“We have to pay so high salaries otherwise we don’t get the right people” is often heard from firms even in the crisis. Particularly the failed banking industry was very good in this salary death spiral. Salary was seen in this market as the only differentiators with great results.
I always wondered why the so highly paid managers could not find other reasons than money. Are they so uncreative that they had only the pricing mechanism as the only marketing tool in their recruiting process? Did they ever think about who they hired when money is the only reason why one should work for a particular bank? Can you develop a long-term oriented, customer centric bank when you have soldiers of fortune as employees? Have they every thought about what kind of culture they have created in this process? Have they ever thought about the customer experience they have created with a recruiting policy like that?
Well, the bankers will tell you they were driven by the short term orientation of the investors and the financial market in general. They will tell you that everybody was doing it so they had to do it as well.
Myth of high salary
Seth Godin calls this the myth of high salary. He writes that for one opening at Goldman Sachs 1000 of people will apply. He argues that after 1 million dollar of salary the surplus amount has no impact on your real life anymore. So the need for a high salary is a myth.
The even bigger lesson is that just competing on money does not bring you anywhere. If price is the only differentiator you have than your company is going to fail. Goldman Sachs has a reputation, a brand, that is much stronger than money. You have to pay a lot more to poach away a top shot from Goldman. I worked for Lazard Frères before they went public and money was not the reason but a great and crazy partner in the Frankfurt office.
Where are banks with a business model innovation?
Very few banks have a clear cut profile what they stand for. And here I mean what it stands for from a customer point of view, not from an investor perspective. Where are the Apples of banking?
Why do you go to a UBS? Why do you go for Credit Suisse? Today, that is clear since you decide against UBS because of their big losses but is it a good reason to chose Credit Suisse, since their are just less bad than UBS? That’s not a great choice for a customer.
In Switzerland, the customer go to banks with a state guarantee like the cantonal banks or Post Finance. But can a state guarantee be the only reason why I go to a bank? Should not be the banking services so good that you go to this bank? Why are banks so indistinguishable?
How many banks have a clear profile which makes them distinguishable? Distinguishable in a positive way and from a customer perspective?
I think it is time for a business model innovation where hidden fees are not trade practice, where the performance of customer assets is key and not the performance of the internal trading. Where are they?