How Fintechs Are Impacting Conventional Pay Practices

Traditional banks are facing unprecedented talent market pressures to retain key people, while also needing to attract talent from the financial technology industry to execute their own business transformations at an accelerating rate.

As the pressure on traditional banks increases, the question of “how much?” is no longer the only relevant question to be answered. Equally important is understanding how compensation opportunities should be structured and potentially delivered to ensure offers remain competitive.

PitchBook, a Morningstar company, has tracked over 820 companies in their fintech industry database as of October 2021. A third of these companies are less than five years old and well-funded by venture capital investors looking to capitalize on the industry’s explosive growth. Growth requires highly skilled, experienced talent to drive it. The fintech revolution has many traditional banks evolving their business models to remain relevant in this highly competitive market.

Seven Notable Pay Practice Trends from the Fintech Industry
The following seven pay practice trends are common across the fintech industry and essential for banks to understand. Financial institutions are likely to encounter several of these practices when competing for talent, and should consider which may work well within their programs to bolster competitiveness.

1. Highly Competitive Salaries. Many fintech companies were established in high-cost cities, and the pay levels established in Silicon Valley often ripple through their national pay structures. Market-leading base salaries establish a firm offer upfront for prospective candidates.
2. More Equity Compensation. High company valuations support granting equity more broadly in the organization; candidates coming from that environment will expect an equity grant.
3. Equity Grants at Hire. It is common in high-tech markets to make an upfront equity grant at the time of hire between two and four times annual target levels to establish a foundational level of ownership.
4. Shorter Equity Vesting Periods. The age-old belief that longer vesting periods promotes retention is being challenged by some high-profile tech firms. These companies are opting for monthly vesting over a multi-year time frame. Some even opt for full vesting within a year.
5. Specialized Incentive Plans. The bank’s “corporate plan” may not fit the needs of a developing Banking-as-a-Service venture or fintech business unit. As such, a customized incentive geared towards growth or achieving strategic objectives may better support these businesses in the critical early stages.
6. Retention Awards for In-Demand, Specialized Skills. Candidates with anti-money laundering, cryptocurrency and treasury function experience are highly sought after by firms and are experiencing large jumps in pay when they change employers. “Lock-in” retention equity awards are one way that companies are attempting to retain their employees.
7. Flexible Work Arrangements. All industries are encountering this, but this is old hat for fintech companies that have historically emphasized this style work. Flexible work arrangements have become an expectation for most employees with in-demand skills.

For traditional banks, the realities of the broader competitive labor market are further complicated by the increased talent crunch in the fintech industry. Amid these unprecedented labor market pressures, traditional banks would do well to ensure relevant stakeholders are well informed about the realities of the broader competitive labor market and the need for a nimble talent strategy. Understanding both the “how” and “how much” of pay will prepare organizations to respond proactively to these market realities and provide an advantage when competing in the marketplace for talent.