Paul Smolinski, Chief Financial Officer at Thomsons Online Benefits, summarises the findings of its 2014 Employee Rewards Watch Financial Services sector

It has now been more than five years since the global banking crisis erupted, since governments, regulators and society unleashed the full weight of their discontent on the Financial Services sector.

The interim has provided time to protect, stabilise and investigate. Nevertheless, recent research, conducted by Thomsons Online Benefits, reveals a very different future for the Financial Services sector than the one we may have envisaged a few years ago.

In surveying 69 senior HR professionals, representing over 180,000 employees across all Financial Sector industries, we have identified shifting trends in approaches to talent management. These are likely driven by a desire to alter organisational culture, and fundamentally improve business and national security.

Whilst leverage has reduced and the banking system is arguably safer than before, no longer is it simply a case of surviving the regulatory onslaught, returning to globalisation and the unimpaired flow of cross-border capital. The crisis brought a stark realisation that countries simply cannot function without control over their financial markets. National containment and protection must be prioritised over top-line growth.

Despite the ONS reporting that the industry now contributes 10% less to UK GDP than it did at the start of the recovery, and the spectre of huge regulatory penalties, respondents to our survey appear optimistic for financial performance in the year ahead.

As these new policies take hold, many will have no choice but to divest interests, rationalise products and focus on better understanding local markets. No longer will size be the dominant force, as Charles Darwin famously observed, it will be those who can best manage change – who can best adapt their people strategy to the evolving business climate – who will survive.

Although the industry now employs 56,000 fewer individuals than in 2009, our results show that over half the respondents expect growth in headcount over the year ahead, an increase of 13% on 2013 results. In addition, the number of HR professionals anticipating headcount reductions in 2014 has halved from 2013 levels, from 22.3% to 13.1% of those surveyed.

Shifts in people strategy are also evident in attitudes to pay. Our research shows that role-by-role pay increases across organisations have doubled in popularity in 2014, with 47% of organisations anticipating these compared to 23.5% in 2013. Meanwhile, limited pay increases have halved in popularity in the last year, and standard pay increases have almost halved, with 18% expecting these in 2014 compared to 33% in the previous year. The over-riding message inherent in these changes is clear; organisations in the Financial Services sector are making decisive moves to rebalance their reward strategies.

These changes are being driven by a number of factors, not least of all a prevailing sense of   misalignment between public and commercial interests.  This has been compounded by the recent LIBOR and FX scandals, which have bought misconduct to the public’s attention and provided the political imperative to drive fundamental changes in culture and behaviour within the sector. Regulators are now pursuing core themes that are reshaping all industry sectors, not just banking, where the end customer is put first.

These major changes in culture are now driving Financial Services organisations to better understand and manage their talent. This requires re-evaluating the competencies and incentives needed for them to rebuild stakeholder trust and deliver the sustainable performance now expected of them.

Our research indicates that Financial Services organisations already offer their employees a higher proportion of flexible benefits than the average organisation, but this may well increase as they look to comprehensive benefits packages as a safer, more publicly palatable, way of rewarding employees. We may also see further take-up of benefits such as health screening and gym membership, already disproportionately popular in the sector, as employers increasingly realise their worth in absence prevention.

However, even the most diligently constructed strategy is doomed to failure without proper implementation. At present less than 6% of Financial Sector companies communicate their benefits regularly – an oversight that threatens to undermine organisations’ intended strategy and the return they see on their benefits investment in terms of employee engagement and retention.

With our 2014 Employee Reward Watch research indicating that the average UK worker under appreciates their benefits package by £1,400, communication can be seen as fundamental to any organisation getting the most out of their scheme. However, for Financial Services organisations looking to shift reward emphasis from monetary to non-monetary forms, the necessity to communicate strategy clearly is perhaps intensified further.

In addition, the sector falls below norm levels in the benefits communication it provides during recruitment and job offer stages. With these being critical points in attracting target applicants, it is essential UK Financial Services organisations improve their performance in this area to remain competitive, both with each other and internationally.

There seems to be little dispute that the heads of Financial Services organisations will be under continued pressure in 2014 to perform. This week alone we have seen news of the Bank of England’s tough regulatory proposals hit the headlines. What our research adds to this is that, as well as reacting to industry body regulation, Financial Services organisations are beginning to take a more proactive approach to mitigating misconduct. Throughout 2014, HR professionals in the sector will continue to play a crucial role in aligning talent management and business strategy for the long-term cultural betterment of the sector.

All statistics referenced collated by Thomsons Online Benefits unless stated otherwise.