Is HSBC Headed for Branch Banking Disaster?

February 20, 2013
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hsbc_branchWhat happens to branch performance when bankers’ profit motive is severely altered?

That’s the question that struck me as I read about HSBC’s decision to nix sales “targets” for the bank’s UK  branch employees. Instead, HSBC will compensate its staffers based on “customer satisfaction,” although it is unclear exactly how that will work.

The change reportedly will effect about 20,000 HSBC employees, as well as staffers of M&S Bank, a bank HSBC owns, and first direct, HSBC’s innovation bank.

Here’s how Antonio Simoes, head of HSBC in the UK, explained the change to the Telegraph:

We have changed how we assess and reward our employees, removing any sales targets, so that they can completely focus on serving our customers’ needs and providing superior service. We want our customers to know they can depend on HSBC to do the right thing for them and this is the absolute focus of our employees.

But will this compensation structure work? This question centers on the core motivation of man, and whether greed trumps all. While I won’t get into the philosophy of this, I will argue that such a change in compensation matters deeply, especially on the scale deployed by HSBC. In fact, to some degree I wonder whether HSBC even knows all the wrinkles of knock-on effects from such a change. Will, for example, greeting a customer in a timely manner be a factor in compensation, and will that lead to lower close rates, because the banker already met his comp hurdle with a smile?

Consider account churn. In 2011, branch account churn — at least in the US — was a huge problem. In a study by Cornerstone Advisors, the average branch reported closing 100 accounts for every 112 it opened per month. That’s right, the average branch had a net monthly gain of 12 accounts, according to Cornerstone Advisors. That not good as it is — but does it get worse at HSBC if the compensation is tied to “customer service,” rather than financial metrics?

In the spirit of Gordon Gekko, I believe that greed is an ultimate motivator for many. Without “sales targets,” HSBC has thrown its substantial UK branch network of more than 1,500 locations for a loop, albeit one dictated by UK regulators. This one might be painful to watch.

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