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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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
■ 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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
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.
Ⅰ. Discussion & Background
05
Ⅰ. Discussion & Background
* 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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
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
Ⅱ. Job Field HRM Systems of Korean Banks
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)”.
Ⅱ. Job Field HRM Systems of Korean Banks
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅱ. Job Field HRM Systems of Korean Banks
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.
Ⅱ. Job Field HRM Systems of Korean Banks
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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅱ. Job Field HRM Systems of Korean Banks
○ 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
Ⅱ. Job Field HRM Systems of Korean Banks
<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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
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
Ⅲ. Problems with Current HRM Systems
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.
Ⅲ. Problems with Current HRM Systems
14
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅲ. Problems with Current HRM Systems
■ 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
Ⅲ. Problems with Current HRM Systems
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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅲ. Problems with Current HRM Systems
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
Ⅲ. Problems with Current HRM Systems
<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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
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.
Ⅳ. Possible Improvements
19
Ⅳ. Possible Improvements
<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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅳ. Possible Improvements
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
Ⅳ. Possible Improvements
■ 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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
Ⅳ. Possible Improvements
○ 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
Ⅳ. Possible Improvements
○ 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
Korean Banks’ Job Field HRM Systems for Developing Financial Professionals
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.
4-1 Myung-Dong 1-Ga, Seoul, 100-021, KoreaTEL: +82-2-3705-6300 FAX: +82-3705-6303www.kif.re.kr