01 September 2004 Features

 

Let’s go to work

As employment among financial IT staff picks up Nicholas Pratt asks if it is time the banks shelved their boom and bust approach to hiring staff in favour of a more long-term recruitment strategy

Job prospects in the Square Mile are on the up once again. After a period of mass redundancies, postponed projects and reduced rates, IT is back on the bank’s budgets. Just as a number of major UK banks announce record first-quarter earnings for 2004 and just as a number of research groups report that IT spending is again on the increase, banks are also looking to recruit staff to help them spend their new-found wealth and manage their newly-ordered technology.

Yet it was only two to three years ago that IT professionals were leaving the banking industry because there were no jobs to take and there were more P45s being handed out than Christmas bonuses. Consequently the banks are now facing a skills shortage and have gone into a recruitment overdrive.

“The investment banks are hiring like mad,” says Laurie Boyall, managing director of UK recruitment firm McGregor Boyall. The reasons are two-fold. The primary reason is the simple fact that industry conditions have revived. The second reason for the urgent recruitment is because the banks were so aggressive in their cost-cutting and headcount reduction in their IT departments that they have left themselves unable to fulfil their trading teams’ demands for extra capacity and more efficient systems.

It is no surprise that the two noticeable periods of recruitment sprees in London were in November 2003 (when the US investment banks announced their IT budgets) and in April 2004 (when the UK and European banks announced theirs). But banks are not finding it easy to attract the quality and quantity of staff they require.

The effect of three years of recruitment freezes and redundancies is that the investment banks no longer represent the automatic first choice for IT professionals because of the lack of job security and also because more IT work is being outsourced to third parties. Furthermore, in what is now a sellers market, the sellers that remain — the contractors, the recruitment companies and the in-house IT staff — can demand more for their services.

“This is basically a supply and demand issue,” says Andrew Keene, co-founder of recruitment company Thomson Keene. “Key investment banks are prepared to increase salaries to attract the best candidates.” Thomson Keene’s most recent salary survey shows the increase in remuneration levels from 2002/2003 to 2003/2004 (see tables). The biggest increases, and therefore the candidates most in demand, are for programmers, developers and analysts.

In terms of specific IT skills most in demand, they tend to be C++, Java server technology and web development. And in terms of product areas they are mostly in the derivatives, fixed income and risk management areas. The emergence of risk management as a growth area for technology is down to the regulatory demands of Basel II and the fact that the banks now have to start implementing their Basel-compliant systems.

Banks are now looking to take on whole teams that can manage projects from start to finish rather than a smattering of short-term contractors. But as a result of three years of recruitment inactivity, there are now two notable shortages in the candidates available to them.

Firstly there is a lack of young IT professionals with two to three years experience in the banking sector because banks have not been recruiting any graduates since 2001. And on the other end of the scale, there is a shortage of experienced project managers because senior and middle managers are traditionally one of the first targets when it comes to redundancies.

“When it comes to building these new development teams, there is a paucity of good, hands-on IT managers that can lead projects,” says Boyall. “I think there were a number of these managers that left the industry when the times were bad and have not come back again. When contractors were being laid off in large numbers and those that stayed had their rates reduced, the motivation for working in the City disappeared. When you can get as much money working in the data centres of large retail companies, why go through the hassle of working in London?”

Clearly the reported skills shortage is nobody’s fault but the banks. Few financial institutions adopt any long-term recruitment strategies, preferring to stick with the slash and burn approach that became popular in the 1990s.

“Because of their close links to the economy, banks tend to be a little more boom and bust in their recruitment approach,” says Allison Tibbatts, principal consultant at UK-based recruitment company Eurobase Systems. “There are some banks that are so extreme in this regard that you would think there is a war on. They will hire like there’s no tomorrow and then get rid of their people in exactly the same way.”

For the recruitment companies, the banks’ allergy to long-term contracts and job security coupled with their unrealistic view of the job market creates a fair deal of frustration. “There is a catch 22 situation,” says Tibbatts. “Banks like to hire people with banking experience. If you have that experience then you are head and shoulders above anyone else applying for banking IT roles. When the economy was a little quieter and it was a buyers’ market, there were a lot more of these candidates about. But now the same candidates are very hard to find and banks tend to be very unrealistic when it comes to hiring staff. They will not consider the logic that over the last two years they have lost staff and have not been hiring so therefore it is harder to fill vacancies.”

There are a number of options open to the banks. Most sensibly, they can start to adopt more long-term recruitment strategies, increase their graduate intake and offer better job security and career development, something that the recruitment companies are trying to encourage.

“The last few years have been difficult and banks have been able to dictate the terms. But now the market is moving again, the boot is almost on the other foot,” says Simon Holt, marketing manager for Spring Group, a UK-based recruitment company. “So we are telling the banks that they have to be realistic and offer to take these people on for a bit longer than the short-term projects and pay a little bit more for them. They should think about what long-term work the contractors can do for them rather than just responding to the bank’s daily needs.”

The banks should also look to be more consistent in this approach says Holt. “We have to encourage people to be strategic in their recruitment when things are up but also when they are down so that they are in a strong position when things pick back up again. They have to make sure they are not just recruiting reactively. You can’t turn the tap on as easily as you can turn it off.”

“Our job is to educate the client on the realities of the job market,” adds Eurobase’s Tibbatts. “The banks have to come round to accepting them rather than simply saying ‘whatever, just get me the staff’.”

The second option, which is still good news for recruiters and candidates, is for the banks to dig deeper in their pockets and simply pay more than their competitors for the right candidates, even if it means prising them away from other industries. As Boyall says: “The biggest pull for the banks is that they can offer more money than most.”

But throwing money at the problem only exacerbates it. The cyclical nature of investment banking means that the banks have to react to market conditions but surely some attempts are being made to hold onto staff during the bad times so that when things pick up, they are in a position to capitalise rather than finding themselves paying over the odds for a team of contractors.

“Ultimately the banks will still outbid each other to get the best people,” says Keene. “But some organisations are trying to implement non-financial incentives as well.” These include offering more flexible forms of working — either at home or with variable hours — and also more employment opportunities throughout the bank.

“One of our banking clients has implemented a global mobility scheme where employees have access to a global, internal recruitment intranet. If they have been in their current post for 18 months, they can apply for roles internally and their manager is obliged to support them,” says Keene

But banks’ recruitment strategies will always be short-term and tied to the movements of the economy, says Keene. “Schemes such as those mentioned and a more consistent approach to hiring are always implemented from time to time but eventually if costs need to be cut, there will always be a hiring freeze and any strategy is thrown out of the window.”

The third option available to banks is by far the most unpopular for those in the job market and for the recruitment firms that work directly with the banks — outsourcing. “Some banks have resolved the staff shortages by moving jobs offshore to India,” says Tibbatts. “Others have been waiting for the EU to expand so that they can bring in well-qualified workers from the accession states. And other banks, such as JP Morgan and ABN Amro, have outsourced their IT departments to specialist firms like IBM and EDS almost totally.”

Although offshore outsourcing is still in its infancy, it is a trend that has enraged the UK’ banking union Unifi. At the time of going to press Unifi is still locked in a war of words with HSBC, which despite announcing record profits for the first half of 2004 (£5.2 billion) still plans to send over 1000 IT jobs overseas.

For Unifi, the modern-day recruitment strategy of slash and burn is a product of the bank’s obsession with share-price. “If banks are seen to be cutting costs, then the share price goes up and in the short term it is a win situation,” says Dai Davies, director of communications at Unifi. “But when the situation reverses and business starts coming in, banks just buy in the expertise. They don’t nurture anyone.”

And the current staff shortage will just lead to more outsourcing and fewer candidates even bothering to approach banks, says Davies. “Banks don’t have the credibility among IT professionals because people don’t believe they are in for the long haul. Whereas if they join an outsourcing company, they have a number of different contracts they could be working on and are likely to have a full-time job for longer.”

Davies points to the “lemming-like” nature of banks that has created the current outsourcing trend and contributed to the current skills shortage. “The only way the trend will buck is if one of the major banks decides to put in place long term employment opportunities, tries to recruit the top IT staff and then tries to retain them.”

But this appears unlikely. Whereas the banks have now adopted a more cost-effective and responsible approach to buying technology, it seems the reckless manner in which staff are recruited to run the same technology will continue to mirror the peaks and troughs of the economy.

“I live in hope that the banks will change their approach to recruitment,” says Tibbatts. “They are investing more in staff training and retention and more HR input, but if the trader wants a programmer, he’ll get one and if the trader doesn’t like the look of them, they’ll get the boot. There may well be less of this going on and the good intentions may be there but I don’t see a leopard changing its spots overnight.”

Senior management: salary and package levels £’000s

Title	London	European	Global
Head of IT/CTO	Basic	100 - 150	120 - 250	120 - 300
Package	150 - 300	250 - 600	350 - 1.2m
Head of infrastructure	Basic	80 - 130	90 - 150	120 - 200
Package	100 - 200	125 - 300	200 - 750
Head of product line IT	Basic	100 - 150	120 - 200	120 - 250
Package	150 - 250	200 - 400	275 - 600
Source: Thomson Keene

Annual changes: salary & packages £’000s

Basic	Package
Title	2003/4	2002/3	2003/4	2002/3
Development Manager	80-110	75-110	110-225	100-200
Head of Application Support	75-95	65-100	90-140	80-140
Senior Technical Architect	80-110	70-100	110-200	100-200
Excel/VBA front office developer/analyst	70-90	n/a	80-130	n/a
Programme Manager	80-110	75-100	100-160	90-150
Project Manager	65-100	50-90	75-150	70-130
QA Manager	60-85	55-75	70-120	60-100
Business Analyst (with product knowledge)	60-80	50-70	70-100	50-90
Business Analyst (junior)	40-50	n/a	45-70	n/a
Senior Java developer	55-80	50-80	75-120	60-120
Java developer (little banking experience)	40-55	n/a	45-70	n/a
Source: Thomson Keene

Current contract rates £/day

Title	2003/4	2002/3	2001/2
Development Manager	600 - 850	550 - 700	750 - 1100
Head of Application Support	550 - 700	500 - 600	500 - 750
Senior Technical Architect	500 - 750	450 - 550	600 - 800
Exchange Connectivity PM	650 - 800	500 - 550	700 - 800
Programme Manager	650 - 900	550 - 650	700 - 950
Project Manager	450 - 600	450 - 550	550 - 800
QA/Test Manager	450 - 600	400 - 450	500 - 700
Business Analyst	350 - 550	350 - 450	400 - 600
Senior Java developer	400 - 600	375 - 450	550 - 800
Source: Thomson Keene