Compensation Survey

Comp-Survey-7-18-18.pngThe unemployment rate dropped below 4 percent in April 2018, to 3.9 percent-the lowest level since 2000, at the end of President Bill Clinton’s term. Continued improvement in the unemployment rate means that the Federal Reserve is increasingly comfortable with raising interest rates, which is good news in general for the banking industry. However, a low unemployment rate also indicates that good workers are harder to come by. That competitive talent market has resulted in banks increasing salaries overall, as well as benefits and perks, according to the executives and directors responding to the 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group.

It’s a tight labor market, and the expense to hire and retain talent is rising,” says Flynt Gallagher, president of Compensation Advisors.

A low unemployment rate isn’t the only issue behind the industry’s talent woes. The Trump administration may have appointed sympathetic bank regulators, but the industry’s compliance burden is still quite significant, which makes risk and compliance expertise increasingly valuable. The industry-and the economy at large-is undergoing a profound shift in today’s digital age. In addition to a need for workers with skills in areas such as technology and data analytics, decreased foot traffic has transformed other positions. “A lot of banks are not necessarily phasing out the teller, but they are creating more responsibility for that position,” says Jeff Fairchild, senior compensation consultant at Compensation Advisors. Increased responsibilities are resulting in higher wages for low-level employees.

Given this, it’s no wonder that the management of compensation and benefit costs is the top compensation challenge faced by the industry today, according to 44 percent of survey respondents. “Compensation and benefit costs are getting up there and to attract talent, banks are having to pay higher wages,” says Fairchild.

Adding to the industry’s talent conundrum is the fact that baby boomers are increasingly exiting the workforce, and there are significantly fewer Gen X’ers to fill the gaps, leaving a knowledge void that millennials will need to fill.

The majority of respondents-68 percent-indicate that their bank plans to recruit commercial lenders in 2018. Lending drives a bank’s profitability and with many skilled lenders retiring, these individuals’ unique set of skills and experience-along with their books of business-are valuable to growing banks.

“If you’re not creating commercial lenders, you have to pay top dollar for them,” says Gallagher.

“Finding good quality commercial lenders or lending talent that are established with a Rolodex, that is really rare,” says Derek Brown, chief human resources and marketing officer of Port Angeles, Washington-based First Federal Savings and Loan, a subsidiary of $1.2 billion asset First Northwest Bancorp. “We pursue that doggedly.”

Thirty-eight percent indicate their bank will recruit for technology talent this year. “The technology side is obviously a must; you have to have it,” says Tom Wiseman, the chief executive officer of Ohio Valley Banc Corp., based in Gallipolis, Ohio, with $1.1 billion in assets. Nineteen percent of respondents plan to recruit for cybersecurity expertise, and 11 percent for data science.

Twenty-one percent indicate that compliance is an in-demand skill for their bank, and 19 percent cite risk.

The demand for the skills and expertise that will drive the banking industry forward, combined with the retirement of older bankers, means that financial institutions are more frequently opting to build the talent they need rather than acquire it. The decline of training programs experienced after the financial crisis served to exacerbate the industry’s brain drain, but based on the survey, it looks like those programs are making a comeback.

“The choice is: Do we outspend other banks, or do we train our employees to get the talent we need,” says Gallagher.

Forty-four percent of survey respondents indicate that their bank has dedicated more resources to training employees over the past three years. Overall, 80 percent offer external training or career development to at least some of the bank’s staff, and 74 percent have an in-house training program.

“It used to be that all the big banks around us had very long, [in-depth] training programs,” says Catherine Duncan, the vice president of human resources at Memphis, Tennessee-based Triumph Bank, with $696 million in assets. “They would make these incredible credit analysts that would become commercial loan officers, so what we’re finding is that we’re going to have to go back to that.” The bank recently hired an individual to develop a training program for retail associates, with the goal to develop a career path at the bank for these entry-level employees, who tend to be younger. In her experience, millennials want to learn, and want to understand how their career will take shape in the organization. “If I leave them in a universal banker role and keep them in one particular spot, then they’re not going to be satisfied for very long,” she says.

A renewed emphasis on training programs should help banks rebuild their talent pools. These programs also show an employee that he or she is valued by the organization, which is investing in that person’s future. This is a trait prized by millennial employees, says Gallagher. “We’re seeing an influx of millennials into the workforce, and what they value is becoming important to banks.”

Midland States Bancorp, with $5.7 billion in assets in Effingham, Illinois, has developed a three-tier talent development program to train up potential managers and executives for the organization. The first tier identifies potential leaders-around 15 employees are nominated per class-and through a one-year program teaches them leadership and project management skills, and introduces them to areas of the bank outside their own responsibilities. The second tier is for individuals currently in management roles and focuses on qualities needed for greater leadership responsibilities at the bank. The highest tier focuses on executive development.

For young people considering a banking career, “being able to show them that we actually have a program that they may be able to participate in, if in fact they do exhibit some of those leadership qualities that we’re looking for, I think that makes the bank a little bit more attractive,” says Sharon Schaubert, Midland’s senior vice president of banking services. “They can see that we’re making an investment in our employees and that there [are] opportunities for career development and growth within the organization.”

While the majority of banks deploy a combination of in-house and external training programs, less than one-third of respondents say their bank defines and communicates career paths for staff, and just 15 percent offer a mentorship program.

Training programs alone won’t keep employees from looking for greener pastures. Ohio Valley Banc Corp. hires younger employees with the technical know-how, and uses training programs to shore up the necessary banking skills. However, “we feel like sometimes we’re the trainer for other people. By the time we get them where we want them, they’re gobbled up by some other industry or even other banks, so it’s an ongoing, never-ending effort,” Wiseman says.

A multitude of studies have been conducted over the years about what millennials want in the workplace, and these millennial wish-lists consistently include job flexibility, a collaborative work environment and companies that have an impact on society or local communities.

Bill Sennholz, the CEO of $441 million asset Forward Bank, in Marshfield, Wisconsin, says his bank pays employees well but credits the organization’s culture for its ability to attract top talent. “We set out to be an employer of choice,” he says. “We’re really going out of our way to make sure we’re dialed in to what our employees need and what they want us to give them so they’re happy to stay here.”

The buzz generated by the bank’s new headquarters certainly helps. Located in a town of 40,000 that Sennholz says boasts good schools, low crime, recreation areas and access to urban centers, the facility features collaborative spaces, sit-to-stand desks and a fitness center.

Just 24 percent of respondents indicate their bank has changed or updated its culture in the past three years to attract and retain younger employees. But a few changes in hiring practices indicated by some of the survey respondents, as well as the employee perks offered by the bank, can serve as cultural indicators. In the survey, 49 percent say their bank offers health perks, and 38 percent promote a collaborative work environment. Sixty-one percent of respondents indicate their bank has an active employee volunteer program, with 28 percent saying their bank has increased community and volunteer initiatives over the past three years. “Millennials want to belong to a company that has the same social values,” says Gallagher.

The survey finds that banks above $1 billion in assets are more likely to invest in volunteer programs. “[Smaller banks] don’t have the time or the staff for volunteer programs,” says Gallagher. To be effective, the bank should be able to promote the programs to prospective customers and employees in the community.

Sennholz says that Forward Bank works to enable employees to be active in their communities. “We’re encouraging them to do things that they would want to do, and we’re giving them the time and the flexibility to do it,” he says.

A few banks have adopted digital practices to fuel hiring and retention efforts. One-quarter of respondents say their bank more actively uses social media channels to attract talent, and 29 percent now offer telecommuting as an option to some bank staff. The flexibility to work from home can appeal to some employees and attract talent from other areas of the country. Triumph Bank in Knoxville used the social media platform LinkIn to hire an underwriter who lives on the opposite end of the state. The bank benchmarks remote workers’ performance against that of its in-house underwriters. Those working from home are more productive, according to Duncan.

Select employees at Midland States have worked remotely for a while now. The bank formalized its approach to telecommuting last year when it established a policy and application process for the program. “We’re starting to see candidates ask if that’s an option, and now it’s easier to be able to explain to them what our process is,” Schaubert says. Employees must work at the bank for a year before they can take advantage of the program, though the bank has made exceptions. Schaubert and her team are currently working to put in place a training program tailored to remote employees and their managers.

While much has been made of efforts to recruit millennials, it’s important to remember that banks still employ several generations. “We’re working on a strategic plan that will not only help us retain millennials but also retain Gen X’ers,” says Duncan. “We have four generations across our workforce, and it’s really hard to find a plan that will retain and attract all of these generations.”

Gallagher recommends a tailored approach to compensation planning. “Find out what they value, and [where] possible, customize the compensation plan for that individual,” he says. “Don’t ever spend a dollar until you know what they value. Otherwise, it’s a waste.”

One of the perks the industry isn’t offering is one that would seem to be highly attractive to millennials. Just 10 percent offer student loan repayment assistance as an employee benefit.

Student loan debt increased from $450 billion in 2006 to more than $1.1 trillion a decade later, according to a Federal Reserve study, with the average debt per borrower increasing from $19,000 to $27,000 in the same period of time. This will continue to be a burden on young employees as that number continues to creep up. “They’re saddled with a lot of debt, and [a student loan repayment benefit] would be something that could be used” by many millennial employees, says Gallagher. Starbucks, for example, offers its employees full tuition toward a bachelor’s degree through Arizona State University’s online degree program, and participating employees are twice as likely to stay with the company, according to the online publication Fast Company. “It’s not expensive, and look at all the positive publicity that resulted,” says Gallagher. Technology startups have sprung up to help employers serve this growing need, including FutureFuel.io and Gradifi, which was purchased by First Republic Bank in 2016.

More millennial women are active in the workforce, according to the Pew Research Center, and millennials are also the most racially and ethnically diverse generation the U.S. has seen. It’s commonly held that younger prospective employees are more attracted to companies with diverse leadership, which is one of a number of reasons why diversity on the board and management team has become such an important issue for U.S. companies.

The war for talent has become a board-level concern, and one that directors are asking about more frequently, says Fairchild. “Directors are more concerned than they used to be.”

So what about talent on the board?

Boards have made gains in recruiting female directors-77 percent of respondents report their board has at least one female director, an increase of 11 percentage points from last year’s survey-but just 14 percent say they have three or more female directors on the board. When at least three women are on the board, their voices are more likely to be heard, and they’re more likely to be included in discussions, according to studies conducted on group dynamics. Boards have more ground to cover when it comes to representing other forms of diversity. Seventy-seven percent report that their board has no ethnically diverse directors, and 84 percent lack a younger director.

Talented, skilled and diverse board members are in high demand, and bank directors today have more on their plates and spend a significant amount of time on board matters-a median of 20 hours per month, according to the survey. Just 14 percent of respondents say that offering a competitive director compensation package is a top challenge for their board. Perhaps more should reconsider the competitiveness of their director pay packages to attract the talent they need.

“How much am I paid for the amount of time due for that job?” says Fairchild. “To recruit someone to serve as a director, banks have to offer a good compensation package.”

About the Survey
In March and April 2018, Bank Director surveyed 236 independent directors, chief executives, human resources officers and other senior executives of U.S. banks to examine the talent landscape for the banking industry as well as trends in director and CEO compensation. Concurrently, compensation data for fiscal year 2017 was collected from the proxy statements of 100 publicly traded financial institutions. The 2018 Compensation Survey is sponsored by Compensation Advisors, a member of Meyer-Chatfield Group.

Questions About Our Research?
Contact Emily McCormick at [email protected] if you’d like to know more about Bank Director’s research initiatives.


Emily McCormick

Vice President of Editorial & Research

Emily McCormick is Vice President of Editorial & Research for Bank Director. Emily oversees research projects, from in-depth reports to Bank Director’s annual surveys on M&A, risk, compensation, governance and technology. She also manages content for the Bank Services Program. In addition to regularly speaking and moderating discussions at Bank Director’s in-person and virtual events, Emily regularly writes and edits for Bank Director magazine and BankDirector.com. She started her career in the circulation department at the Knoxville News-Sentinel, and graduated summa cum laude from The University of Tennessee with a bachelor’s degree in Spanish and International Business.

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