December 2005
Introduction
Finsec is a registered trade union representing over 7,000 workers in the finance and information sector. A significant majority of Finsec's members work for banks under employment agreements where their pay increases are dependant on meeting sales targets set outside the Collective Agreement that encourage them to continuously sell more and more products, and particularly lending products, to customers.
Customer Debt Sales Targets
Banks set sales targets for their staff to meet if they are to receive the performance component of their pay. In some banks getting any pay rise at all is based on achieving these targets. The banks then regularly revise those targets upwards so that more and more selling of mortgages and loans is required each year. When workers don't meet their targets they miss out on pay and can have their job threatened. It's stressful for workers trying to reach targets that keep moving away from them. And it's becoming stressful for customers who are constantly being sold products to feed the bank's greed for ever-larger profits.
An example of sales targets that have grown out of hand is at BNZ. During the 2003/04 year a Banking Advisor had a target of up to 48,000 points to collect in the year (depending what part of the country they were in). They would get 65 points for each $10,000 of housing loans they sold, and 100 for each $10,000 of other lending.
For the 2005/2006 year a banking advisor will need to collect up to 8,600 points (depending what part of the country they are in). But they only get 12 points for each $10,000 of housing lending on a variable interest rate.
Weekly targets for them looks a little like this. If a banking advisor only sold one type of product for the week to reach their target, they would need to sell the following volumes:
Hamilton Banking Centre |
Tokoroa/Huntly |
Riccarton |
||||||
Then |
Now |
Then |
Now |
Then |
Now |
|||
Weekly target: |
837 |
179 |
750 |
125 |
925 |
179 |
||
Housing |
$128,000 |
$223,000 |
$115,000 |
$156,000 |
$142,000 |
$223,000 |
||
Credit cards |
24 |
44 |
21 |
31 |
26 |
44 |
||
General insurance |
33 |
60 |
30 |
41 |
37 |
60 |
||
Referrals to business or agriculture |
8 |
35 |
7.5 |
25 |
9.25 |
35 |
||
New accounts |
42 |
44 |
37 |
31 |
46 |
44 |
||
Term deposits |
$550,000 |
$596,000 |
$500,000 |
$417,000 |
$616,000 |
$596,000 |
||
Now, in Tokoroa for example, there are only 8,013 households and the average rent is two-thirds of the average New Zealand rent. The RealENZ website this month listed two bedroom homes starting from only $31,000 and three bedroom homes starting from only $49,000. So a banking advisor may need to sell a significant amount of mortgages to reach such a weekly target.
Pressure and Stress on Staff
Sales targets are not only increasing the amount of money that New Zealanders are borrowing each year, they are placing significant stress on staff to sell more and more products in an increasingly competitive and tight market.
Ten years ago Westpac (and Trust Bank which it later took over) used to employ 6,760 staff. Today it employs 5,004 staff. That's a reduction of 26%. However Westpac's 2003/04 profit of $617 million is 396% more than ten years ago.
Staff who used to make the bank an average of $146,000 operating income per year, now each need to make the bank $340,000 operating income per year. Staff have been forced to become more than twice as profitable for their bank. The bank forces its profits up by setting sales targets for staff to meet. Those targets grow each year to match the bank's desire for larger profits, but the number of people employed to meet those targets falls.
A new aspect of the BNZ's Performance Management Framework system under the title "community responsibility" is that staff members are now expected to promote the bank outside of work such as at social gatherings. This might include promoting home loans and mortgages for instance.
ASB were the first of the big banks to introduce a pressured sales culture. They held meetings with staff on sales targets every morning and wrote everybody's sales targets and achievements on a public white board.
Other banks have responded to this by intensifying their sales culture. AT BNZ members estimate that they spend 2.5 hours a week dwelling on sales targets in the form of Monday morning meetings, one-on-one meetings coaching sessions and reminders throughout the week.
Inflation
Finsec believes that one of the pressures on interest rates is banks, such as BNZ and Westpac, using sales targets to compel their staff to sell higher and higher levels of debt to customers. Those targets reward bank employees who sell mortgages, credit cards and other forms of lending at much higher levels than the rewards for savings products (see above figures). The banks consistently raise the targets on their employees as they seek to take market share off each other. This means that a customer who walks into such a bank will be meeting staff who will be under pressure from their employer to encourage them into debt. The economic effect of such large growth in consumer debt can be inflationary pressure.
Stress is widespread among workers in the bank because of serious understaffing and unreasonable demands placed upon those staff in the form of sales targets. This is creating an ethical dilemma for staff who are pressured to encourage customers into debt or to buy more banking products so that staff can reach their targets.
Finsec believes that these customer debt targets have now reached crisis point.
The Minister of Finance has expressed concern about inflation and called for advice from the Reserve Bank and Treasury on this issue. He has got a range of issues to consider. Finsec believes that one of those issues he needs to consider is the pay systems within banks, which contribute to distorting the market and can affect inflation.
Reserve Bank Governor, Alan Bollard, made a speech warning that banks are helping to fuel inflation by heavy leading and competitive promotion of credit. We believe the way banks use sales targets to force their workers to sell more and bigger credit packages such as home mortgages is exacerbating the problem.
The interests of bank shareholders would not be served "if they (banks) promote loans to people who cannot afford them" ,
Dr Bollard said in a speech to employers and manufacturers.
Banks need to focus on their long-term interests, not just their one-year profit growth or market share target. In New Zealand, the banking sector is also responsible for the bulk of credit allocation. This task is an important determinant of New Zealand's long-term economic growth and hence banks' future profits, and must be considered carefully. The larger banks' shareholder interests, which are intrinsically linked to the health of the New Zealand economy, will not be achieved if they promote loans to people who cannot afford them.
In response to the Reserve Bank Governor's speech Westpac New Zealand chief executive Ann Sherry has suggested that banks are simply responding to customer demand saying that ' people's fixation on bricks and mortar was "a structural issue" for the economy' . She took issue with the governor's suggestion that banks were too focused on short-term profit growth by gaining market share on fixed-term mortgage rates.
'We're certainly not at Westpac, which is one of the reasons we didn't engage in the worst of the price competition."
"The reality is you do have a market where people are insatiable in terms of demand for housing as a primary form of investment saving," she said .
At Westpac customer service workers are set a target of up to 8,575 points per year (depending on location). They get 10 points for opening a new account but they get an extra 25 points for selling a credit card. Customer Consultants there are required to get 13,305 points. They get 5 points for every $10,000 of home loans they sell and 5 points for every $1,000 of personal lending.
Peter Thodey the Managing Director at the BNZ made similar comments in response to the speech when he said:
"We have a very competitive mortgage market in New Zealand which is healthy for consumers and providers alike. New Zealanders' long-established preference for fixed-rate mortgages does make it difficult for the Reserve Bank to slow the housing market by increasing short-term interest rates.
"While it is true that the banks compete strongly for market share, they also have strict lending and - most importantly - debt-servicing criteria. In an open and de-regulated market it makes no sense for banks to turn away customers who can meet these lending and debt servicing standards."
At the beginning of December the New Zealand Herald reported that the Bank of New Zealand challenged by one of its own workers for sending pre-approved credit card offers of $3000 to $5000 to thousands of people. Some were unemployed, some mentally impaired, and some even bankrupt, according to the worker. These people were not already BNZ customers, but were chosen from a Fly Buys database.
The Reserve Bank Governor noted in his speech though that there is an element of human cost that results from encouraging all comers to take on debt;
"But we also need to emphasise the position of certain households that are potentially at risk. About a third of households have mortgages, and one tenth of those are quite deeply in debt, already spending over half their disposable income on servicing their mortgage. These people are vulnerable to interest rates rising, property prices falling, or their employment positions becoming more fragile. "
Conclusion
Finsec wishes to thank the Reserve Bank for this opportunity to provide a grass roots bank workers' perspective on issues affecting the New Zealand economy. We would like to request an ongoing dialogue with the Reserve Bank to discuss banking practices that we believe have an impact on the economy as well as staff and customers.
We propose that the Reserve Bank takes the issues raised in this submission into consideration when providing advice to the Finance Minister on matters relating to the banking industry.
Sources
Statistics New Zealand Household Census 2001
KPMG Financial Institutions Performance Annual Surveys, 1995 and 2005
Dominion Post, Westpac hits back at Bollard, 4 November 2005, by Roeland van den Bergh
An address by Dr Alan Bollard, Governor of the Reserve Bank, Speech notes for an address to the Employers and Manufacturers Association (Northern) AGM, 2 November 2005
New Zealand Herald, Westpac chief parries Bollard, 4 November 2005, by Adam Bennett
Dominion Post, Westpac hits back at Bollard, 4 November 2005, by Roeland van den Bergh
Increased Market Share Drives Financial Result, Press Release: Bank of New Zealand, 9 November 2005
NZ Herald, Credit card offers with no strings, 2 December 2005, NZPA
An address by Dr Alan Bollard, Governor of the Reserve Bank, Speech notes for an address to the Employers and Manufacturers Association (Northern) AGM, 2 November 2005
