Do Banks Pay Women and Minorities Less?

“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.”

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.

Bank Salaries Creeping Upward

Accounting and consulting firm Crowe Horwath LLP has conducted an annual review of bank compensation every year for 30 years. This year’s results from 280 banks show a modest increase in bank employee salaries, while CEO pay has rebounded after declining the year before. Crowe Senior Consultant Timothy Reimink, who is in charge of the survey, talks about the results.

What surprised you about the findings this year?

We were somewhat surprised to see how quickly financial institutions have shifted priorities from containing costs to developing employees.  It seems to be a good sign of the health of the financial industry.  Respondents to our survey cite “containing costs” at a lower level of priority in 2011 than in 2009 or 2010.

What general trends are you seeing in terms of compensation?

Pay increases continue to be modest.  Since the onset of the recession, banks have slowed salary increases for employees.  The average salary increase for officers in 2011 was 2.4 percent, the same as in 2010.  For non-officers, salary increases in 2011 were also comparable to 2010.  Increases planned for 2012 are only 2.5 percent.

This change in salary practices appears to be part of a fundamental shift in strategy, to have compensation more in line with competitors.  Only 12 percent of banks have a strategy of paying above market compensation, compared to 17 percent in years prior to the recession.

What about CEO and executive level pay?

We saw CEO compensation rebound in 2011, with total compensation increasing 6.5 percent from 2010, after declining in 2010 from 2009.  The increase was in base salary.   Bonuses as a percentage of base salary were 9.8 percent in 2011, similar to 2010 levels.  Growth in total compensation for CEOs had been slowing during the prior three years, reflecting the decline in financial institution performance during the last three years.  As the economy and financial condition of banks have both stabilized, CEO compensation appears to be on the upswing.

Do you have an opinion on how banks might change their compensation practices to better attract and retain good employees?

Financial institutions should reward above-average performers by increasing their salaries at a significantly faster pace than for average performers.  While 87.7 percent of financial institutions say they have a pay-for-performance program, their actual practices in granting merit pay increases don’t appear to support their expressed objective.  There appears to be little difference between salary increases for average performers and above-average performers.  Banks rated 26.9 percent of their employees as “exceeded expectations” in 2011, and on average gave a 3.2 percent salary increase.  This level of salary increase is not much more than the average 2.6 percent increase given to those employees meeting expectations.

Pay-for-performance may be primarily a downside phenomenon, with average increases of only 0.5 percent given to the 5.9 percent of employees rated as “below expectations.”

How have regulatory changes influenced pay trends?

Executive compensation has certainly been a focus of attention for the regulators and the media in recent years.  The most controversial pay practices have been at large banks and investment firms.  In contrast, for the majority of financial institutions, 55 percent, these regulatory changes have required no change in compensation practices.  Of our survey participants, 42 percent have reviewed their compensation practices, but only 21 percent have made changes because of regulatory concerns.  Our review of the trends indicates that there has been a shift away from cash bonuses and toward restricted stock as a form of incentives for executives.