banking & financial services: workforce transitions and severance policies in flux.

94% of financial services organizations plan to take a downsizing action in 2024. How can they mitigate the negative impacts?

Global economic uncertainty presents the banking and financial services industry with several challenges this year: high interest rates, greater regulation and the risk of ongoing and developing conflicts around the world. In addition to these macro conditions, the industry itself is grappling with issues such as generative AI in fintech, increasing frequency and complexity of cybersecurity threats, and open banking and the need to continue to deliver competitive customer experiences. 

All this means change within the industry — and we can see some of the impact of that in Randstad Enterprise’s Global Severance research. We surveyed 400 HR and procurement professionals across all sectors from organizations in Australia, Germany, the U.K, and the U.S., and found that workforce transition strategies in the banking and financial services sector are changing. Most (82%) of financial services organizations report they are making or are planning to make changes to their severance arrangements in 2024.

how the financial services industry has responded to downsizing

Our research finds that 98% of banking and financial services organizations report taking some kind of downsizing action in 2023, and 94% expecting to take further downsizing actions in 2024.

The most commonly anticipated actions for this sector in 2024 include: offering redeployment programs to employees (43%), hiring freezes (36%), and layoffs due to strategic shifts in the organization (31%) — an action that 88% of banking and financial services employers said led to negative perceptions about their company in 2023. Prior overhiring is identified as a root cause of layoffs last year for 69% of employers in this sector – a number that is even higher than reported in the IT and technology sector (63%).

When asked to assess the way they handled layoffs in 2023, most respondents in the financial services sector are confident,with more than 72% rating management as “excellent” or “very good” in every individual downsizing category noted. At the same time, however, employers in this industry believe that just 43% of their employees would rate these downsizing actions positively, and at least 74% of organizations say the layoffs resulted in negative sentiment about the company across every single downsizing action.

Layoffs are never easy to implement, but there are things you can do to minimize the risk of damaging your organization’s reputation. Perhaps, as a result of the negative sentiment encountered, 90% of financial services organizations say they either have already made changes or will make changes to the way they approach layoffs due to strategic shifts in the organization this year.

what’s changing in severance?

While an equal number of financial services firms offer severance to all employees (39%) as they do to C-suite and senior leaders (39%), fewer provide this benefit to managers (35%), specialists (24%), administrative professionals (13%) and entry-level employees (2%). This could be an area to enhance the employee value proposition and demonstrate more support for managers and individual contributors than at competitor firms.

Similarly, while 12% of organizations in the sector have no qualifying period for severance — in line with other sectors — the most common eligibility period in financial services is two to three years (34%). All other sectors offer a greater proportion of the workforce a severance package with two years of service or less.

Severance is most commonly calculated for banking and financial services industry employees based on a specific number of months of salary (71%) — with two months salary being the most common offering (28%). This is low when compared to other industries, such as the life sciences and tech sectors, where 6 months salary is most commonly offered (47% and 26% respectively). 

As more and more workers are in flux, and cross-industry moves become increasingly common, severance policies could be an important area where the financial services industry can demonstrate greater equity. Contemporary approaches to talent consider not just the psychological contract during employment, but the longer-term connection to people in what is known as the relationship value proposition.

benchmark your severance policy

As a benchmark to assess your own severance policy, a summary of the sector findings in our latest Global Severance research follows here.

The top five most common elements in a severance package for banking and financial services are:

1. outplacement (44%)
2. a cash payout (36%)
3. payment of bonuses for which employees were previously eligible (34%)
4. health benefits continuance (33%)
5. financial planning (33%)

The five most common changes organizations are making to their severance packages this year include:

1. health benefits continuance (43%)
2. education and retraining (40%)
3. retirement benefits (33%)
4. payment of bonuses for which employees were previously eligible (30%)
5. retirement planning services (30%)

When financial services leaders were asked if they wished they could provide more than currently available or planned, 82% said “yes.” What is on their wish lists?

1. payment of bonuses for which employees were previously eligible (31%)
2. retirement benefits (27%)
3. outplacement (25%) 
4. reskilling/retraining (25%)
5. cash payouts (24%) 

spotlight on redeployment 

For the 94% of financial services organizations anticipating downsizing actions this year, offering redeployment remains the most likely activity, anticipated by 43% of firms.

Redeployment can be a highly effective, low-cost and agile response to workforce restructuring demands due to the positive impact it has, compared to layoffs. Additional benefits include the retention of intellectual and social capital among redeployed employees who are reskilled and upskilled, versus recruiting for new skills externally. Redeployment can also boost morale, protect productivity and bring greater innovation to the business as people from different parts of the business connect and bring new ideas.

But successfully implementing redeployment strategies is not without complexity. While 93% of banking and financial services employers say they realize benefits, just 50% rate their redeployment program as “very effective.” This is commonly caused by a disconnect between talent acquisition, talent management and benefits before and during any downsizing action. This disconnect results in missed opportunities across the total talent framework to optimize how downsizing is implemented and its impacts are experienced.

With skill demand rising in areas such as generative AI, cloud computing, customer journeys and user experience, digital and cryptocurrencies, and compliance and regulation, employers will need to consider how they can build these skills within their own workforce.

But just 38% of banking and financial services employers report offering upskilling and reskilling as part of their redeployment program — the lowest across all key sectors surveyed. There is a missed opportunity; not only would this mitigate the possibility of layoffs, but it could also offer a new stream of talent to plug widening skill gaps.

Some talent leaders already recognize this. When asked which elements they wish they could provide as part of their redeployment program, nearly one in three (31%) want to offer more upskilling and reskilling.

And while reskilling may not be reasonable or practical in all cases — for example, retraining customer service agents to become cybersecurity engineers — employers should look beyond traditional work experience to evaluate which employees have the core skills, non-traditional experiences and personal interests that make them good candidates for other roles within the business.

A talent mobility domino effect offers a more sustainable solution. For example, a former customer service employee could move into a team that needs insights into the most common customer issues and how to resolve them in order to train AI technology taking on customer contact activities. And someone in that team with experience of training AI can more easily transfer to an area like cybersecurity to bolster efforts in developing AI that detects fraud.

how to successfully manage workforce transitions

While the banking and financial services sector continues to face uncertainty this year, how leaders manage change will be increasingly critical to their ability to achieve business objectives long-term. There are many important factors to consider when handling layoffs, redeploying people or reskilling.

The data included here is designed to help you understand how others in your sector are approaching severance policies, redeployment and workforce restructuring to drive your own decision-making.

For more insights on these trends across all sectors globally, get your copy of the latest Global Severance research. And contact us for a confidential discussion about how to approach any aspect of restructuring.