By Marinos Evaggelidis
Bank employees in Cyprus enjoy benefits and compensation that do not correspond to the working reality of the 21st century, essentially creating two tiers of employees in the private sector. Banks have traditionally been among the first private sector companies to realize the urgent need for change in terms of their working practices and models and can trigger changes in other labour sectors as well. It is no coincidence that in recent years there has been a reluctance to renew collective agreements between trade unions operating in the banking sector and banking institutions. The model of benefits and compensation for employees in the banking sector is outdated, as is the system of pay and bonuses that has been in place for decades and that the banks themselves want to change, or recently some have managed to change. The system of salary increases based on employee performance is a common practice in many organizations worldwide, where a small horizontal annual increase is given for all employees and the rest and larger part of the increase is added depending on each performance. Granting a horizontal increase to all employees of a banking institution without exception, without evaluating the efforts and results of each employee, can easily be described as unproductive and reminiscent of bad practices applied in the public sector.
Heavy costs
The costs to banking institutions of previous decades cannot be compared to the costs of the last decade resulting from the supervision that now exists. Banking institutions are subject to supervision by supervisors with uniform rules and their operations are governed by the regulatory framework in place, while the security of the system's operation continually drives up their costs. In addition, technology is exerting its own pressure for changes in the policies of banking institutions and is forcing banks to reduce their staff and to close the branches they maintain. To eliminate a number of branches maintained by banks is a relatively easy decision to take, since, especially after the advent of Covid-19, the importance of a traditional branch as a centre for the execution of transactions may be questioned. Still, many of the intermediate steps to carry out a transaction that used to require an employee have been automated, thus, making bank employee positions redundant.
European Banking Authority (EBA) data for September 2021 indicate that Cypriot banks have the second highest cost to income (cost to income) among 27 countries in the European Union. The 75% cost to income of Cypriot banks is exceeded only by the cost of banks in Malta and is 12% higher than the average of the 27 European countries. As long as the costs of banks are not reduced and as long as there are no viable ways to boost revenues, the cost-to-revenue ratio of banks will remain a problem. Traditionally, each bank's staff costs have hovered around 50% of their total costs.
Heavy and the solution
More and more voluntary redundancy schemes will be implemented by banks from now on, as the number of employees required in each bank branch will not match the volume of business of the past. Banks are already able to provide a large part of their products at a much lower cost than the traditional bank branch, but the number of staff does not allow them to do so and costs remain high. Many banking processes are completed online and in addition to a bank's traditional competitors, there are also financial technology (Fintech) companies. Voluntary separation plans in the banking industry in Cyprus are lavish with severance payments reaching a maximum of 180 200 thousand euros, which are also in agreement with the Tax Department not to be subjected to taxation. These amounts cannot be compared to any other employment sector in Cyprus, and can justifiably create impressions of two-tier employees in the private sector.
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