What Silicon Valley Bank’s Failure Means for Incentive Compensation

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The day Silicon Valley Bank failed on March 10, the bank paid out millions in bonuses to senior executives for its 2022 performance, according to the Federal Reserve’s April postmortem analysis and the bank’s proxy statement. Those bonuses were paid despite ongoing regulatory issues, including a May 2022 enforcement action.

As details trickle out about Silicon Valley Bank’s and Signature Bank’s failures, it’s becoming clear that regulators are interested in greater regulation and scrutiny of incentive plans. 

Among key risk management gaps, Federal Reserve Vice Chair for Supervision Michael Barr found fault in Silicon Valley Bank’s board compensation committee, noting that holding company SVB Financial Group’s “senior management responded to the incentives approved by the board of directors; they were not compensated to manage the bank’s risk, and they did not do so effectively.” Further, he wrote in the Fed’s April report: “We should consider setting tougher minimum standards for incentive compensation programs and ensure banks comply with the standards we already have.” 

It’s likely that supervisors will revisit examinations for banks between $50 billion and $250 billion in assets, which received regulatory relief following the 2018 rollback, says Todd Leone, a partner at the compensation firm McLagan. But supervisors recognized deficiencies in SVB’s incentive compensation governance prior to its failure, Barr revealed. Changes — via legislation and enhanced supervision — may occur, along with the finalization of incentive compensation and clawback rules coming out of the 2010 Dodd-Frank Act. 

Following the failures of Silicon Valley Bank and Signature Bank, lawmakers including U.S. Sen. Gary Peters, D-Mich., urged regulators to finalize Section 956 of Dodd-Frank, which requires regulators to issue rules for institutions above $1 billion in assets around the prohibition of excessive incentive compensation arrangements that encourage inappropriate risks, and mandate disclosure of incentive compensation plans to a bank’s federal regulator. Leone says that the rule was proposed with credit risk in mind, but its application could be expanded to consider liquidity.

The agencies tasked with this joint rulemaking, which include the Federal Deposit Insurance Corp., Federal Reserve, and the U.S. Securities and Exchange Commission, issued a request for comment on a proposed rule in 2016.

For public banks, the SEC finally released its clawback rule tied to Dodd-Frank in 2022. Put simply, the rule will require public companies to adopt policies that allow for the recovery of compensation in certain scenarios, including earnings restatements. The policy must be disclosed. Troutman Pepper expects that companies will have to comply as early as August. Gregory Parisi, a partner at the law firm, believes additional scrutiny on clawback policies will trickle down through the industry to smaller banks.

Clawback policies should cover numerous scenarios. “If the only triggers you have are tied to financial restatements, then it’s probably not broad enough,” says Daniel Rodda, a partner at Meridian Compensation Partners.

U.S. Sen. Elizabeth Warren, D-Mass., and U.S. Rep. Josh Hawley, R-Mo., introduced legislation on March 29 that would authorize the FDIC to claw back compensation when a bank fails.

Beyond the Dodd-Frank rules, banks should consider how to strengthen their governance practices to better tie compensation to risk. “… Incentive compensation arrangements should be compatible with effective risk management and controls,” wrote Barr in April, citing the 2010 Interagency Guidance on Sound Incentive Compensation Policies. Those arrangements “should be supported by strong corporate governance practices, including active and effective oversight by boards of directors,” he added.

Barr also pointed out that SVB’s compensation committee didn’t receive performance evaluation materials from CEO Greg Becker, relying instead on his recommendations. 

“There can be times where [the board relies] on a verbal discussion around performance with the CEO,” says Rodda, “but having it documented in the materials and making sure that those performance evaluation materials include commentary from risk as part of the performance evaluation, those are certainly good processes to have in place.”

SVB said risk management was a “key component of compensation decisions” in its proxy statement filed on March 3, just days before the bank’s failure, but listed return on equity, total shareholder return and stock price appreciation as specific measurements for 2022 incentive payments. 

Rodda recommends that boards consider a combination of metrics that include capital ratios and risk-adjusted returns — not just profitability and growth — and incorporate qualitative approaches that could consider feedback from regulators and an overall view of risk management.

On May 31, 2022, supervisors flagged SVB’s incentive compensation process as a Matter Requiring Immediate Attention (MRIA) by the board, ordering the compensation committee to develop “mechanisms to hold senior management accountable for meeting risk management expectations.” SVB’s compensation committee was in the process of changing its incentive structure and approved bonuses in January 2023 that were paid out in March despite the bank’s dramatic deposit loss, according to the Barr report. 

“There should be a structured opportunity within the incentive program to evaluate the effectiveness of risk management,” says Rodda. “And if there are items that have been flagged by the regulators as critical and indicate that risk is not being managed well, then the committee should use its judgment to impact payouts based on that.”

Compensation issues like these will be covered during Bank Director’s Bank Board Training Forum in Nashville, Sept. 11-12, 2023.

This article was updated to correct a reference to Section 956.

Is Your Backup Ready? CEO and the Backup Quarterback

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The 2023 NFL postseason gave us a clear example of what it looks like when a team doesn’t have a backup. Dallas Cowboys continued to use kicker Brett Maher in games, even though he missed not one or two extra points, but a total of four extra points in the Cowboys’ wild card game against the Tampa Bay Buccaneers.

If your financial institution doesn’t have a strong CEO succession plan, it could wind up feeling like the Dallas Cowboys with no options to move forward. There are many parallels between a backup quarterback who is ready and a strong CEO successor.

Recruit Next-Generation Talent
Championship teams recruit talented players for each position. In addition, they recruit the next generation of players. The quarterback knows that there is someone ready to take over his position when he graduates or becomes unexpectedly injured. The backup trains his skills with the expectation that he will one day surpass the current quarterback.

Create Opportunities to Practice Leadership
Backup players are trained, mentored and given the opportunity to practice their skills and leadership. When a team with a talented depth chart fails to designate the backup quarterback, the team is not ready to follow when one of the backups steps in. Talent is not enough. Practice is not enough. The team needs to be ready to follow the next leader. Teams can absolutely have more than one candidate for the backup position, but at some point before the season, they need to make a decision on the depth chart.

Work Together for the Greatness of the Team
The relationship between the quarterback and the backup is strong. They work together for the success of the team. Backup preparation, coupled with clear communication, prepares the entire team for the next generation of leadership — whether that time comes in three years or in an instant.

Three Steps to Cultivate Backup Readiness
1. Timeline.
The backup needs to be ready now, while having the confidence to wait for graduation or retirement. When a team extends a transition timeline in college football, we see players jumping in the transfer portal and playing for a competitor. The same is often true in CEO succession planning. Holding to your timeline helps retain your backup.

2. Position Profile.
Look at your organization chart for your institution today and understand what is needed for each position in the next five years. Create a position profile that combines a job description with what the business will look like at the point of succession. Make sure your bank’s backup options have, or are building, the skills and experiences they will need to align with where the business will be at the point of succession.

3. Assess Your Talent
Much like a wide receiver can move to play safety, your institution needs to find strong talent to fill key position to lead into the future. Use a comprehensive assessment that profiles leadership potential and identifies development opportunities that allows for your “best athletes” to move into a range of roles.

When your bank needs a succession plan or depth chart, follow the example of championship football teams. Understand the timeline, then match the skills of your players with the demands of your organizational chart. A third party can be useful in helping to assess and plan for the future team.

A Framework for Incentive Plan Adjustments

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Over the last few years, compensation committees have used their discretion more readily to approve adjustments that impact incentive award payouts. These adjustments were a practical matter during the pandemic and a more recently, to address the rapidly changing interest rate environment. Compensation committees made decisions to achieve appropriate outcomes, given external forces, while holding management accountable for results.

While compensation committees often spend time determining whether adjustments lead to a balanced outcome, they often pay less attention proactively thinking through the process which could be used for future decision making. The following principles create a framework that operationalizes the use of adjustments to metrics from year to year.

Principle 1: Accountability
Compensation committees should determine whether a potential adjustment was due to material external changes or factors that could have been avoided through better decision making. For example, accounting and tax law changes are regularly excluded for the year in which they are enacted and after the goals have been set. Conversely, taking a certain accounting or tax position that ends up being faulty is unlikely to be excluded from actual results, since it was a management decision.

Principle 2: Impact
Any modifications should include documentation from management regarding the impact of the adjustment on the payout and a year-over-year history of adjustments. The document should walk the compensation committee through the issue, the rationale for the adjustment and the financial impact. Assessing the effect to ongoing operations is an important aspect, since adjustments may be made due to a mid-year decision but then incorporated into the banks budgeting process on a go-forward basis.

Compensation committees should discuss potential adjustments at the time business decisions are made, so that it builds in adequate time to review requests. Last-minute requests for adjustments put the compensation committee in the difficult position of understanding incentive outcomes and the rationale for adjustments at a time when agendas are jammed-packed with year-end decisions. The committee’s inclination may be to simply acquiesce and move the meeting along, leaving directors afterwards feeling strong-armed into a point of view.

Principle 3: Bank and Market Practices.
The compensation committee should develop a guideline document that identifies the categories of adjustments it may or may not exclude. For example, events outside of management’s control that could have a material impact to the business, such as tax and regulatory changes and natural disasters, are common adjustments. Certain non-recurring expenses due to mergers and share buybacks may also be excluded in the year in which a business decision is made but was not part of the annual budget. For these events, compensation committees should ascertain whether management’s decisions provided a positive impact to shareholders and the adjustment eliminated a potential disincentive to act in shareholder’s best interests.

There should be documentation summarizing current and historical adjustments the compensation committee could use as a reference to ensure consistency year-over-year. Often adjustment decisions are discussed in executive session, leaving little documentation around the rationale; and the actions become buried in multiple meeting minutes throughout the years. Listing the categories of potential adjustments and the history of past actions will help clarify which adjustments are acceptable while allowing flexibility for unique circumstances.

Principle 4: Timeframe of Adjustment
Compensation committees should assess whether the reason for adjusting is a short- or long-term issue. For example, a one-time management decision that would likely result in better performance over the long-term may reduce an annual incentive payment in the current year, but increase the value of future award payouts, in both the annual and long-term incentive programs.

Developing a framework that evaluates adjustments along with a process for deliberation is likely to result in more confidence in the outcomes, greater consistency in practice and a more efficient process for management and the compensation committee.

5 Compensation Approaches That Support Greater Board Diversity

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Boards are cultivating a more diverse slate of directors that includes different backgrounds, experiences and skills. In 2021, over 45% of new directors in the Russell 3000 were women. Directors of different ethnic groups also made steady gains. Moreover, bank boards are seeking specific skill sets such as risk, cyber and financial markets expertise to supplement traditional CEO and CFO disciplines.

Attracting and retaining a new breed of diverse directors, many of which are younger than traditional directors and may still be working, requires forward thinking. Boards with compensation programs that are unclear, overly restrictive or developed as a “one size fits all” program may encounter recruiting and retention issues. Just as director experience needs to be more diverse to oversee modern banking, director compensation practices must adapt and change to address varied perceptions and needs. Banks can take five actions to position themselves for greater success.

1. Ensure Compensation Programs are Up-to-Date.
Director pay has continued its upward trend after a brief hold during the pandemic. Furthermore, banks are adopting practices more consistent with general industry practices:

  • Consider a retainer-only approach. Eliminating meeting fees creates greater clarity around the total compensation a director receives while streamlining administration.
  • Grant restricted stock. Governance advocates and regulators alike consider full-value shares to be more appropriate for director pay, compared to stock options, since shares provide ownership without the potential for leveraged gains. The most common vesting period for equity retainers range from immediate up to one year after grant.
  • Eliminate “old school” practices. Certain practices may carry the perception that a bank board is out of touch with market practice and governance norms. These include director retirement and benefit programs, meeting fee reductions for committee meetings held on the same day as the board meeting or for meetings held “telephonically,” reimbursement of spousal travel and paying executives board fees.

2. Consider Pay Mix and Timing.

  • Coordinate cash and equity vesting. Governance advocates encourage companies to pay a minimum of 50% of board fees in the form of equity. In most cases, equity compensation is welcomed by directors but taxes can be an issue. Timing cash, such as board and committee retainers, alongside equity award vesting is helpful; this is especially true if open window periods to sell equity are limited throughout the year.
  • Consider immediate vesting. Even a one-year vesting can create unexpected tax consequences with share price movement. If a bank’s share price increases substantially over the vesting period, the tax liability at vest may be substantially higher than planned. This tax liability can create a burden on directors, especially when combined with ownership requirements and sales restrictions.
  • Rethink long holds and other restrictive policies. Stock retention and ownership guidelines are the market norm. And while welcomed by shareholders, less prevalent practices such as mandatory deferral policies and other stock retention provisions that defer stock vesting until director retirement may receive pushback from candidates and reduce the potential pool of directors.

3. Review Equity Grant Levels, Stock Ownership Guidelines.
Banks should model stock ownership requirements to ensure that directors can reach the guidelines through the compensation program within the prescribed timeframe and on an after-tax basis. Rarely are directors expected to pay out-of-pocket to serve on a public company board. If the annual equity retainer alone is deficient, banks can grant sign-on awards to give new directors a head start in achieving the ownership guideline and to support recruiting efforts.

4. Provide Programs That Let Directors Manage Cash Flow.
Board diversity may lead to varying financial objectives, which banks can address by implementing choice programs that are flexible in form of payment and tax timing.

a. Stock programs that allow directors to receive cash retainers in stock. These programs typically allow a bank to pay cash board retainers as shares. Some provide a “kicker” incentive of 10% to 20% to directors that opt for stock over cash.

b. Voluntary deferral programs. These programs may include voluntary deferrals of cash retainers and/or equity awards that may be held in company stock, an interest bearing account or in diversified investments.

5. Employ More Mindful Recruiting Efforts.
Executive recruiters and board-directed searches often resort to drawing from the same limited pool of sitting board members to fill new seats rather than broadening to other sources of talent, such as women executive groups, ethnic chambers of commerce and affinity groups. A larger recruiting pool places less pressure on the board compensation program.

Board compensation programs can act as an enticement or deterrent when banks are recruiting diverse candidates. Banks put themselves in the best position when compensation programs are clear, market-based and provide flexibility for varying life stages and financial positions.

Do Banks Pay Women and Minorities Less?

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“The time is always right to do right,” Rev. Martin Luther King Jr.

Among the many attributes of community banks is that they tend to focus on creating great places to work. They contribute to local organizations and encourage staff to stay active in their communities. They often offer regular work hours. But, when it comes to pay equity, they have work to do, according to Christie Summervill, the CEO of BalancedComp.

Summervill, who has 21 years of experience consulting with community banks on how much to pay their staffs, has compiled data recently from 300 banks and credit unions to see what disparities existed between women and men, and between ethnic and racial minorities and non-minorities.

What she found surprised her. With some exceptions, banks tend to pay female employees who are salaried, which means they are classified as exempt employees, less than male salaried employees, and salaried minorities less than non-minorities. When they were paid less, it ranged from about 2.8 to 4.4 percentage points depending on the asset class; it was 2.4 to 4.5 percentage points for minorities.

Summervill presented BalancedComp’s findings at a Bank Director Compensation & Talent Conference in November in Dallas, but did not divulge sample sizes for each asset class.

Banks Tend to Pay Salaried Women Less Than Men

Asset size Average Male Compa Ratio Average Female Compa Ratio
$100M to $200M 86.2% 85.9%
$200M to $400M 100.6% 99.2%
$400M to $600M 101.2% 97.2%
$600M to $1B 100.7% 96.3%
$1B to $2B 103.5% 99.5%
$2B to $4B 99.61% 98.3%
$4B to $8B 99% 96.2%
$8B to $12B 103.1% 99.8%

 

Banks Tend to Pay Salaried Minorities Less Than Non-Minorities

Asset size Average Minority Compa Ratio Average Non-Minority Compa Ratio
$100M to $200M N/A N/A
$200M to $400M N/A 99.5%
$400M to $600M 98.1% 100.7%
$600M to $1B 97.4% 101.9%
$1B to $2B 103.4% 103.5%
$2B to $4B 94.7% 99.3%
$8B to $12B 97% 99.4%

Source: BalancedComp. Includes data on nearly 300 BalancedComp clients across 50 states. Data pulled in August 2021. The Compa ratio is the percentage of the market rate. The system is bridged to client payroll systems without compromising individual privacy.

It was a different story for hourly staff, classified as non-exempt employees, where few pay disparities exist. Summervill thinks banks struggle to find hourly staff these days, and so they may pay more attention to competitive pay levels for hourly workers.

She thinks pay inequities exist among salaried workers because of a lack of discipline in salary management. For instance, community banks may set salaries based on what people said they expected, rather than dissecting the data. “It doesn’t come from an ugly heart,’’ she says. “Community banks are so employee-centric overall. It’s a lack of discipline.”

The Equal Pay Act of 1963 requires that employers pay men and women equal pay for equal work, and some 42 states have expanded the act with various laws of their own, raising potential liability issues for banks, according to the compensation firm Aon. States with the strictest laws include California, Colorado, Louisiana, Massachusetts, New Jersey, New York, Oregon and Pennsylvania.

Gayle Appelbaum, a partner and compensation consultant for Aon, says banks tend to be more interested in analyzing pay equity when they have operations in states that mandate pay equity. She has performed pay equity studies for bank clients and has found there has been progress in gender pay gap disparity in recent years. On average, she says the gender pay differential falls in the range of 5% to 8% across the banking industry, when using advanced methodologies to sort, analyze and compare employee census data.

Because of the liability in such studies, many banks involve their general counsel or outside attorneys before delving into such reports in order to ensure attorney-client privilege for their findings. “There are still some disparities, but the data shows that a lot of improvements have been made [in closing the gender pay gap],” says Appelbaum.

Banks striving to diversify their employee base should pay careful attention to pay equity, she says. When disparities exist, they should be examined to make sure they are within a reasonable range and based on established workplace criteria, such as education levels, performance or tenure, and not based on bias or unfair pay practices.

Summervill says she’s seen banks come up with strange reasons for paying women less, though. For example, one bank asked a female employee to avoid certification for a certain position within the bank so she could perform tasks that a certified employee was prohibited from doing. She complied but was paid $36,000 less annually than a certified male employee who did the job at the same bank — all for doing the bank a favor.

Summervill suggests bank boards ask human resources to conduct pay equity studies because human resource departments may be reluctant to initiate such studies on their own, since the results can be contentious.

BalancedComp’s data on CEOs and executive pay was mixed. Banks tend not to have many female or minority CEOs. For the few community banks that had female CEOs, they tended to make more than male CEOs in their asset classes, possibly because there are so few of them and competition for female CEOs is high. In five of the eight bank asset groups, female executives were also paid equal or more than male executives. Only two groups out of BalancedComp’s eight asset ranges had a minority CEO, and four out of the seven asset groups had no minority executives.

Summervill says banks should correct any inequities right away. After all, it’s the law. “The conclusion is that pay disparity exists,” Summervill says. “It’s not intentional but it’s absolutely there.”

Compensation, Talent Challenges Abound in Pandemic Environment

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The coronavirus pandemic has not altered the toughest hiring and talent challenges that banks face; it has accelerated them.

These range from finding and hiring the right people to compensating them meaningfully to succession planning. Day Three of Bank Director’s 2020 BankBEYOND experience explores all of these topics and more through the lens of investing in and cultivating talent.

Institutions looking to thrive, not merely survive, in an environment with low loan demand and heightened credit risk need talented, diverse people with essential competencies. But skills in information security, technology, lending and risk have been getting harder to find and retain, according to more than 70% of directors, CEOs, human resources officers and other senior executives responding to Bank Director’s 2020 Compensation Survey this spring.

On top of that, the remote environment that many are still operating under has made it harder to interview and onboard these individuals. And managing employees working outside the office may require a different approach than managing them on-site. There are a handful of other timely challenges, pandemic or not, that banks must be prepared to encounter.

Compensation Challenges
The pandemic has also compound challenging trends in hiring and compensation that banks already face. Headcount and associated compensation costs are one of a bank’s biggest variable expenses; in a tough earnings environment, it is more important than ever that they control that while still crafting pay that rewards prudent performance. Executives and boards may also need to contend with incentive compensation plans containing metrics or parameters that are no longer relevant or realistic, and how to message and reward employees for performance in this uncertain environment.

Retaining, Hiring Employees
Banks must recruit and retain younger and diverse employees who fit within the organization’s culture. Half of respondents to our survey indicated that it’s difficult to attract and retain entry-level employees; 30% cited recruiting younger talent as a top-three challenge this year, compared to 21% in 2017.

But banks and many other companies may encounter another trend: parents, especially women, leaving the workforce. Child-rearing responsibilities and distance-learning complications have forced working parents without effective support systems to prioritize between their children and their career. More than 800,000 women left the job market in September, making up the bulk of the 1.1 million people who opted out. Those departures were responsible for driving most of the declines in the unemployment rate that month.

Diversity & Inclusion
Fewer women working at banks means less gender diversity — which is an area where many banks already struggle. That could be in part due to the fact many banks haven’t prioritized measuring that and other diversity and inclusion metrics like race, ethnicity or status of disability or military service.

In Bank Director’s 2020 Governance Best Practices Survey, almost half of directors expressed skepticism that diversity on the board has a positive effect on corporate performance. Perhaps it’s not surprising that in our Compensation Survey, 42% of respondents say they don’t have a formal D&I program.

To access the 2020 BankBEYOND recordings, click here to register.

Key Compensation Issues in a Turbulent Market

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As compensation committee chair, Susan knew 2020 was going to be an important year for the bank.

The compensation and governance committee had taken on the topic of environmental, social and governance (ESG) for the coming year. They had conducted an audit and knew where their gaps were; Susan knew it was going take time to address all the shortfalls. Fortunately, the bank was performing well, the stock was moving in the right direction and they had just approved the 2020 incentive plans. All in all, she was looking forward to the year as she put her finished notes on the February committee meeting.

Two months later, Susan had longed for the “good old days” of February. With the speed and forcefulness that Covid-19 impacted the country, states and areas the bank served, February seemed like a lifetime ago. The bank had implemented the credit loss standard at the end of March — due to the impact of the unemployment assumptions, the CECL provision effectively wiped out the 2020 profitability. This was on top of the non-branch employees working from home, and the bank doing whatever it could to serve its customers through the Paycheck Protection Program.

Does this sound familiar to your bank? The whirlwind of 2020 has brought a focus on a number of issues, not the least of which is executive compensation. Specifically, how are your bank’s plans fairing in light of such monumental volatility? We will briefly review annual and long-term performance plans as well as a construct for how to evaluate these programs.

The degree to which a bank’s annual and long-term incentive (LTI) plans have been impacted by Covid-19 hinge primarily on two factors. First, how much are the plans based upon GAAP bottom-line profitability? Second, and primarily for LTI plans, how much are the performance-based goals based upon absolute versus relative performance?

In reviewing annual incentive plans, approximately 90% of banks use bottom-line earnings in their annual scorecards. For approximately 50% of firms, the bottom-line metrics represent a majority of their goals for their annual incentive plans. These banks’ 2020 scorecards are at risk; they are evaluating how to address their annual plan for 2020. Do they change their goals? Do they utilize a discretionary overlay? And what are the disclosure implications if they are public?

There is a similar story playing out for long-term incentive plans — with a twist. The question for LTI plans is how much are performance-based goals based upon absolute versus peer relative profitability metrics? Two banks can have the same size with the same performance, and one bank’s LTI plan can be fine and the other may have three years of LTI grants at risk of not vesting, due to their performance goals all being based on an absolute basis. In the banking industry, slightly more than 60% of firms use absolute goals in their LTI plans and therefore have a very real issue on their hands, given the overall impact of Covid-19.

Firms that are impacted by absolute goals for their LTI plans have to navigate a myriad level of accounting and SEC disclosure issues. At the same time, they have to address disclosure to ensure that institutional investors both understand and hopefully support any contemplated changes. Everyone needs to be “eyes wide open” with respect to any potential changes being contemplated.

As firms evaluate any potential changes to their executive performance plans, they need to focus on principles, process and patience. How do any potential changes reconcile to changes for the entire staff on compensation? How are the executives setting the tone with their compensation changes that will be disclosed, at least for public companies? How are they utilizing a “two touch” process with the compensation committee to ensure time for proper review and discourse? Are there any ESG concerns or implications, given its growing importance?

Firms will need patience to see the “big picture” with respect to any changes that are done for 2020 and what that may mean for 2021 compensation.

Fueling Future Growth

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2017-Compensation-White-Paper.pngOver the past year and a half, there’s been a lot of good news for the banking industry. New regulators have been appointed who are more industry-friendly. Congress managed to not only pass tax reform, but also long-awaited regulatory relief for the nation’s banks. And the economy appears to remain on track, exceeding 4 percent gross domestic product (GDP) growth in the second quarter of 2018, according to the Bureau of Economic Analysis.

Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, finds that the challenges faced by the nation’s banks may have diminished, but they haven’t disappeared, either.

Small business owners are more optimistic than they’ve been in a decade, according to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey. This should fuel loan demand as business owners seek to invest in and grow their enterprises. In turn, this creates even more competition for commercial lenders—already a hot commodity given their unique skill set, knowledge base and connections in the community. Technological innovation means that bank staff—and boards—need new skills to face the digital era. These innovations bring risk, in the form of cybercrime, that keep bankers—and bank regulators—up at night.

For key positions in areas like commercial lending and technology, “banks have to spend more,” says Flynt Gallagher, president of Compensation Advisors. “You have to pay top dollar.”

But a solid economy with a low unemployment rate—dropping to 3.8 percent in May, the lowest rate the U.S. has seen in more than 18 years—means that banks are facing a more competitive environment for the talent they need to sustain future strategic growth.

And regulatory relief doesn’t mean regulatory-free: With the legacy of the financial crisis, along with the challenges of facing economic, strategic and competitive threats, all of which are keeping boards busy, there’s more resting on the collective shoulders of bank directors than ever before, and boards will need new skill sets and perspectives to shepherd their organizations forward.

For more on these considerations, read the white paper.

To view the full results to the survey, click here.

Compensation Planning In Today’s Talent Market

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How do banks attract young employees and retain key executives? David Fritz Jr. and Patrick Marget of Executive Benefits Network explain that bank compensation plans should appeal to multiple generations and outline how Bank-Owned Life Insurance (BOLI) can offset compensation costs.

  • Challenges in Attracting & Retaining Employees
  • Focusing on Long-Term Incentives
  • BOLI’s Role in Compensation Planning

Three Questions Bank Directors Should Ask About Incentive Compensation

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The recent events surrounding the Wells Fargo cross-selling scandal has stimulated a lot of conversation at Bank Director’s 2016 Bank Executive & Board Compensation Conference on Amelia Island, Florida. Editor in Chief Jack Milligan offers three questions bank directors should ask regarding their financial institutions’ compensation programs.