As banks work to bolster risk management in the aftermath of the financial crisis, many have left themselves vulnerable in an area with significant reputational and monetary dangers: human resources.
Banks that fail to ensure that their employment practices are in compliance with federal and state regulations may wind up the subject of investigations by the Office of Federal Contract Compliance or the Equal Employment Opportunity Commission. Therefore, all banks regardless of their size should review their human resources procedures to determine whether they are up-to-date on laws that affect recruiting, screening, interviewing, hiring, promoting, training, evaluating, compensating and terminating employees.
A few areas are particularly common stumbling blocks for banks' human resources departments. Many lenders fail to maintain position descriptions that meet the requirements of the Americans With Disabilities Act. This legislation requires employers with 15 or more employees to identify the essential and nonessential duties for each position and the physical requirements for each position. For example, an essential duty for a teller position is "the ability to receive and dispense various denominations of coin and currency." Therefore, position descriptions should specify that sight is a requirement of the teller position.
Performance reviews are another frequent issue, particularly for institutions that may have more informal management environments. This is not just a small bank issue. A number of larger organizations do not conduct written performance evaluations on senior officers. Some banks fail to conduct structured and written performance evaluations of all officers and employees on at least an annual basis. These organizations are therefore more vulnerable to litigation over discriminatory compensation practices.
Banks also frequently fail to comply with the portion of the Fair Labor Standards Act concerning exempt and nonexempt positions. Just because a new accounts representative has been with the bank for many years and has a title of vice president does not mean the position is exempt from overtime payments. Only his or her duties will determine whether the job meets one of the specific categories for an exempt position. Organizations should always err on the side of classifying employees as non-exempt and pay overtime when it is required.
Banks should also keep responsibility grades and salary ranges for each position in order to better manage human resources risk. When an employee transfers from one role to another, responsibility grades bring transparency to the question of whether the move was a promotion, a demotion or lateral. If a bank has over 50 employees, these issues must be tracked within the organization's affirmative action program.
Banks should also pay close attention to diversity. The 2010 U.S. Census showed that the percentage of minority workers in the workforce increased very significantly in some areas of the country between 2000 and 2010. Some of these increases occurred in ethnic groups protected against discrimination by the Equal Employment Opportunity Commission. However, the diversity percentages within a bank's workforce may lag behind census levels. This could increase banks' liability in charges of employee discrimination. Banks that are underutilizing minority employees should be proactive in their efforts to increase the flow of minority applicants.
Some banks have encountered issues with harassment and hostile work environments. Office romances, inappropriate jokes or the use of profanity can all create a hostile work environment. These situations can have a negative impact on employee morale and may result in undesirable publicity as well as large monetary settlements. Organizations should conduct annual training for all staff members on harassment and hostile work environments to help to decrease this potential liability.
These are only a few of the areas within the human resources function that pose a risk to all banks. All banks should allocate a portion of their risk management efforts to human resources, ensuring that they are in compliance.
Lynn David is the president of Community Bank Consulting Services. He has been consulting with financial institutions of all sizes for over 27 years.