How well does your business measure employee competence and why should you really care about it?
I speak with literally hundreds of L&D professionals and Senior Managers every year and the subject of employee competency measurement always comes up. I estimate that about half of those folks believe they have a robust process and a good handle on individual employee competence, whilst the others are perhaps more realistic and accept that this is a notoriously difficult but important area.
I guess it depends on how one defines “measurement” and to what degree of accuracy is required. If the firm isn’t regulated and/or the employer isn’t seeking any productivity gains from the workforce, then it is probably perfectly reasonable to have a vague and (most likely) variably accurate measurement process. If, however, the firm is regulated – by say the FCA – then there is an absolute requirement to have a robust and accurate process.
Senior Managers are personally liable under SM&CR for the competence of the employees they manage and delegate work to. I accept that, to date, the FCA has made only one successful prosecution and the odds on “getting caught” would appear slim right now. That though isn’t a reason to not comply. The regulator is (rightly, in my opinion) fixated on good organisational culture and ensuring that compliance isn’t just a box a firm ticks before getting on with making money; rather, it is engrained in everything the firm and its employees do.
The average level of employee competence, based upon the training provided by each employer, was just 52%.
SM17s (AMLRO) should also pay attention, given that – under current legislation – they are responsible for the training and competence of all employees in relation to money laundering, not L&D.
The new Consumer Duty, (whilst at the point of authoring this) is not yet law and firms will have a grace period to organise themselves so they do comply, will further add pressure on firms to ensure they can (and do) accurately measure and monitor the competence of their employees. Certainly, some aspects of Consumer Duty are desk-based and centralised like ensuring a firm’s product suite is suitable for the market it serves and the routes to market enable consumers to easily access essential product information. Other elements relate far more to the knowledge and competency of the very employees who provide and sell the products and services of the firm.
The cross-cutting rules are clear, and your employees must, on an individual basis, be able to ensure that a consumer comes to no detriment (causing foreseeable harm because of an inappropriate product or service) and ensure consumers are able to pursue their financial objectives. In addition, the area of Customer Service is the focus of one of the four “Outcomes” required under Consumer Duty.
In short, firms will be required to evidence that their employees are genuinely competent, and Senior Managers should already be engaged and perhaps questioning the quality of evidence available to them in the event of a breach.
According to Allen & Overy in their excellent article (available here):
“45% of final notices that the FCA issued to firms identified deficiencies in firms’ training programmes, including inadequate or a “one size fits all” approach to training employees, or a culture where employees did not complete mandatory training.”
Many reading this will focus on the last part of the sentence and conclude that because your firm does ensure employees complete mandatory training, you are ok. These findings are pre-Consumer Duty, and one must conclude that, post-Consumer Duty becoming effective, the requirement for firms to have better quality evidence is a given.
The industry default approach to employee Training & Competency (employees outside the Certification Regime and not Senior Managers) is full training across the required learning curriculum on joining the firm. Annual refresher training for all, often via e-learning, followed by a brief quiz to demonstrate that the content has been “learned”. It is, at best, a short-term memory test and has very little correlation to actual employee competence. Particularly when some firms give employees multiple chances and use the same quiz for every employee. Employees share answers and, in many cases, do what they need to do to “pass” and get on with their work. If you asked an employee if they felt this was an effective form of training, nine out of ten would say no. We know this because we ask them.
This annual sheep dip refresher training is often augmented by varying degrees of QA practice and audit, which shows to further evidence that said employee is indeed competent in-role. The harsh reality is that unless a firm man-marks every employee, then QA and audit is only ever going to sample a very small percentage of actual customer interactions. Add to that, the actual checking process is often open to interpretation and most firms are probably concluding they are doing the best they can and the risks are low.
If this governance process worked then we would see very different levels of actual employee competence when we assess it, and we do not. To scale it, in 2020, our Artificial Intelligence platform – Clever Nelly – conducted more than 100m individual knowledge and competency assessments, the vast majority in firms regulated by FCA & Prudential. The average level of employee competence, based upon the training provided by each employer, was just 52%. No employee can act on or put into practice training they have received and failed to learn and retain.
For an employee competency regime to be effective it must be precise, not vague. Pointing to single-point-in-time annual refresher training – and a handful of QA interactions – fails my precision test. And if this was what I, as a Senior manager, was forced to rely on to evidence employee competence, I should rightly be nervous. In the US, the Department of Justice (DOJ) in its most recent advice to prosecutors in relation to company compliance programmes specifically highlighted this ‘almost standard practice in the UK’ as bad practice and grounds for prosecution! Happily, for most UK FinServ firms they aren’t operating in that jurisdiction!
Interestingly, 40% of 195 compliance and risk professionals polled in our recent Consumer Duty webinar (available to watch here) stated that “providing board or management with the required evidence to meet their regulatory obligations” would be a key challenge in their efforts to implement the FCA’s proposed new Consumer Duty.
Employee competency “assessment” shouldn’t be viewed singularly, it should be viewed in the round as part of a best practice employee T&C regime; particularly as the object of the exercise is not just measurement, it is genuinely competent employees. To that end we would say that measurement needs to be inexorably linked to the “repair” or retaining of any shortfalls.
At Elephants Don’t Forget, we advocate a continual assessment and dynamic repair regime, entirely tailored to every individual and delivered in the flow of work, requiring less than one minute of an employee’s time per day. It has considerable advantages over the current default method used by most firms.
Perhaps the most important of these advantages is that it guarantees that every employee is knowledgeable and competent in-role and provides independent evidence of that fact. It also treats every individual with respect and allows them to make – and learn – from their mistakes gently and in a safe place. It underpins a genuine culture of compliance and ensures your first line of defence is robust and not full of holes. Every week, a new firm hires Clever Nelly and adopts this approach because they want an authentic and genuine compliance culture. Isn’t it time your business looked again at how you measure employee competence?