Financial institutions are facing a crisis. In the past, banks had no trouble finding and retaining top-tier Ivy league talent right out of college. The largest of institutions could outbid other industries and provide more career advancement opportunities. However, since the financial crisis of 2008, the financial industry and as a result, top tier organizations have had trouble attracting and retaining talent. Big banks are no longer the destination of choice as many of the best and brightest are looking to tech companies like Google, Facebook and startups to launch their careers. Having worked at a few investment banks, I have noticed a trend throughout my tenure. Employee turnover is a huge concern.
According to research provided by Crowe Horwath, employee turnover rates in the banking industry are at their highest point in the past 10 years.1 The talent loss is costing banks in many ways. Not only is there a morale drain, but there is a significant financial cost associated with this phenomenon that has been steadily increasing over time. Quinlan and Associates estimate that a 1% rise in voluntary employee turnover costs each global bank between USD 250-500 million per year in replacement costs.2 Costs associated with turnover include: temporary replacement/overtime, recruitment, training/loss of productivity, and overall new hire costs.
So what is causing such a significant increase? Can employers identify why their employees are dissatisfied and make meaningful changes to curb the continuous exodus?
Glassdoor: A view of employee sentiment
Glassdoor is a review website that allows employees (both current and past) to provide anonymous feedback about their employers. As you can see below, a single review contains a good deal of information about an employee’s experience.
One of my central goals for this project was to identify whether we can learn anything significant about why employees leave financial institutions from employer reviews.
A study of Wells Fargo:
In order to validate why employers should look at reviews on sites like Glassdoor, I focused on Wells Fargo as a case study. Wells Fargo was at the center of a scandal in 2016 when over 2 million unauthorized accounts were opened on behalf of customers without their knowledge. These customers were then charged fees on the unauthorized accounts that were being collected by Wells Fargo. As a result, over 5,000 employees at the bank were terminated. Additional investigations highlighted that not only were senior management aware of these illegal practices, but they were promoting them. When employees raised concerns, they were reprimanded and in some instances even fired.3
If we looked at employee reviews of Wells Fargo, could we have seen a problem like this arising before it was too late? Absolutely.
The diagram below represents a word cloud of the ‘cons’ section of Glassdoor’s reviews for Wells Fargo. A word cloud highlights the most frequently used words as indicated by size. After cleaning up redundancies and common terms, the top 150 words look like this:
We can see the words: “sales,” “management,” “goals,” and “pressure” were repeated quite frequently. Reviews containing these issues date back to 2009 (well before the scandal). This is an unfortunate example of what happens when employers fail to recognize the concerns of their employees.
Data Selection and Gathering:
In order to learn more about the overall sentiment of employees that work in Financial Institutions, I scraped over 60,000 employee reviews from 13 different types of financial organizations (listed below). As part of the data selection process, it is important to distinguish between types of firms. Not all banks are the same, and we may see differences once we categorize them.
Working at a bulge bracket bank is very different from working in a boutique firm. A bulge bracket bank is considered large and provides all services in all regions. In contrast, a boutique is smaller, tends to offer a few selected services (i.e. Asset Management or Mergers and Acquisitions) and is generally more flexible in terms of structure than a big bank.4 Furthermore, we can break down these classes into subclasses. Using various rankings over the past several years, we can classify Centerview and Evercore as the top boutique banks and Goldman Sachs, Morgan Stanley and J.P. Morgan as the top big banks.5
As a side note, technically Wells Fargo does not fall into the category of a bulge bracket given that it is not considered a global leader in M&A, which is why it is absent from the analysis that follows.
Which type is better to work at?
According to employee reviews, big banks are rated higher than boutiques in terms of comp and benefits, career opportunities and overall rating.
Boutiques tend to outperform the bigger banks in the “softer” valued areas like work/life balance, senior management, and, for the most part, culture and values.
When we further look by subclass, we can see the top boutiques outperform everyone -- even in areas where the big banks previously showed strength. As an employee, you may have a more hands-on experience as there is less overall headcount. Subsequently, you might learn a great deal more than working in a big bank where you may only see things from a siloed approach.
What drives the overall rating?
A high overall rating implies that employees are satisfied for the most part. We can assume that an employee providing a high rating of an organization will be less likely to voluntarily leave than an employee providing a low one.
Given the extremely high turnover in the industry, financial firms should take notice of what values drive the overall rating the most. If we examine the correlation plot below, we notice that higher overall ratings are mostly dependent on how employees rate career opportunities, culture and values, and senior management.
If employers focus on these key areas, they can help stop the outflow of top talent from their organizations.
Why do employees leave?
You might guess that employees leave mainly for one reason: money. And while it’s true that when employees leave, they will almost always receive a bump in overall salary; it may not be the reason individuals look to leave in the first place.
If we segregate the data on current and former employees, we can compare their ratings to visualize why we are seeing increased voluntary turnover.
We see from the above (surprisingly) that the ratings for comp and benefits have essentially been the same over the past few years.
We do, however, find differences in career opportunities as well as culture and values. From the correlation plot above, we know these are main drivers to the overall rating as well. As a result, based on our data, we cannot assume that employees are leaving financial firms because they are unhappy with their pay, but rather they are unhappy with their opportunities for advancement and the culture within the organization itself.
If we take a further look at the ratings provided for career opportunities, we can analyze how significant the difference is in terms of how employees view their CEO. An employee can rate their CEO in one of three categories: approves of, no opinion of, or disapproves of. The yellow band in the box plot below indicates the mean of each group, while the black line represents the median.
The result of the one-way ANOVA test provides a p-value of ~0.0 which identifies that there is a significant difference in means between at least one of the groups. In order to determine which one(s), we must perform some post-hoc analysis. In this case, we used Tukey’s range test for pairwise comparisons.
Per the above, there is a significant difference between the means of each group; as we can see the reject column is true for all three comparisons. This signifies that we reject the null hypothesis for each comparison and confirm the alternative hypothesis that the mean difference is statistically significant between groups.
In other words, an employee’s view of their CEO is related to how they feel about their career opportunities.
The financial industry is facing a very real talent crisis that is both prevalent and costly. They are no longer attracting top talent as they used to and are failing to keep current employees happy enough to stay. This boils down to institutions struggling to accurately address the concerns of their employees.
Financial firms can make improvements in the following areas: career development, culture re-alignment, and continued employee engagement.
According to a survey by Quinlan Associates, employees were not satisfied with their organizations’ promotion process. Employers must make strides in transparency which includes the sharing of KPIs (Key Performance Indicators) around what it takes to be promoted. Given that junior staff have a higher turnover rate, financial institutions must also make an effort in rebalancing their top-heavy hierarchical structures to ensure mid-level employees have room to grow vertically.
Additionally, employers must ensure that employees are continuing to grow. After a few years in a particular role, one might become a subject-matter expert and be heavily relied upon within the organization. While this may have some short term benefit from an employer vantage point, for the employee, it could lead to a long-term problem of plateauing from a growth perspective. In order to prevent that result, banking organizations should promote cross-training and internal mobility across their firm.
Culture and values:
Since the financial crisis, the prestige of the financial industry has taken an enormous hit from a reputational standpoint. Scandals at big banks are costly not only from the potential loss of customers but for employees as well. An individual should be proud of their career and in turn the firm where they choose to spend it. Financial institutions have failed to live up to their personnel standards in this area. Corporate greed can no longer go unnoticed. Organizations must ensure that the environment they have created adequately lives up to the requirements of their employees.
A major problem faced by big banks is bureaucracy. While there are certain implementations that can take a great deal of time, acknowledging employee feedback is an important step.
In order to make meaningful change, employee voices need to be heard and recognized. Ensuring there is open communication can significantly alleviate the talent crisis financial institutions are facing. Not only is it vital to gather feedback, but taking strides to incorporate these observations is imperative.
Unless these institutions make meaningful changes in their culture and career opportunities, the banking industry will continue to face the trend of voluntary employee turnover in the wrong direction.
Link to my GitHub repository.