in areas such as IB and risk

management.

<Figure 1> Concept & Characteristics of Financial Professionals

Source: Ministry of Finance & Economy, ‘Blueprint for Fostering Financial Professionals’, June

2006.

<Financial Professional Attributes>

◎ Strategic Value

- Expertise taking time to acquire.

- High value added for clients.

- Key to securing competitiveness.

◎ Uniqueness of Work

- Organizational need for expert

knowledge.

- Correlation between expertise and

organization performance.

Uniquenessof Work

Management/InternalControl

IB, Strategy, Risk Mgmt.,

Product Devlpmt. etc.

Teller, General Affairs, etc.

IR, IT, PR

Value of HR


07

1. Concept of & Need for Job Field HRM Systems

■ Attracting and retaining talent requires hiring and managing

personnel by job field and offering an incentive structure by

presenting a career path and having differentiated compensation

scales.

○ Through differentiated hiring and HRM practices, banks can

shift from a pooling equilibrium that treats professional and

general employees alike to a separating equilibrium.

○ Incentive structures such as differentiated compensation are at

the heart of HRM for highly skilled professionals.

<Table 1> Degree of Concentration by Financial Services Firms on Attracting & Retaining Top Talent

Talent Management Practice

Develop Strategy

Attract & Retain

Motivate & Develop

Deploy & Manage

Connect & Enable

Transform & Sustain

Banking ∨∨∨ ∨

Financial Markets

∨∨∨ ∨ ∨

Note: Number of practices statistically significant higher in use.

Source: IBM Institute for Business Value/Human Capital Institute, 2008, “Integrated talent management

(Part 3 - Turning talent management into a competitive advantage: An industry view)”.




08

■ Job field is the biggest unit, describing several types of job

families that are divided according to tasks.

<Table 2> Comparative Table of Job Fields & Job Families

Definition

Job Field• A job field is a group of jobs that involve work in the same

general occupation

Job Family • A job family is a more specific functional area within a field.

Job Level• The job level reflects the amount of responsibility, impact, and

scope that a job has

Source: National Civil Service Act; Career Compass (University of California, Berkeley).

■ For banks, for example, the job field of corporate banking would

include the job families of corporate product development and

corporate sales and marketing.

○ Kookmin Bank and Woori Bank use the term job field, while

Shinhan Bank uses career field, and Hana Bank uses job type.


09

<Table 3> Job Fields/Families of the Big 4 Korean Banks

Kookmin Bank Shinhan Bank Woori Bank Hana Bank

JobField

97 Job Fields19 Career Fields

(CFs)7 Job Fields 3 Job Types

JobFamily

52 Job Families 60 Sub-CFs 35 Job Families 51 Job Families

Exam-ples

Wholesale Banking - Corporate finance

review and credit analysis

- Corporate sales and marketing

- Corporate business planning

- Securities brokerage business and mark-eting

- e-business

Corporate Services - Corporate banking- Foreign exchange- Corporate sales- Corporate market-

ing- Corporate product

planning

Corporate Banking- Corporate sales- Corporate product

development- Corporate sales

support- Foreign exchange

services- Corporate restructu-

ring- International sales

support- Overseas branch

support

Corporate Banking - Corporate product

development- Corporate services- Foreign exchange- Corporate sales- Investment and

development- Derivatives products- Bank account

management- Trust account

management- Foreign currency

account manage-ment

- RM- International

financing- Floor Marketing- Clerk

■ Job field HRM is believed to be able to raise competitiveness and

productivity by promoting a better organizational structure and

operations through managing similar job areas together.

○ Hiring and mapping should take into account the tasks and

necessary knowledge and functions for performing a given

type of work.

10



○ Moreover, training, performance review, and compensation,

etc. may be conducted and managed by job field, so that

professionals are separated from job rotations better targeted

at general management.

○ This makes more in-depth job training possible through career

development programs (CDP).

■ Strict operation of job field HRM does not allow for movement

across job groups, while strict rotational placements feature

regular movement of personnel.

○ In reality, actual HRM systems are somewhere between these

two extremes.

2. Job Field HRM in Korea

■ Korean banks began to instill job field HRM since before the

1997 currency crisis, with the introduction of detailed programs

based in commercial banks.

○ In 1995, a framework began to take root, as a ‘New HR

System’ was introduced centered on Korea Exchange Bank

(KEB) that focused on jobs based on skills and aptitude and

merit/performance linked compensation schemes.

○ In 2002, Woori Bank organized similar work tasks into four

job fields (specialized sales group, general business group,

specialized management group, general management group),

as banks began to flesh out job field HRM systems.

11


<Table 4> HRM Trend in the Korean Banking Industry

ApproximateTime

Compensation & HRM Systems

2000Annual salary system, Job field system, Wage peak system, Job wage system

2004 Core talent management

2008Retirement planning, GWP (great work place), WLB (work-life balance)

■ Professionals are generally hired as specialized contract employees.

○ Woori Bank, Kookmin Bank, and Shinhan Bank, etc. frequently

hire professionals as specialized contract employees in fields

such as IB, risk management and financial engineering.

○ Conversely, SC First Bank operates an International Graduate

(IG) program at the global group level, featuring two years of

training onsite and by headquarters division and retaining the

employee in the given job field.

■ Surveyed banks are internally developing professionals through

training centers at the holding company level, operating a

standby HR system, and conducting training programs within the

bank.

○ Shinhan Bank conducts in-depth practical training targeted at

talented hires in their early 30s at the group level at its Hong

Kong training center.

12


Ⅲ. Problems with Current HRM Systems

○ Shinhan Bank also has a standby HR program in the areas of

PB, IB, credit officers, and RM, who are internally selected and

trained semi-annually.

○ Woori Bank also operates a PB academy and credit officer

training course.

■ Banks do offer performance pay systems by team and individual

employee, but since the latter may be hard to evaluate, it is not

conducted across all job fields.

○ The Industrial Bank of Korea (IBK) has a scaled pay system for

its asset management personnel.

○ Shinhan Bank operates team and individual performance pay

with financial engineering team heads, for example, being also

able to allocate the pay based on the contribution of individual

members.

○ Woori Bank conducts individual performance pay for its IB

personnel.

13


1. Lack of Job Field Career Development Systems

■ Banks find it difficult for job field HRM systems to be implemented

from the hiring stage on.

○ Even among banks who initiated hiring by job field, some have

reverted to group hiring and training to retain employees.

○ This is because both the new hire lacks understanding of

the job field, and because the bank does not have a perfect

awareness of the hire’s skill set at the hiring stage.

■ Rotational placement is recognized as to some extent part of

the nature of the banking industry and unavoidable in terms of

cultivating high quality managers.

○ For general job fields, general managers are still fostered through

rotational placements.

○ Banks recognize rotations as inevitable and attribute this to

their great range of sales branch channels and even regard a

systematized rotations for headquarter employees as necessary

as well to support skill development.

○ Given that much expertise is gained on site, rotations have

pros and cons, and initial rotation programs delay the chances

for building experience in the assigned job field.


14



■ Banks do an inadequate job of forecasting core hiring needs

based on their long-term vision and strategy and putting

together systematic internal development plans.

○ Top managers need to be able to present their long-term

hiring visions, but so far, hiring and overall visions are poorly

connected.

○ Even when systems for forecasting hiring needs are in place,

they are either not detailed or not elaborate enough.

■ In terms of training infrastructure, graduate schools and training

institutes do not provide programs that measure up to market

demands.

○ At present, the KAIST Graduate School of Finance, the KDI

School of Public Policy and Management, and top universities’

finance MBA programs do exist, but are limited by the MBA

characteristics of fostering general managers.

○ The Korea Banking Institute provides further education

programs for practitioners, and does not offer intensive training.

○ In these circumstances, there is inadequate supply of

specialized training programs able to elevate expertise through

job task training, so each bank has to do so itself.

○ Overseas education/training programs have elements of a

perk, and are lacking in effectiveness and post management.

■ Large banks operate their own training programs, but smaller

banks are lacking in resources to operate such programs with.

○ Though limited, large banks do carry out specialized training

programs.

15


2. Inefficiencies in the External Hires Market

■ The external hiring market needed by professionals to further

their careers is still stuck in the early stages, so the supply and

demand of talent is still handled inefficiently, and banks also

compete with credit rating agencies, consulting firms, and

the FSS.

○ Inefficiencies from information asymmetries in supply and

demand sides exist, and since the talent pool is still not

deep, banks also must compete with other finance-related

institutions.

○ If the external hiring market is properly developed, this would

allow for the release of unneeded professionals and would

allow the efficient reallocation of professionals within the

industry, but it is hard to exercise the release option.

■ Since HR and planning authority is centralized, it is hard for

business line heads to exercise discretion in hiring professionals

externally.

○ At present, the fit of hires recommended by business line

heads is judged by HR departments or agreed to jointly.

○ Since departments are constrained by the central manage-

ment’s budget controls, it’s impossible to directly hire and

provide sufficient and timely pay and other incentives to

talented personnel.

16



3. Inadequate Career Vision Offered for Professionals

■ Opportunities for promotion above branch head level are

concentrated among general managers, making it hard to offer a

compelling career vision for professionals.

○ The career goals of such professionals consist of the two options

of promotion to a higher position such as bank chairman or

branch head, or enjoying higher pay or moving jobs out for a

better salary, but this is difficult to put into practice.

○ Managers with a strong understanding of a particular field can

take on an important role in the risk management system which

is vital for financial institutions, but their value in this respect is

not yet properly recognized.

○ As such, the current structure of the internal market makes

it hard to present a compelling long-term career vision to

professionals.

4. Inadequate Differentiation of Performance Pay

■ For credit officers, who may be categorized into a job field, in a

detailed comparison, their compensation levels are at the higher

end globally, so professional pay scales are not differentiated as

much as the absolute levels.

○ In a comparison of credit officer pay in the IMD’s World Com-

petitiveness Yearbook, Korea was at a rather high 24th out of

57 countries as of 2009.

17


<Figure 2> Bank Credit Officer Remuneration

(Unit: USD)

Note: 1) 2009 basis.

2) Gross annual income including supplements such as bonuses.

Source: IMD, World Competitiveness Year Book, 2010.

■ The difficulties in utilizing team-based performance pay and the

technical difficulties in individual performance pay mean they are

being conducted in a limited way.

○ In a job field system roughly separating general from specialized

employees, team-based performance pay does function to a

certain extent as an incentive system for professionals.

○ When further classifying professional employees, however,

team performance pay is not sufficient by itself to serve as

motivation.

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18


Ⅳ. Possible Improvements

1. Reformulating Job Field HRM Systems

■ Securing talent will require that hiring, promotion, career deve-

lopment, and compensation be differentiated through further

refining of professional job fields.

○ For example, consistently utilizing internal development

through career development programs for retail finance CRM,

corporate finance RM, PB, etc.

○ Areas such as IB, strategy, and marketing that rely on external

hiring should also be developed internally in the long-term.

■ Establishing job field HRM systems will require checking whether

the following conditions are being met:

○ Hiring is done by job field, and mapping is done according to

job profile and skill set.

○ Career development is well supported, such as through in-

depth, targeted training and management training.

○ Incentive systems, such as offering an internal fast track,

differentiated pay scales, and opportunities for making career

choices, are in place.


19


<Figure 3> Job Field HRM

■ For horizontal job movement, when a position becomes open,

fair competition should be assured through both internal and

external recruiting.

○ When internal hires fulfill the conditions for moving to another

job field, this should be confined to those who pass a relevant

internal test.

■ Consider widening the door to professionals becoming executives,

or employing a new executive program for professionals to go

beyond branch head level.

○ Currently, since the external hiring market is not well established,

banks need to fulfill one of the career goals of professionals of

improving their position through promotion.

External market

mapping

Internaldevelopment

Promotion(fast track)

Compensation(incentive)

Job �eld HRMsystem

Job movement(career transition)

20



2. Organizing the Internal Development & External Hiring Systems

■ Currently, internal development is focused on credit officers or

relationship managers, but expanding this and getting infusions

of outside talent are both necessary.

○ Without a well-formed talent pool, solely pursuing outside

hires will bring about high costs from supply and demand

imbalances, so it will be crucial to internally develop personnel

able to embody the unique culture of each bank.

○ For credit officers for whom internal development is generally

applied, the door should be opened to engineers and analysts

with abundant industry experience to serve as loan officers or

on the loan committee.

○ For specialized employees such as financial engineers,

lawyers, and accountants whose professions have entry

barriers, external hiring will be more reasonable than internal

development.

■ However, until the talent pool gets to a certain level, banks

should also use internal development for securing professionals.

○ Where banks have to compete for a small talent pool,

compensation rises to abnormally high levels.

○ Internal development is a win-win for banks, but the incentive

for some banks to deviate always exists in this game structure,

so this role must be coordinated.

21


■ Common needs for deepening expertise of each bank’s pro-

fessionals should be absorbed into a joint program rather than

banks operate their own program for similar purposes.

○ The Korea Federation of Banks (KFB) and the Korea Banking

Institute should look at banks’ internal training programs and

perform the role and have the authority to adjust each sector’s

training institute programs for overlapping or inadequate

programs.

○ Each bank’s training programs should be turned into modules,

and excepting those modules that have particular value for an

individual bank’s unique characteristics or have know-how that

cannot be shared, they should be turned into a joint program.

■ Existing training institutes should consider offering programs

to respond to common training demand through enhancing

instructor expertise and expanding program offerings.

○ Each bank’s demand for internal training should be absorbed

by programs targeting common work areas for each pro-

fessional job field.

■ Conducting internal job field certifications and transforming

human resources into a learning organization so as to enhance

the effects of intra- and inter-job field education should be

considered.

○ Beyond mere course completion, internal certifications granted

upon passing screening and testing will form a self-led

learning environment.

22



○ Organizational learning to enhance the internal learning

environment should be considered, along with tutoring or

mentoring programs from seniors to juniors.

○ This environment should support learning by, for instance,

implementing a flexible work schedule program.

■ Consider putting in place a foundation for supervisory authorities

to be able to monitor individual financial companies’ professional

development systems.

○ Since HRM can take on the flavor of the management philosophy,

consistent policy implementation is a struggle, so model cases of

fostering professionals must be uncovered and disseminated.

○ If strong measures are to be taken, incentives may be established

for financial companies with excellent talent management,

or this may be included in the evaluation of the management

performance.

3. Differentiating Compensation in the Professional Job Fields

■ Compensation schemes must be carried out in line with the

intent of job field HRM by differentiating base pay, performance

pay etc. according to the job value and performance of the given

work.

23


○ Gradating pay by evaluating capabilities and performance, the

current performance pay that is mostly team-based should

be converted to one that adequately incorporates individual

performance pay.

○ Along with monetary rewards, reputational and non-monetary

rewards that professionals easily feel lacking must also be

considered.

24


Ⅴ. Conclusions

■ Putting together the above discussion, improving job field HRM

systems to foster professionals will require banks to consider the

following issues.

○ Banks’ hiring and development plans should correspond to

their long-term visions.

○ The classification of job tasks, families, and fields should

be systematized through more detailed job profiles and

descriptions.

○ After classifying job fields into ones for hiring based on job

fields and the others for mapping after hiring according to

detailed job fields or families, professional fields have to be

managed from the hiring stage and promotion, compensation,

etc. must be differentiated.

○ Organizing performance/value added based compensation

schemes into incentive systems for attracting and retaining

talent.

○ In terms of offering career development paths for profession-

als, banks should introduce a new executive program for

professionals or programs to raise social position.

○ Compensation and promotion may be differentiated by strictly

categorizing specialized job fields and families so long as limited

horizontal movement is allowed while taking into account the

efficient allocation of professional talent.

* For example, for OTC derivatives, middle and back office functions

may have team-based performance pay, while trading or product

development have individual performance pay scales.

Ⅴ. Conclusions

25

Ⅴ. Conclusions

* Willing movement between specialized job fields or from

non-specialized to professional fields bring the advantage of

minimizing HR losses that may arise from mismatches between

jobs and capabilities.

○ To deepen expertise and convey it within the organization,

internal education programs should be formulated and a

learning environment should be fostered.

■ Supervisory authorities may push for the improvement of HRM

systems through providing model criteria as needed, so long as

the following is heeded.

○ HRM embodies the vision and management philosophy of top

managers, so individual banks’ independence must be assured.

○ In addition, policy makers will need primarily to support through

putting in place the infrastructure to foster professionals.

■ Even while the role of HR departments becomes prominent as

HRM systems are set up, in the long-term, it makes sense to

strengthen business line heads’ authority over specialized job

field personnel.

○ Banks should consider having the HR department set the HR

strategy and perform administrative functions, while granting

business line heads with the authority and responsibility for

recruiting needed professionals.

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Korean Banks’ Job Field HRM Systems for Developing ... · Woori Bank, Kookmin Bank, and Shinhan...

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