Personnel offices struggle with increased workload

As one of the stock-in-trade platitudes sent out to all unsuccessful applicants, this reply was not in itself remarkable. But that it should have been sent to this particular applicant, a top-rated financial analyst who had been promised a job, was.

In fact, the formulaic dismissal was a mistake. It came from the head of human resources, someone whom the analyst had never met. One week later, after an apology from the business manager with whom he had been negotiating, the analyst was ensconced in a senior position.

In an article in the European Business Forum, he argues that the erroneous rejection letter, together with other HR blunders like hiring identikit MBAs, is evidence that HR departments in financial services organisations are "out of control".

The power of HR departments is increasing, says the analyst. In everything from hiring to setting salaries and firing, they play an increasingly important role. When they get it right, this is no bad thing. But when they get it wrong, he says that the consequences can be alarming.

If he's is right, now may be a good time to be alarmed. Following hundreds of HR redundancies, HR departments are said to be at breaking point. Low level dismissals have been accompanied by big name departures: Phyllis Rock of Merrill Lynch and Malcom Beane of JP Morgan are among those to have moved on.

Richard Colgan, an HR recruiter at headhunter Michael Page, says: "HR departments are currently coping with similar workloads with reduced headcounts. There is a reluctance to replace people who leave, or even to cover maternity departures."

Sally Talbot of the specialist financial services HR recruiter Redwood Search confirms the portrait of a function near to breaking point: "There has been a trend for the past year or so in HR departments to move people internally rather than recruit from the external market.

"There are many examples where HR managers have been promoted into more senior roles or given 'stretch' assignments in preference to hiring externally. HR departments are about as lean as they can get."

Some leanness is no bad thing. Talbot says that many redundancies were made to avoid duplicating effort in HR departments. Merrill Lynch for example, promoted Sean Woodroffe to be its international head of HR across all businesses in January, thereby overruling existing regional heads.

However, there is also a feeling that, come hard times, HR people are more expendable than some other staff. "Because HR is a non-fee earning function, it is one of the first to be targeted for redundancies," says Colgan.

Nevertheless, redundancies in HR have not always had an appreciable impact on service levels. Graduate applicants complain that there is no one left in graduate recruitment to answer telephone calls. But in most cases, interim managers and consultants have taken over from full time staff. So-called "transactional HR" jobs, like payroll management, pensions administration and recruitment, have been outsourced to third parties.

Redwood Search's Talbot says that many redundant HR staff have set up their own consulting companies, selling services back to banks on a project basis. Equally, some former HR staff from investment banks have moved on to work for third-party providers.

Rashpal Bhangal is among the latter. A former benefits specialist at Donaldson, Lufkin & Jenrette (DLJ), Bhangal left DLJ voluntarily before it was acquired by Credit Suisse First Boston. She went to work for Black Mountain, an HR and benefits consultant.

She says that arrangement was mutually beneficial: "The bank got to work with someone who was familiar with how benefits worked at DLJ. I got to work in a smaller organisation, where I received a lot more exposure to various projects."

Jerry Collier, managing director of Resource Solutions, a company that also works with CSFB, managing the bank's recruitment as opposed to its benefits, says that outsourcing HR has become increasingly popular in financial services.

"Investment banks are ahead in their thinking to the extent that they will exploit partners who can bring in best practice. Outsourcing provides an opportunity to inject expertise and prevents the need for a large investment to make internal systems world class."

Resource Solutions offers customers assistance with everything from recruiting permanent and temporary workers, to identifying existing high flyers and moving them internally, immigration law, referencing and outplacement.

In addition to CSFB, the company works with a number of other investment banks.

Collier says that for financial services, outsourcing some HR functions can also reduce the risk of litigation. Things like co-employment risk or the risk that temporary workers will claim the same rights to redundancy and holiday pay as full-time employees, can be mitigated when experienced providers are brought in to manage temps, says Collier.

Similarly, third-party suppliers are likely to be up to speed with new Financial Services Authority requirements regarding recruitment and appraisals.

By liberating banks' HR staff from mundane "transactional" work, Collier says that outsourcing can enable them to get on with the more serious business of working on a "people strategy" for the future.