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The modern economy places an enormous premium on brain power. The proportion of American workers doing jobs that require complex skills is growing faster than employment in general. What does this mean to the banking industry? A recurring theme I've heard from members of banking organizations recently is that it is difficult to attract and retain individuals with the right skills and depth of experience. The pool of qualified loan officers, in particular, appears to be shrinking, and banks are finding it difficult to attract and retain qualified staff who have experienced a full business cycle. The most desirable staff are often those who learned their trade through the now-defunct training programs that many large banking organizations routinely provided in the past. Those training programs, while they produced highly skilled staff, cannot be supported in a hypercompetitive banking environment where worker loyalty is a rare commodity. Highly qualified loan officers will continue to become harder to find and retain as they approach retirement age; their scarcity makes them even more desirable.
The banking industry is not alone in the challenges it faces. In the U.S., the first members of the baby boom generation will turn 62 beginning in 2008. As this generation hits retirement age, companies will feel the impact as they lose large numbers of highly skilled and experienced workers relatively quickly. This is critical to the banking industry, which is dealing with a rapidly evolving business model that encompasses global markets and increasing complexity. Banking executives recognize that their employees are a vital ingredient for remaining competitive and driving the innovation they need to succeed in this environment. In the last three issues of the Grant Thornton Annual Survey of Bank Executives, 95 percent of respondents identified "retaining key employees" as important to their organizations' continued success. And in the 2006 survey, over one-third of the respondents indicated that it was difficult for them to attract and retain key employees.
Many banking organizations are asking themselves how to fill critical positions from a declining talent base and what skills they need to compete successfully in a global marketplace. For many banking organizations, the concept of talent management has emerged as a way to respond to these questions in a rapidly changing environment. There are many definitions for talent management, but essentially it involves creating the conditions that allow companies to identify and develop individuals with the ability and potential to create shareholder value in line with an organization's current and future business goals. According to DDI, a consulting company that develops talent management strategies, it also encompasses closing "...the gap between the human capital an organization currently has and the leadership talent it will eventually need to respond to tomorrow's business challenges."1
Talent management encourages an organization to engage in workforce planning, which involves thinking carefully about the skills it needs in the near-term and for future growth, and it provides a framework for doing so. Organizations concerned about growth, for instance, might develop an inventory of their current skills to compare against future needs and begin to fill gaps by encouraging workers to acquire the relevant skills. A talent management program might also promote more imaginative ways to reward and retain talent. Competitive compensation is an essential component of any organization's employment strategy, but there are other important incentives that organizations may overlook. A study performed by The Conference Board, a business research organization, revealed that employees are more interested in challenging and interesting work that provides growth opportunities than in money (money ranked eighth in importance in the study).2 And research on the youngest generation now entering the work force, generation "Y," indicates that they want to be engaged in meaningful work, and they expect their leaders to be mentors who will help them grow and develop.3
Also appearing high on workers' wish lists is the desire to interact with others in positive ways. Deloitte, a consulting company, reports that negative workplace relationships are often a deciding factor in determining whether workers stay or leave a company. A toxic work atmosphere hinders productivity, increases turnover, and dampens morale. Organizations that practice talent management understand that to attract and retain the most talented people, they not only need to offer them work that will give them the skills needed to boost their long-term employability, but also must create the congenial workplace conditions in which they can thrive.
As the banking industry prepares for a potential downturn in the credit cycle and struggles with a challenging interest rate environment and the demands of regulatory compliance, banking organizations must tap all of their resources for the ideas and innovations that will lead to the new services and products needed to support their bottom line. The source of those ideas-the best and brightest talent-may provide the competitive edge that will ensure an organization's continued success.
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.