Employment Policies and Practices In Uk Clearing Banks: an Overview1

EMPLOYMENT POLICIES AND PRACTICES IN UK CLEARING BANKS AN OVERVIEW‘

John Storey, Loughborough University

INTRODUCTION

Subsequent to the publication of the seminal book The Transformation of American Industrial Relations (Kochan, Katz and McKersie, 1986), a team from MIT led by Tom Kochan initiated an international study of possible ’transformations’ in other countries. The first phase of this involved a number of broad-brush comparisons between various countries. A common framework was adopted to aid the comparisons. This framework comprised five key dimensions: work organisation, staffing, skill formation, compensation systems and enterprise governance.

At a plenary meeting held at the OECD in Paris in 1992 it was agreed that the international comparisons should be extended from country to ‘sector’ level. One of the sectors identified as meriting such further study was that of banking. As a result of that decision, case studies are now being conducted in a range of countries by teams of researchers. As a preliminary step to the launch of the detailed case studies, papers were requested from sector coordinators in each country which would give an introductory overview of the key issues and dynamics affecting employment management in banking in each country. This article is an amended version of the position paper on the UK clearing banks prepared for a meeting in Berlin where all the papers were discussed.

A first glimpse of the UK banking sector Until very recently, the UK banking industry and its employment management practices had, in a number of ways, been out of step with much of the wider UK economy. For most of the post-war period the industry enjoyed steady growth and high profitability. It was an industry that was cartelised and regulated. Its industrial relations were orderly, peaceful and centralised. The banks offered lifetime employment, structured careers and paternalistic welfare-oriented personnel policies. Above all, the banking scene had been one of order, predictability, hierarchy and bureaucracy. Deference and ‘gentlemanly’ values were perpetuated during a period when these values had long before collapsed in other industries.

During the last few years, however, there have been ample signs of fundamental change. Competition has become fierce. New players have entered the financial services arena including, for example, Marks and Spencer and Viigin. New technology presages a future in which Microsoft and Digital themselves become both direct competitors and architects of a radical new reshaping of the ‘industrf. New targets and performance measum seem to have become critical - rate of retum on equity rather than market share has become the order of the day. Some commentators go so far as to detect a ‘crisis’ and a ’paradigmatic’ shift (Cressey and Scott, 1992; Gall, 1993). New tensions are seen as responsible for undermining the conventional practices.

In the 199Os, the banks are not preserving employment security, still less are they adding to the employment stocks as they did throughout the previous decades. On the contrary they have started to shed labour in a quite sigdicant manner. Branch closures and other forms of re-

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EMPLOYMENT POLICIES AND PRACTICES IN UK CLEARING BANKS AN OVERVIEW

structuring have had an adverse impact on career opportunities. Automatic pay increases have been replaced with contingent performance and profit-related pay. The paternalistic welfare cultures are being displaced and new competitive sales-oriented policies and values are being installed. Full time, secure careers are perceived as giving way to part-time, insecure contracts. In the wake of such changes (plus others to be described below) it is possible to chronicle an apparent upsurge in discontent and even, some observers would maintain, actual militancy among bank workers in the 1990s (Gall, 1993).

While there are, undoubtedly, many significant developments to be observed, a cautious analyst might argue that at this stage it would perhaps be over-hasty to assume that a systematic shift is under way in UK banking and its employment practices. A historical perspective indicates that the conventional wisdom which characterises banking practice as stable might itself be problematical. There have been discontinuities in the past also. Nonetheless, expert opinion within the industry suggests that the magnitude and the mutually-reinforcing nature of current developments are such as to render the present period one of a singular and exceptional kind. The market characteristics, the products and the delivery mechanisms for these products are in a state of exceptional flux.

The aim of this overview is to describe and analyse current developments in employment policies and practices in the UK banking industry. It will situate these developments historically and in terms of the changing context of competition in the industry, technological change and business strategy. The boundaries of this sector are becoming less secure and even less definable. It is becoming increasingly unclear which institutions are responsible for 'banking'. The market is changing, the organisational infrastructure is changing, so too are the services and in consequence the operating systems. Each of these carries massive consequences for the management of human resources and industrial relations.

Above and beyond the particular features of the banking industry, a study of this sector is interesting and illuminating because the changing employment practices here reflect and, indeed, place in sharp focus many of the issues unfolding in the economy more generally. The retreat from a highly stable internal labour market model with well-defined personnel procedures to a relatively unstable but allegedly more 'flexible' labour force is to be seen with unusual clarity in this sector. Running alongside this, the overt attempts to bring about a change in organisational culture adds an extra dimension of interest. Experimentation with the various potential uses of new technology (to p"s ahead with increasingly centralised processing centres or to exploit the opportunity for distributed activity?) is also very much in evidence in this sector. Enmeshed in each of the above themes are related issues concerning gender-based distribution of jobs and opportunities as well as the ongoing question of skills. Are we witnessing the end of the competent 'all-rounder'? Is the trend inexorably towards a segmented labour force, with a few highly specialised individuals separated from a larger mass of relatively unskilled labour hired for routine activity and with little prospect of career advancement? If so, how does this fit with the apparent emphasis on service quality and team-based programmes? Such questions are not confined to the banking sector but they can be seen in sharp relief here.

RESEARCH METHODS AND AN ANALYTICAL FRAMEWORK As noted in the introduction, the purpose of this article was to mark-out those primary characteristic trends, developments and issues in the industry which carry significance for

HUMAN RESOURCE MANAGEMENT JOURNAL VOL 5 NO 4 25

JOHN STOREY, LOUGHBOROUGH UNIVERSITY

employment management policy and practice. This work is preliminary to a series of in-depth case studies which will constitute the next stage of the project.2 For the purposes of this initial overview, the main sources of information were a literature review and the internal resources of the Loughborough University Banking Centre.

Three sets of literature contributed to this study. The first relates to the now extensive body of work on the contours and significance of unfolding employment strategies and practices (see, for example, Storey, 1992; Kochan and Osterman, 1994; Sisson [ed] 1994). The second literature set which was mined was that dealing with the economic and technical aspects of the banking industry. The third set was comprised of studies specifically addressing industrial relations and personnel issues in UK banking. Unsurprisingly, this last set was by far the smallest of the three. In terms of s@c references, however, it is from this final body of literature that most citations will be given in this review. The former two sets are treated very much as 'background'.

In addition to the review of literature and of secondary data-sets, this preliminary study was also informed by a series of interviews with key players in UK banking. These included strategy managers, marketing managers and human resource managers in three major banks. These were all corporate staff; no branch-level interviews were conducted for this first phase, though these will clearly take place for the case-study phase. Branch level issues were, however, familiar to the author as a result of previous extensive work with colleagues from Warwick and Stirling (see Storey, Okazaki-Ward, Gow, Edwards and Sisson, 1991). Interviews were also conducted with national-level trade union representatives. All interviews were very much directed towards identifying and clarifying critical trends - detailed examination of the problems surrounding implementation will be the prime objective of the subsequent case-study phase of this study programme.

An analytical framework was constructed as an outcome of the literature review. This framework contains five key dimensions:

changing product market characteristics; trends in new products and services; new forms of 'delivery' for these products and services; trade unions and industrial relations; and developments in human resource management.

These five dimensions capture most of the apparent shifts between the traditional banking scene and the new, emergent pattern. Table 1 overleaf summarises the framework. It should be emphasised that the characterisations shown under columns two and three represent hypothesised positions and not definitive statements. They are summary propositions which are put forward here for subsequent exploration -initially within the body of the article which follows and then, more substantially, in the more detailed case studies which the UK team will shortly be conducting.

This overview article is structured into four main sections. These follow the agenda indicated in table 1. The first section reviews the institutional composition of the sector and identifies the key players in the marketplace. The second section attends to changes in products, services and delivery systems - in essence the business strategies of the key players. The third and fourth sections will deal with developments in industrial relations and human resource management.


EMPLOYMENT POLICIES AND PRACTICES IN UK CLEARING BANKS: AN OVERVIEW

TABLE 1 An overview of change in the UK banking industry

Dimension Market characteristics

Products and services

Delivery systems

Industrial relations

Human resource management

Traditional banking Oligopoly Stable growth Unsophisticated market

Collection of deposits Cheque and cash handling Loans Full suite of basic services at all main branches

Extensive branch network

Non-unionised until late 1960s, then significant growth

Main role played by staff associations

Culture change from conservative, risk averse to.. .

Secure, life time employment for rounded 'career' bankers

Stable, incremental pay system Emphasis on lending skills and administration

Two-tier recruitment for clerical workers and trainee managers

Job evaluation and multiplicity of job grades

Restricted communication

New banking Highly competitive Turbulent Sophisticated market

Proliferation of products but selectively targeted at segmented markets

Reorganisation and reduction of

Utilisation of IT

Containment of trade unions Maintenance of staff associations Uncertainty about grass roots

branches

discontent

Dynamic, creative risk-takers Less secure, segmented labour

Introduction of PRP Market and sales orientation

markets

Increasingly specialised and

Fewer job grades fragmented

Increased flow of communication

MARKET CHARACTERISTICS AND KEY PLAYERS

The UK 'banking sector', when viewed in the round, embraces a range of different institutions which perform varied (competing and non-competing) functions. When viewed in traditional terms the main institutions include the clearing banks, merchant banks, building societies, foreign banks, finance houses and government savings institutions. In recent years the boundaries and demarcations have, however, been massively eroded. There are approximately 400 foreign-owned banks operating in the City of London. They have tended to Concentrate on commercial lending, trade finance and money-market participation. Some of the US and European-owned banks are also active in the capital markets. In this review we will concentrate on the core banking institutions - ie the commercial banks which undertake a mix of personal retailing services and commercial lending. They also control the national cheque clearing system. When so defined, the British banking industry employed a total of 500,000 people in 1990.



~~~~~ ~~

There is considerable concentration in the sedor. The five largest clearing banks (Barclays, Lloyds, Midlands, National Westminster and the TSB Group) account for well over half of the total UK banking employment. Total employment in each of the major players is shown in table 2.

TABLE 2 Total employment* in main UK banks (figures for 2993)

Barclays 101,400 National Westminster 92,600 Lloyds** 52,600 Midland*** 45,227 TSB Group 33,568 Royal Bank of Scotland 24,130 Abbey National 16,870 Bank of Scotland 15,349 TOTAL 381,744

* Full-time equivalent ** Excludes Lloyds Abbey Life *** Excludes 11,965 from discontinued and diverted operations such as merchant banking and sale of Thomas Cook Group Source: British Bankers Association, 1994.

The 'big four' banks in particular (Bmlays, National Westminster, Midland and Lloyds) have extensive branch networks throughout the UK. Branch numbers for the clearing banks m shown in table 3.

TABLE 3 Number of branch locations for the clearing banks in fhe UK Year 1960 1968 1976 1981 1986 1991 Number 10,886 12,315 11,659 10,993 10,436 8,912 Source: British Bankers Association.

This network is an important element in the banks' business strategies and their strengths/weaknesses calculations. Their presence in the high street offers many competitive advantages, but at the same time the branch structure is an expensive overhead. New forms of competition -most notably, for example, home-based telephone banking as offered by new entrants such as First Direct (a subsidiary of Midland Bank) - render the branches a liability according to some observers. In the 196Os, the banks grew by expanding their branch networks and bringing new customers into the banks. But all the main banks have now reversed this policy and have commenced branch closure programmes. Uncertainty about the role of the branch carries critical implications for employment policies and this issue is picked up again below.

First Direct, the 24-hour telephone-based service has attracted 400,000 customers in just three years. This has not been a pure net gain to Midland: some of its customers have simply switched their accounts. In comparison with the situation in France, home banking in Britain remains a very small part of the market. In 1993, TSB entered the fray but only on a pilot basis in two carefully selected locations. Nonetheless, many other UK banks and building societies have now launched telephone banking services.



The banks have also faced significant competition from other players. Building societies in the UK traditionally took consumer deposits solely for the purpose of house purchase. Until recently their ability to become banks in the full sense has been prevented by legal and regulative controls. Deregulation has relaxed these barriers. One of the major former building societies, Abbey National, has now become a fully-fledged retail banker (it converted in 1988) and others are expected to follow. So far, Abbey National has been the only building society to convert into a bank. But many of the other societies are now known to be reassessing their corporate strategies. The Cheltenham and Gloucester is to be taken over by Lloyds and the Leeds and the Halifax are to merge and subsequently convert to PLC status.

One of the major objectives of such a move is to escape the limitations on raising money from wholesale deposits. At the moment, the Building Societies Commission tightly regulates the societies and limits their wholesale bornwings to 30 per cent of their total funds. Even without full-blown conversion, the Building Societies are now major competitors to the banks. Many of them now operate what are, in effect, interest-bearing current accounts. The larger building societies, when measured by total deposits, rank among the worlds 100 largest banks (Arthur Anderson, 1986: 200).

The extent of this challenge to the banks is revealed by their experience in competing for interest bearing deposits. In 1960, the clearing banks accounted for 27 per cent and the building societies 34 per cent of these deposits. By 1986, the banks' share had fallen to 17 per cent while the share of the building societies had increased to 53 per cent (Howcroft and Lavis 1987 37). The banks thus began to concentrate on the wholesale money markets and to neglect the retail side of the businesses. But, as we have seen, the building societies may also compete in the wholesale money markets if they convert. There are now signs that the banks have again begun to refocus on the retail market.

The societies are thus seen as a major threat. Their marketing expertise has been shown to be impressive and their cost/income ratios have been, and are, superior to those of the banks. Competition of this kind has put pressure on the profit margins of banks. The banks are being forced to respond by cost reduction strategies while also trying to counter-attack by offering more effective customer service.

Critically, when building societies do convert to PLC status their corporate aims and objectives can be expected to alter significantly. The focus becomes 'shareholder value' rather than the previous 'mutual' objectives. Abbey National, for example, moved significantly into banking and gained full authorisation as a clearer; it diversified into pensions, life assurance and unsecured lending; it re-structured into a series of businesses. Each of the aspects of conversion carries significant implications for employment policies and practices.

During the 1980s there was a deterioration in the financial performance of banks in the UK and certain other countries. Llewellyn (1992) attributes this to deregulation, economic downturn and a fall in property prices. He suggests that, having made mistakes in the years of 'Big Bang' (the deregulation in the finance industry in 1987) and expansion, the banks subsequently overreacted in the opposite direction and became over-cautious and risk-averse.

BUSINESS STRATEGIES AND CHANGES IN PRODUCTS AND DELIVERY SYSTEMS In this second section a review is made of the major re-organisations on which most of the large banks have embarked. In particular, it is necessary to note the changes making an impact on the



extensive branch networks - these include branch closures, brand 'clustering' and the extraction from the branches of many of their former back-office processing functions. A related set of strategic initiatives hinge around the increasing use of information technology. Because of the actual and potential impact of IT in banking, it is advisable to start our analysis with this topic.

Information technology As in other industries, electronic information technology has offered opportunities to change both products and processes. Automatic telling machines (ATMs) and electronic fund transfer at the point of sales (EFTPOS) as well as home banking via the telephone network reduce the need for an extensive branch infrastructure. Transformations in the 'back-office' processing of cheque and other transactions has also led to a concentration of processing operations in factory-like centres. Morris and Westbrook (1994) claim that Midland Bank has secured a competitive advantage through a €50 million investment in eight large district service centres.

Changes in technology have carried significant implications for human mource management and industrial relations in the banks. Arguably, to date, the full impact of these technological capacities has been very cautiously managed. Even so, it can be seen that new technology interacts with HR/IR in the following ways:

the total numbers employed; the composition of that workforce (part-time/full-time; male/female);

0 career progression; skills, recruitment and training needs; and qualitative aspects of work.

New computer-based operating systems allowed the banks to handle more business. More people were encouraged to open bank accounts. In Britain, the system for clearing payments between banks handled 8.7 million transactions a day in 1981; 10 years later in 1991 the comparative figure was 16.3 million transactions per day (The Economist, 3 October 1992).

But technology has been a double-edged sword. It has helped new entrants to cut a swathe into the banks' retail markets. Consumer lending and money-market mutual funds have been activities won over by non-bank businesses - though not to the same extent in Europe as in America. Retailers in Britain offer their own charge cards. Some, such as Marks and Spencer, finance their own consumer loans. The General Motors credit card has already been launched in the UK. In sum, IT might be regarded as being as much of a threat as an opportunity to the banks.

A possible future is one where the technology providers such as Microsoft and DEC secure control. Digital Equipment Corporation has envisaged the possibility of a DEC Bank with 'smart cards' offering the key to a whole panoply of financial services using remote points of access. Then there is the concept of the 'virtual bank' - an as yet to be realised phenomenon where a complex array of financial services is offered by a conglomeration of companies with roots in telecoms, shared networks, investment management, global custody securities processing and general information and entertainment. The virtual bank could use varied technology with little, if any, utilisation of branches. Such a scenario clearly presents a radical challenge to the traditional banks which currently dominate the market.

Even within the confines of the present branch structure new technology is having an increasing effect on staff numbers and responsibilities. ATMs are being given wider functionality,



customer-activated computer terminals are being introduced with the facility to take an enquiry through to the conclusion of a sale and Videolink can allow complex interviews to take place between customers and remote, specialist advisers.

Branch reorganisation Key developments have included branch closure, the identification of lead branches and the creation of slimmed-down 'satellite' branches. There has also been a shift of many back office functions from branch locations to large, regional processing centres. Branch re-organisations in the various banks have meant the regrading (usually downwards) of some branch managers' jobs. Branch re-organisation has resulted in fewer outlets and fewer managerial positions. Even in the branches which remain there may be fewer managers. The TSB reorganisation of its 1,800 branches has involved the 'grouping' of eight to 10 outlets into geographical clusters with one senior manager responsible for each cluster. There has been a loss of 2,000 managers (Cressey and Scott, 1992: 93). Geographical organisation has also been recast. The previously important role of the regional director has been drastically scaled-down.

All the banks in varying degrees are rationalising their branch networks. Between 1979-1991 the total number of clearing bank branches declined from 11,364 to 8,912. Meanwhile, the number of ATMs during this period increased from 1,105 in total for banks and building societies to 14,751 installations by the banks alone. As the Boston Consulting Group has noted, the branch closure programme could turn out to have negative consequences in marketing terms. Moreover, branch closure is no easy panacea. While costs are cut, so too is the revenue, because many customers are lost to other local competitors (Llewellyn, 1994).

Another dimension of branch reorganisation is the strategy of further separating-out corporate and personal customers. Since the mid-l980s, the banks have been abandoning the notion that the traditional high street branch can cope adequately with both sets of needs. In each region a few specialised corporate banking centres have been created in order to concentrate expertise. This carries implications, of course, for the traditional concept of the all-purpose, rounded banker. Reorganisation also affects received status patterns, job security and working relationships. Recruitment, training and career progression are all subject to alteration. It should not be assumed, however, that these will be malleable in an un- problematical way. It may be suggested that such factors will also act as a brake on the pace and extent of change.

The Midland began a reorganisation in 1986 which divided the branch network into clusters of eight to 15 branches. A main area branch was designated as the core and the remaining satellites were allocated varying functions - ranging from personal-banking branches, through non-accounting sub-branches, to fully-automa ted branches. There is much controversy concerning the changing role of the branches and hence of branch managers. Barclays' chief executive has stated that bank managers have a diminishing role. This CEO, however, had joined the bank from Courtaulds only a matter of months before making this observation. He said that computer credit scoring was more accurate and cheaper. But Sir Brian Pearse (a career banker), the departing chief executive of the Midland, has refuted this. He claims that customers demand an experienced professional adviser and, as a consequence, Midland, instead of withdrawing from 'the front line', has put over 200 senior managers back into the field. He also argued that such a local presence for senior expert staff was important for the skill formation of junior staff.3



Another development is the increasing adoption, by the banks, of a ’retail management model’ in redesigning their branch networks. Consultants experienced in supermarkets and other, similar retail outlets, have been engaged in order to redirect branch managers and their staff in new role behaviours. The banks are also undertaking branch refurbishment, designed to release more space for selling products such as insurance and unit trusts to customers across a desk rather than through a d t y screen. Open plan designs, a relatively novel feature in UK banking, require reducing back office operations so as to provide additional space and in order to free staff time so they can talk to customers.

The chief executive of TSB has made the bank‘s strategy clear - essentially it is to use branch banking as a virtual ‘loss leader’, existing in order to attract customers who can be sold other products such as insurance policies. At the Co-op Bank they have taken this a step further, the branches have been renamed ’sales outlets’ and their job is now seen as very different from the traditional banking role. A corporate manager who was interviewed claimed that the 100 plus outlets are now merely undertaking routine functions: ’Their managers could just as easily be shoe shop managers”. Similarly, banks are adopting a retail-oriented marketing mix which includes attention to merchandise content, store location, display and internal media and the behaviour of sales personnel (Wilson, 1992). Stephenson and Kiely (1991) claim that Midland Bank has already SuccessfulJy accomplished a shift towards installing a ’true sales culture’. In part, this is attributed to top-down target setting based on corporate objectives.

In truth, there remains considerable uncertainty as to how to use the branch network. Branches are a costly part of the infrastructure. The dilemma is whether to encourage customers to use the branches (on the premise that increased ‘footfall‘ measures should allow opportunities to sell) or to dissuade them on the grounds that high-volume, low value transactions ought more appropriately to be handled by ATMs. RelatedIy, the split between selling to customers and service to customers (handling transactions and answering enquiries) can lead to rapid erosion of skills among staff allocated to just one or other of these functions.

Marketing departments have grown in size and importance and influential new specialism have been introduced in the areas of risk management, balance sheet management and compliance. Personal loans, credit cards and mortgage lending all offer more profitable opportunities than corporate lending. Momver, recognising that new products and services can be speedily copied by other competitors, the banks are putting special effort into training staff to be able to sell those services. Also vital to this strategy is the motivation of employees to adapt their behaviours and priorities.

Managers at Abbey National reported that the aim was to expand activities into realms of business which offer more fee-generation than the traditional core of bank lending. This new bank has recently acquired an insurance company (Scottish Mutual) and also established Abbey National Life which began writing policies in 1993. Meanwhile, National Westminster Bank has recently become an active player in a range of new markets: insurance, stockbroking, mortgages and other areas.

NatWest has recently reversed an earlier policy decision to operate as an independent adviser on investment products. Apart from one building society (Bradford and Bingley) all the main banks and building societies sell only their own or a tied company’s products.

The banks are trying to decentralise and delayer. Though some personnel services will continue to be provided centrally, the basic model is to have a cluster of personnel specialists operating on an ’internal consultancy’ basis. There have been some moves to follow the



example of the public sector local authorities and to negotiate formal ’service level agreements’ - that is, forms of quasi-contractual arrangements between service providers and internal service consumers (and potentially even purchasers). Some of the personnel departments contacted were also moving to the elaboration of strategic milestones stretching over a five-year period in order to assist in the clarification of strategic direction and accountability (see also Riley and Sloman, 1991).

Job cuts During the 1980s the banks gained considerable experience of voluntary redundancies. In 1993, UK banks moved for the first time to compulsory redundancies (White, 1993). National Westminster launched a programme of selective compulsory redundancy, while Barclays also said it was close to exhausting its pool of volunteers. The Banking, Insurance and Finance Union (BIFU) has been critical of these moves. It reported a total loss of 100,000 finance jobs during the period 1990-3. BIFU maintains that compulsory redundancies are unnecessary. By 1994, the announcement of further job cuts by virtually all the main clearing banks had become commonplace. In January, National Westminster confirmed plans to cut 4,200 jobs during the year, which followed on 3,000 job cuts in 1993 in NatWest. This brings the total number of job losses in this bank alone to 23,000 since 1989 - nearly a quarter of the workfore - and the bank has announced that further cuts will follow. The majority of the losses are in the branch network with a closure programme of some 130 branches per annum.

TRADE UNIONS AND INDUSTRIAL RELATIONS

Employee representation in the UK banking industry is largely accounted for by one main union and by a number of staff associations. The union, which before recent diversification into insurance and other financial services was in effect an industrial union, is the BIFU. Prior to the name change, in 1979, the union was known as the Natioaal Union of Bank Employees (NUBE). Its origins prior to that lay in the Bank Officers Guild (BOG). Membership density in relative terms remains surprisingly high. When trade union and staff association memberships are counted together, the membership density stood at 49 per cent in 1991. This compares with an average UK union density of 37 per cent.

In the mid 1980s, 70 per cent of bank employees were members of either a trade union or a staff association. The highest membership level for BIFLJ is to be found at the TSB Bank where union density is nearly 100 per cent, followed by the Co-op Bank where it is about 90 per cent. In some of the large London clearing banks, however, BIFU is struggling to maintain 40 per cent. Even today, BIFU has poor relations with the staff associations whom they see as direct rivals. Barclays strongly encourages membership of its staff association and is generally thought to be one of the most anti-union banks.

While BIFU membership levels in the Co-op Bank have been maintained at a high level, union members are worried about the encroachment of personal contracts and the consequent removal of collective bargaining rights. A further indication of unions on the defensive is the ending of the ‘seconded representative’ (union convenor) posts. There are still lay office representatives in each branch and in each department of the large offices - a total of 100 such reps. The bank wanted a ‘senior representative’ tier - with one for each of the 10 regions. These would be entitled to spend 20 per cent of their time on trade union business. While devolving decisions to the regions,



management are known to want to see the senior representatives do the negotiating rather than full-time BIFU officials.

The various staff associations (sometimes known as ‘internals’) are, in effect, in-house unions. They tend to be opposed to industrial action in principle; they seek, instead, to pursue co- operative relations with their respective employers. The history of the associations and the banking trade union has been one of more or less continual rivalry. To a considerable extent the staff associations have been sponsored and even instigated by the banks as a way to fend-off independent trade unionism.

The staff associations have been extraordinarily successful in their tussle for membership with trade unions. Even during the period of extensive growth of white collar unionism in the 1970s they managed not only to defend their position but also to grow at a faster rate. The staff associations of the various banks are loosely federated into a body known as the Clearing Bank Union (CBU). As Moms (1986) demonstrated, the staff associations convincingly won the race for membership between 1970 to the mid-1980s. In the London clearing banks BIFU and the staff associations both entered the 1970s with between 60-70,000 members, but by the mid- 1980s BIFU had increased its membership by just over 10,000 whereas the associations together had climbed to nearly 100,000 members.

This pattern has broadly continued. BIFU’s membership in all banks increased between 1979-89 from 116,160 to 147,147 (a 27 per cent growth). Much of this reflects the mergers and amalgamations engaged in by BIFU in recent years. And, as the union itself has noted (BIFU, 1990), while membership has risen in real terms, the union is faring badly in relation to the continued growth in the staff associations. Danger signals are detected here, “the combination of a degree of dependency on sector-led growth and an apparent inability to match the recruiting figures of the staff associations in the banks might present problems in the future for BIFU. The staff associations, with their relatively high density and based as they are on one major employer, may be in a better position than BIFU to cope with a reduction in the finance sector which may affect small employers first” (BIFU, 1990: 60).

The former National Union of Bank Employees had a fiercely contested battle for recognition over a period of years. It campaigned for national level (industry) bargaining in contrast to the company-based settlements associated with the staff associations. When the banks finally set up an employers’ federation and engaged in national level pay bargaining in 1968, they were acting contrary to the then general trend in industry in Britain which was towards the break- up of national arrangements and the prioritisation of company and local bargaining.

National level pay bargaining divorced the union from domestic job-regulation. Also, the establishment of national machinery could be said to have worked in favour of the banks, in that it helped to reduce or even remove the erstwhile pressure on the staff associations which arose from the detached criticisms of the erstwhile non-recognised unions. The setting up of a joint staff side meant that the union was now part of the bargaining process. The previous rivalry (with NUBE on the outside) had pressured the staff associations to adopt a more union-like stance (Robinson, 1969).

National collective bargaining in the banking industry ceased in 1987 when the employers disbanded their federation (the Federation of London Clearing Bank Employers). This was because of competition for staff, disagreements over the London allowance and increased competition which led the banks to seek new and distinctive company-based strategic advantages. Bargaining with trade unions and staff associations has continued at company level.



But this is not necessarily viewed as fully secure. Even at the highly organised Co-op Bank, for example, recognition was withdrawn for a number of months during an industrial dispute; personal contracts were installed and the bank has instituted a 'staff council' which the union sees as an idea copied from Japanese implants in Britain. The staff council gives seats to non- unionists and for this reason is boycotted by BIFU.

All the basic issues such as pay are negotiated with each bank nationally. Local negotiations merely cover direct staffing matters. The employers are, in the main, thought to continue to favour centralised negotiation, as it matches their genera1 predilection for central control of personnel policies. Although NUBE was, at first, confined in its recognition and operations to the national level, some of the banks in the 1971-3 period began to promote lay representation at local level. This was in tune with the trend to the formalisation of local industrial relations in manufacturing at that time. In line with this also, the banks offered facilities for representatives such as use of office equipment, noticeboards and communication facilities. They also offered 'seconded representatives' arrangements to the union.

When the then Conservative government introduced a major piece of legislation (the Industrial Relations Act 1971) which sought to regulate trade unionism through a registration system that echoed the American legal framework, the trade union movement, acting through the TUC, sought to defeat the Act by a policy of non-cooperation. NUBE, however, was one of the unions which decided, for pragmatic reasons, to register under the Act and it was, as a consequence, expelled from the TUC. It rejoined in 1975 when the Act was repealed. NUBE embarked on a diversification strategy during the 1970s by expanding into building societies and insurance. It changed its name to the Bank Insurance and Finance Union in 1979.

How militant has NUBE (and subsequently B I N ) actually been? In the late 1960s it achieved recognition with the first ever national inter-bank strike. It then pressed on, in the early 1970s, to extend its recognition beyond the clerical grades into non-clerical grades and in order to gain full recognition rights. These were achieved without further industrial action (BIFU, 1992). The remainder of the 1970s were relatively strike-free with only a handful of company-specific forms of action. Most of these were strikes but they only involved small selected numbers of staff. The first half of the 1980s 'was also relatively quiet. There was a national half-day strike by 50,000 BIFU members and a number of small work stoppages.

In the latter half of the 1980s and the early 1990s there had been a catalogue of pressure, mainly in the form of strike ballots called by the union. Indeed, in practically every year since 1985 thew has been a ballot held for industrial action of one sort or another. Large-scale strikes have, however, remained rare. Action has been mainly channelled into working-to-rule and bans on overtime working. Computer staff were used as the vanguard of strike action but the banks have subsequently separated-out these workers into their own bargaining unit. Imposed pay settlements in 1987 led to overtime bans at Lloyds, Barclays and NatWest. The staff association members joined in some of these. Further action occurred in many of the banks in 1988. This time there were instances of one-day strikes in particular towns.

Barclays BIFU computer staff took industrial action in 1991 for a seven week period. This was in response to a pay offer and an attempt to move to performance related pay. The action included a work to rule, a ban on overtime, some walk-outs and some picketing. In 1992 BIFU members in TSB voted by a three-to-one majority for their first ever national strike. The issues included compulsory redundancies and increased workloads. TSB made some concessions which were recommended for acceptance by the national union. In 1991 a Lloyds



staff ballot and a series of one-day strikes were further indications of discontent among formerly quiescent staff.

While most of this activity could be viewed as smallscale, it is perhaps noteworthy that during the past decade significant numbers of bank workers have been voting regularly in favour of some form of industrial action. Ballots for strikes and other forms of industrial action have become a regular occurrence. In only one third of cases have calls for strikes been actually rejected in these ballots (Gall, 1993: 69). Where strikes were rejected, other forms of action were voted for such as overtime bans. In total, even taking into account tactical voting and the element of bluff, this catalogue suggests a workforce in UK banking which is some distance from the quiescent picture often painted of this sector. The point is strengthened when it is borne in mind that the unions and staff associations balloting thus also contain high proportions of management level staff. The results of the ballots, while rarely leading to strikes, have nonetheless typically led to increased pay offers and other concessions.

It would, of course, be wrong to exaggerate these points. The largest proportion of employees continue to belong to staff associations rather than trade unions. These staff association members have been far less willing than BIFU members to take industrial action. Similarly, branch staff have been far more reluctant than computer staff to take industrial action. The branch staff work in isolated work settings and in close association with managers.

The influence of government in the industrial relations affairs of the banks can be traced over many years. The industry has been regarded as significant enough to just* a direct political interest and, at times, intervention. Partly as a result of pressure from the then Minister of Labour in the Labour government, the banks met collectively with NUBE in December 1967. This move presaged the beginning of national machinery and national level collective bargaining in 1968.

The hand of government can also be found in regard to pay and pay policy. The Labour Government's incomes policies impinged on the banks between most of the 1965-70 period. The National Board for Prices and Incomes took a particular interest in pay settlements in the banks. The board was especially keen, in this and other industries, to see productivity as the prime basis for any increases in pay. This was initially viewed with some scepticism by the banks themselves, as it implied negotiations below the nationally-coordinated pay structure. But in 1969 the NBPI pointed the way to an industry-wide productivity deal which linked pay to tasks rather than to employee age. It can be seen, then, that the NBPI was in part responsible for prompting the banks to seek productivity-based reforms.

Another quasi-governmental body, the Commission on Industrial Relations (CIR), acted as an agent of reform in industrial relations and trade union representations. It was called in to investigate the position at Williams and Glyn's Bank in the early 1970s. On the recommendation of the CIR a merger was effected between the union (NUBE) and the staff association. The newly merged body was given lay-representative recognition rights at branch level and a participation structure was constructed for all main levels in the bank. Employees were encouraged by the bank to join the union. This model was out of tune with practices in the banking industry in general but very much in line with the orthodoxy of IR and personnel practice at that time.

HUMAN RESOURCE MANAGEMENT

The banks have been changing their personnel policies and approaches. The array of management-led initiatives found in many other sectors can be seen reflected here (Storey, 1992).



Flexible working, culture change programmes, performance related pay, new appraisal systems, new and increased forms of direct employee communications - these and other components of the new management, are very much in evidence in the banks today. Old style personnel policies and practices designed for a previous era of steady growth in a benign environment are coming under increasing challenge (Hendry and Pettigrew, 1987).

The banks are now emphasising fitness for competition. In the 1980s, the former prioritisation of wise lending as the premier activity was displaced by a stress on selling new products. This has carried implications for culture change, for the pattern of rewards, for performance evaluation and for careers. In some degree it implies a need for different staff with different orientations and behaviour patterns. The banks have, in some measure, consciously sought to depart from their traditional cultures. The bureaucratic, risk-averse and paternalistic model came to be seen in the late 1980s as ill-suited to the new environment. Chief executives urged a shift towards responsive, performance oriented, market-driven cultures. This, in turn, suggested the need for a shift in behaviour and attitudes. Loyalty, caution, conformity and accuracy in every detail were qualities highly prized under the old regime. Under the new, the ’human resource’ was expected to be performance-driven, competitive, sales-oriented and non-risk averse. In urging these changes the extant systems such as job evaluation came under heavy strain.

Following some spectacular loss-making ventures (such as Midland Banks acquisition of Crocker’s in the USA), the onset of recession and the losses incurred as a result of over- exposure to debt-laden third world countries, the heady brew came off the boil by the turn of the decade. Nonetheless, while some mid-course corrections have been made, the general direction of travel from a culture of administration to one of marketing has broadly been maintained. The previous deferential culture continues to be eroded.

There is some evidence (Burton, 1990) of banks adopting elements of the flexible firm model. This is so particularly in relation to the increase in part-time staff and, at sub-managerial levels, some experimentation with greater functional flexibility. Recruitment of school leavers into banking has dropped from an average intake of 35,000 a year just a decade ago to 5,500 last year. Many banks aspire towards a redefinition of their bank teller’s role. The idea is to see tellers cross-selling a variety of ’products’ to clients. One study (Burton, 1991) of how a clearing bank set about effecting this change of turning ’tellers into sellers’ found that, although a four part programme had been used involving training, attitudinal restructuring, re-allocation of time and a new incentive payment scheme, the concept was still at the stage of prescription rather than delivery. Nonetheless, the summary set of changes to job sets, job content and employment practices is very considerable. The trend to part-time work (notably, these are called ‘keyworkers’!) largely reflects the growth of centralised processing activities - including, for example, card business. Likewise, the huge growth in the importance of systems work has led to the recruitment of large numbers of systems staff whose utilisation, expectations and career paths are highly untypical of traditional ‘bank workers’.

There has been a general tendency for staff in functional areas such as marketing, finance and human resources to be appointed from specialists rather than, as previously, generalists. Similarly, more of the work traditionally undertaken within the banks is now being outsourced.

Pay system The long-standing system of rewards had been an incremental ladder with automatic annual increases assured between the ages of 16 and 31. In addition, all staff had come to expect a



general rise to meet increases in cost of living expenses. Since 1988, when National Westminster Bank led the way into performance related pay, all the main clearing banks have sought to break away from this traditional pattern. Hence, for example, Lloyds in 1992-93 paid no cost of living increase but its performance-based system added, on average, some 3.4 per cent to the pay bill. Profit sharing added a further 4.1 per cent.

The personnel director of National Westminster Bank has described how the bank shifted from a slow and steady system of pay increases to a new system of performance-related pay (Goodswen, 1988). The new system has three main elements - acceleration up the pay scales, profit-related pay and bonuses for meeting specific targets. Some of the shift in remuneration policy in the banks can in fact be traced to the early 1970s when there was some move from age- related to job-related pay.

Communication and consultation The banks have taken steps to engage in more direct communication with their employees. As job security and careers progression have been eroded, there has been a perceived need for increased cooperation and comfnitment to compensate. Hence, the banks have invested in video communications, more professional staff newspapers, attitude surveys and other ‘employee involvement’ measures. In a new departure, chief executives have begun to communicate directly in bulletin form to every individual member of staff when potential conflict arises. Thus, at the Co-op Bank the chief executive made a personal intervention in 1991 when a pay freeze had been announced and BIFU had called a ballot. The chief executive made visits to various parts of the bank warning that industrial action would mean a breach of contract. BIFU lost the subsequent ballot.

Some of the banks have also used direct, verbal team briefing systems which cascade messages from the very top to the bottom. During a strike ballot in October 1991 at the Co-op London cheque-clearing centre, the chief executive personally spoke directly to employees individually and in small groups.

Careers Traditionally, banking has been perceived as offering a life-time ’career’. The employment policy of the banks was to recruit school-leavers and then to retain them until retirement age. There was an arrangement between the banks which prevented inter-bank mobility of staff. Formerls the banks did not recruit graduates, they sought school leavers with qualifications who were seeking secure, long-term careers in a respectable, white collar occupation.

Career progression was integral to the system. Management grades were attained by 50 per cent of males who stayed with their bank. It was the number of women who started in the lower clerical grades and either left or failed to pursue promotion which allowed this career pattern for men to operate. Even today, the preponderance of females in the clerical grades and males in the managerial grades persists. Seventy per cent of those employed in clerical grades one to four are female but only 10 per cent of the managerial grades are occupied by women. In certain regards, therefore, the banks could be said to be operating dual labour markets.

During the 1960s and 1970s, a three-tier recruitment pattern emerged: basic clerical workers were recruited among the 16 year-old school leavers with Ordinary Level certificates in education; a slightly higher grade was recruited via the 18 year-old Advanced Level certificate school leaver market and, increasingly, the banks found it necessary to enter the university



graduate market with 21 year-old recruits. These last were offered the opportunity to enter fast- track development schemes which could lead to executive level (senior management) positions.

In the 1980s, some of the banks including National Westminster, introduced more sophisticated recruitment and selection schemes which allowed ’tiering’ of recruits. This device allowed an expected ultimate career level to be provisionally allocated to each entrant - thus a new member with an ’E’ tier was judged to have the potential to reach executive positions. These staff were given special training and developmental opportunities including planned postings at regular intervals. E-tier staff were viewed as part of the ‘corporate resource’ and were thus placed in the hands of a central career development unit based at the London head office. This central unit would have to be consulted about any re-posting. Typically, such a person could be expected to be allocated to a new position every 12 to 24 months in the early years of their career.

Recent trends point towards increased, rather than reduced, segmentation in recruitment and promotion patterns. Increasingly, entry occurs at a number of different levels. Activities in the managerial grades are becoming more specialised as tasks become increasingly complex. The traditional ‘rounded banker who graduated through a wide range of general banking functions in order to gain the necessary experience for a managerial position is now seen as an inappropriate model. Products and processes are more specialised and complex. The banks are directing graduates into specific areas such as corporate banking or international banking with no intention of subsequently offering wider, general banking experience. Specialisms are even observable within, say, corporate banking - industry sectors such as aerospace or shipping are seen to require specific professional skills, knowledge and extensive dedicated training. The Co-op Bank no longer even has a graduate trainee programme. Specialists and managers are hired-in in mid-career.

The banks became ostensibly committed to equal opportunity policies in the 1970s and the female pay structure was discarded. The expectation that women would resign on getting married was also removed. Despite these measures, women continue to predominate in the lower clerical grades and to be under-represented in supervisory and managerial ranks. The banks, along with other large employers, have launched various equal opportunities policies in response to this situation in recent years. Each of the main banks has appointed an equal opportunities manager and a string of policy initiatives have stemmed from this. For example, special courses are offered which are geared to the perceived needs of women and ethnic minorities.

Such measures have resulted, in part, from external pressure from bodies such as the Equal Opportunities Commission ( E X ) . In the mid-l980s, both Midland and Barclays were subject to investigations by the EOC. By 1990 Midland Bank had appointed an equal opportunities director - allegedly the first such appointment of its kind at such a senior level (Banking World, 5 May 1990). But also of importance in stimulating more far-reaching action was the tight labour market conditions experienced in the late 1980s and well-publicised warnings about scarcity of the sort of qualified young recruits which the banks had traditionally used. In the event, recessionary conditions took the edge off the dire warnings. But prior to the onset of recession, around 1990, the banks along with the building societies were announcing new initiatives such as child-care facilities and more favourable schemes to encourage women ’returners’ after maternity leave, virtually every day. One example is the career break scheme recently introduced at National Westminster Bank. Breaks are nominally allowed for a period ranging from six



months to as much as seven years. The scheme is designed to give employees the opportunity to care for children or dependent relatives or partners. Data suggests that actual take-up of such schemes has been, for whatever reason, very limited so far.

There has been considerable talk of responding to fluctuating customer needs by using increased numbers of part-time workers. Given that women form the larger part of this group of workers, there is likely to be an adverse impact on overall steps towards equal opportunities to attain senior managerial positions. Moreover, as women are disproportionately located in the lower clerical grades, they are considered to be more vulnerable to displacement by technological innovation. The increasing use of part-time labour also raises questions about commitment to upskilling.

Skill formation The traditional mode was recruitment of qualified school leavers followed by encouragement to study for the Institute of Bankers (IOB) professional qualification, underpinned, above all, by on-the-job training. The provision of systematic resources to the training and development of staff and their preparation for a lifelong career pre-dates the leading examples in other industries. Data collected from the interviews suggested that training departments within banks were being squeezed and some confirmation of this on a wider front is to be found in the trade press (Banker, January 1993). Internal training facilities are expensive. There is also uncertainty as to whether training should be highly focused or attend to wider strategic issues.

Recent changes include the recruitment of more university graduates, who are presented with opportunities to travel a fast-track to managerial appointment; a de-emphasis on the IOB professional examinations and a shift from general banking skills and experience to more specialised roles. New requirements include a greater emphasis on selling, marketing and business development. In addition, management is seen by some as characterised by a more dynamic and challenging role. In consequence, some observers foresee a demand for heightened skills in the future. A related development is the recruitment of some university graduates directly into specialist roles - by-passing the traditional skill-formation path of progress through branch management. Moves of this kind may present the banks with unfamiliar challenges in the realms of staff retention, career planning and long-term motivation.

Another trend is the increasing practice of bringing people of disparate backgrounds into banking employment in mid-career. Some senior teams now have career-bankers very much in the minority.

For non-managerial staff, one of the most sigruhcant recent developments in training has been the wide-scale introduction of computer-based training (CBT). This is seen to be necessary and cost effective given the need to train thousands of staff in hundreds of branches simultaneously on the introduction of new products and new systems applications. TSB, for example, has used CBT and interactive video extensively in order to standardise learning materials. The Chartered Institute of Banking has also produced computer-assisted learning (CALI courses for its Banking Certificate examinations. To take just one example, Midland Bank has mently invested relatively heavily in training for IT. At the management level, five modules cover different aspects of computer use. There is also a course for directors and executives which addresses the strategic use of IT. The IT training establishment at Midland expanded from 60 to 90 over a 12 month period.



In the UK it has been the banks in general which have arguably been at the forefront of the move towards ’competency-based’ management development. National Westminster and Abbey National have both been prominent. At Abbey, a thorough systematic review has been made of r e q u competences for most main jobs. At the same time, in order to allow ’matching’ of person to post, a wide-ranging competency profiling of managerial staff has also occurred. Both sets of data are held on computer files and are used for filling vacancies and for developmental purposes. In these and other ways, human resource and personnel management practices in the banking sector could potentially be regarded as at the forefront of sophisticated practice. There is thus a paradox here. While in some measure HR and personnel management in banking can be regarded as rather traditional in character when compared with certain other industries, in other regards, especially in relation to investment in personnel techniques and technologies, the banks might claim to be at the forefront of modem practice.

CONCLUSIONS This wide-ranging review has chronicled an extensive set of changes in the financial services sector in the UK. These evidently cover all areas: from the state of the product market, the boundaries of the industry, the internal configuration of that industry, industrial relations and human resource management. When our analytical framework (as shown in table 1 at the start of this article) is set against developments on the ground, it is evident that significant changes are traceable in all cells of that framework. But do the changes add up to the pattern described as the ‘new banking’ in the third column of that table? To put this question another way, has a new, more competitive, paradigm been forged to replace the old? Has a new model been created or is such a model on its way to being created?

Even from this first phase of the larger banking study it is possible to go some way to answering such questions. Significant, even massive, change - yes; new coherent model, probably not - at least not yet. The traditional model has undergone extensive dismantling, of that there can be little doubt. But a new model has yet to take its place. There remains uncertainty, for example, about the future role of the branches and, by extension, the appropriate desirable role for branch managers and staff. Are these to be merely sales ’outlets’ or are they to be ’re-empowered’ so as to offer a broad and customer-focused range of services?

The evidence to date shows massive uncertainty on this point. Nor is it only a matter of organisation structure that the existence of a coherent new model to replace the old seems questionable. The instability in the market place (with new players, significant merger and acquisition activity, forging of strategic alliances and products and services re-appearing in different guises - not least in the shape of telephone banking, for example) is carried through into employment policies. Thus, at one point in time branch staff are being prepared for narrow, measurable roles, while at another corrective steps are taken to leave open the option of a wider, more rounded role set. Commensurately, performance related pay is emphasised when the former mind-set is in the ascendant and de-emphasised when the latter policy holds sway.

In these and other related ways, the UK banking industry reflects similar dilemmas to those found in many other sectors. In consequence, it would be premature to declare the arrival of a new HRM model. The final column in table 1 must therefore remain an ideal-typical depiction in the Weberian sense rather than a description of a new set of practices.

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Nonetheless, despite this cautious conclusion, which in many regards reflects the similar sombre stance of Gennard and Kelly (1994) in a recent assessment of change published in this journal, there are other important questions which are beyond the scope of this article but which will deserve close attention in due course. Most notably, there are important issues relating to implementation: which of the initiatives have worked more successfully than others? In what circumstances have some banks managed to implant a new set of practices where other banks have failed?

Relatedly, there are questions to be asked about employee reactions to the kind of initiatives described in this article. What kind of commitment will they be prepared to give when long- term job security is removed? How will they respond to possibly narrower and more restricted skill-enhancement opportunities? What happens when career progression tracks are removed? Finally, there are interesting questions to be asked about the way local managers go about implementing centrally-driven policies which are evidently subject to qualification, amendment and adjustment. To what extent is it the case that managers and staff negotiate contingent transactions which ameliorate the impact of the succession of policies? These are the kinds of questions which the UK research team, along with their collaborating partners in other countries, will be addressing in the next phase of this international resource programme.4

NOTES

1. The author is grateful to Barry Howcroft, Director of the Banking Centre at Loughborough University and to Ian Morison and David Llewellyn for helpful advice. 2. The UK research team for the banking sector study includes Peter Cressey (Bath University), Tim Morris (London Business School), Adrian Wilkinson (UMIST) and John Storey (Loughborough). 3. The Guardian, March 23,1994. 4. The main countries covered by the MIT-sponsored study of transformations in the banking industry are France, Germany, Italy, the Netherlands, Australia, USA and Spain.

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Employment Policies and Practices In Uk Clearing Banks: an Overview1

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