What Keeps Bankers Up at Night

exhausted.jpgEvery industry has plaguing problems that just don’t go away. The fact that most of the issues with banking tend to turn into headlines only intensifies the anxiety we feel each day. Recently, Bank Director and Meyer-Chatfield Compensation Advisors conducted the 2012 bank director compensation survey to get first-hand information on the issues and trends regarding pay at the board level.

What Are the Stress Points on Bank Boards? Looking past the headlines, the survey enables us to get inside the heads of directors across the country to see what’s really concerning them.  Here’s what we saw as recurring issues in the banking industry:

  • Employee Retention
  • Succession Planning
  • Tying Compensation to Performance

Investing in Key Employees

Bankers are worried about losing key employees. At Meyer-Chatfield Compensation Advisors, we’ve seen a big increase in employee departures at companies around the country. There are triple digit increases in turnover on both the chief executive officer and chief financial officer level, with average turnover of about 37 percent in the CEO role and 75 percent for the chief financial officer. We’re seeing a 94 percent increase in turnover from the C-Suite down through corporate vice president levels.  Those are some pretty staggering numbers.  As the numbers continue to soar, bankers are concerned that their employee retention programs may not be strong enough to keep the employees they need. They are worried they’ll lose their best employees to the competition. Plus, with increased government regulations, many key executives are frustrated by the restrictions on the banking industry and are taking their talents to industries that are less scrutinized by government regulators. A trend we’re seeing is younger executives jumping ship in order to work for industries with less bureaucracy for higher pay.

Who’s Next?  Are Succession Plans in Place?

Another concern that is closely related to retention is succession planning. Many banks recognize that they have an aging executive team. Are younger executives being groomed for the next step?  And have banks done enough to retain new talent to keep them on board? Few things are as disruptive to a bank as a shake-up in the senior ranks. Without a succession plan, a bank cannot act quickly to attract talent and it runs the risk of losing other key members of the team. 

Banks in rural areas are also challenged by the higher amounts required to provide the salary and compensation packages that can attract the level of employees they need to thrive.  Compensation packages that were acceptable by a previous executive may not be suitable for the replacement. The local talent pool may not provide the right candidates and going outside the market costs money that some banks can’t afford. But not having the right talent in place can be much more costly.

Knowing How Compensation Can Help

The final issue that is at the core of most bankers’ angst is in understanding how compensation can work for them. This is a two-fold issue. First to consider is whether the board understands the impact compensation has on retention and succession planning. While compensation and benefits are the largest component of operating expenses, compensation isn’t an issue until something happens to turn it into an issue. Someone retires. Someone resigns. Someone dies. Suddenly compensation and benefits are at the forefront and the board is reacting to the situation. Compensation is most effective when it’s proactive.

The second part of the issue is that directors may not understand how to connect compensation back to the strategic plan. Nearly 44 percent of respondents of the survey revealed that CEO compensation is not linked to a strategic plan. Our conversations with bankers indicate that there may be a misunderstanding from the board on how their compensation is tied into the goals in the strategic plan. Effective compensation plans are based on achieving goals and meeting key performance indicators. From the bankers’ standpoint, they understand the link, but may feel that directors and board members are removed from the connection. 

Putting Compensation Anxiety to Rest

Surveys always spark conversation. And the compensation survey reveals the need for more conversation between bank officers and their boards. Frank discussions on retention strategies and succession planning are needed to alleviate stress. While compensation planning isn’t as complicated as quantum physics, it does require a strong level of focus to resolve the concerns that keep us up at night. Discuss the issues with your board. Talk about solutions. Resolve them before they become real problems.