Why Attracting and Retaining Talent is No Longer Good Enough

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Every year, Cornerstone Advisors conducts a survey of community-based financial institution CEOs that asks what their top concerns are. The 2022 survey produced the biggest one-year change we have ever seen. A full 63% of executives identified the ability to attract qualified talent as a key concern, up from just 19% the year before.

No doubt this focus on talent is at least partially the result of the sheer number of new topics requiring industry expertise. Think digital currencies. Embedded finance. BaaS. Buy now pay later. Gen 3 core systems. Artificial intelligence and machine learning. How many of those topics would have been on any FI’s training curriculum two years ago? Yet boards now ask about every one of those topics in terms of the financial institution’s strategy.

However, attracting qualified talent won’t be enough. Every financial institution has knowledge and expertise that can only be developed internally, simply because the knowledge build is so unique to the industry, including:

  • Processes unique to a line of business: There is no school or degree for bank processes, front or back office. And they vary by financial institution.
  • Regulations: The practical application of regulations to specific situations at the institution requires deep “inside” knowledge.
  • Vendors and systems: The vendor stack and roadmaps, and the institution’s databases, make its knowledge requirements unique.

In short, there is no university diploma that can be obtained for many areas of the bank – and, in my opinion, the further you get into the back office, the truer this is.

At Cornerstone Advisors, we’re observing that banks need to focus on “build or buy” of key skills and knowledge for the next generation of leaders and managers. Some thoughts about what we see working:

1. Have a clear list of jobs, skills, and knowledge that will need to be developed versus hired. Everybody will have a different list, of course, but four areas where we consistently see the biggest “build” need are:

    • Payments: While there are certainly people that can come to a bank or credit union with a great deal of understanding about payments, there is the entire back-office component – disputes, fraud, reconciliation, vendor configuration options, et al. – that can be learned only on the job.
    • Commercial credit: An institution’s required credit expertise will depend on its business and niches. For example, knowledge of national environmental lending will be unique from that of import/export letter of credit. Unfortunately, peers and competitors don’t have a deep bench to abscond with.
    • Digital marketing: This is simply too new an area for there to be loads of potential applicants with loads of expertise and experience. Even if execs can find candidates with broad digital marketing experience (they’re out there), they will need to understand the nuances of banking and what will constitute meaningful marketing opportunities in particular client segments.
    • Data analytics: There are a growing number of available people with very strong data skills, but even if hired they will need to come to grips with the complexity of the institution’s data structure.

2. Don’t ignore the importance of the apprenticeship model when building talent. Most leaders at FIs can point to on-the-job training they received early in their careers that has been the basis of their success. The apprenticeship model has worked for centuries and still works well at the modern bank.

3. Balance the in-person need for apprenticeship training with the new realities of remote work demands. In a recent Accenture study, over 60% of employees surveyed felt their productivity had increased due to working at home, and only 13% felt it hadn’t. Whether it is a new hire or re-skilling of an existing employee, the message of “five days in the office” won’t sell. Getting the right amount of face time for development while giving the new generation of stars an appealing work-life balance will be a key challenge for HR groups.

A clear, disciplined, focused plan for development of the next generation of talent is more crucial than ever. There are times when buying talent from elsewhere just won’t be an option due to cost, availability, or the risk of retaining those same people. The good news? Some of the best opportunities might be right in front of you in your existing workforce.

Focusing on 4 Key Trends for 2023

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The current market presents unique challenges for financial institutions.

As we navigate a complex environment during a time of significant industry change, recessionary pressure and geopolitical uncertainty, it’s crucial that banks focus on a realistic number of strategic priorities. Entering the first quarter of 2023, I see four key trends impacting the financial services industry that boards and executives need to focus on to survive and thrive amid economic uncertainty.

Talent
Having the best bankers, treasury management officers, middle office talent and banking center managers is always critical. But it’s also vitally important to have those unique individuals who can take an innovative idea and turn it into reality.

Your bank needs people who can work well with your partners and vendors to make sure you’re delivering the right kinds of capabilities to customers, and leaders who can see around the corner and anticipate the capabilities you’ll need in the future. That talent can be hard to come by; the turbulent labor market presents some challenges, but also opportunities.

There have already been some significant layoffs at large tech companies, but they aren’t the only ones. Smaller tech companies have also had to cut back — and that could be a chance to hire talent that has historically been out of reach or acquire a superstar that left for an early-stage company and is ready to come back. Lastly, banks should look for high-performing people at lower-performing companies and see if they might be ready for a change. Successful talent strategies will have an outsized impact on future performance.

Strategic Clarity
Reaching strategic clarity with all of your stakeholders will be crucial. Scarce resources and changing investment environments means financial institutions must make clear and deliberate decisions when it comes to their strategies.

Not only is it important to know your customers, your market and how you will differentiate and win, but it’s imperative to guard against strategic drift or succumbing to the temptation to be all things to all customers.

Pressure to Innovate, Simplify
The marketplace has been noisy. The substantial amount of funds invested in new financial technology firms over the past five years has made it feel like there are endless opportunities to innovate. Stakeholders in all directions may be making suggestions and recommendations. This has helped move the banking industry forward in important ways and helped power some of the digital leaps we experienced during the pandemic.

However, bankers seem to gravitate toward complexity. Now is the right time to take a step back, take stock of your organization’s investments and determine whether they have helped you simplify your business and operations.

Could you rethink entire lines of business based on the digital capabilities that you now have? Where can your institution make incremental, but important, moves toward simplification? What are the bank’s most important innovation priorities that need to move forward regardless, or because of, the turbulent macroeconomic environment? These are critical questions that every management team should be addressing.

Deposit Strategy
Not too long ago, it seemed every bank was flush with deposits. Today, even financial institutions with favorable loan-to-deposit ratios are figuring out how their deposit base is changing, what effect higher and rising rates are having, where they’re experiencing attrition and churn within their customer base, and what parts of their funding strategy need to be reworked.

It will be critical to develop a long-term sustainable deposit strategy and identify advantages specific to your institution. For example, in which industries does your bank have lending expertise? Use that experience to develop working capital solutions for those same customers. If your bank has developed your digital banking capabilities, explore where you have untapped potential in the existing customer base with targeted campaigns and marketing messages. Haven’t revisited your compensation strategy? Now is the right time to be addressing incentives for developing a commercial deposits business. Actions that a bank takes today will have a lasting positive impact.

It’s easy for directors and executives to become overwhelmed in such a fluctuating environment but the financial institutions focused on strengthening talent, clarifying critical priorities, accelerating innovation and maximizing their deposit strategies will be ready to take advantage of growth opportunities in this new year.

Back to the Office

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Although studies have shown most workers like hybrid or remote work opportunities, CEOs rarely like the concept.

A recent KPMG survey across industries this summer found that 65% of CEOs see in-person work as optimal over the next three years. It was even higher for bank CEOs: 69% of them envision their operations fully in-person during that time frame. Only 24% of bank CEOs envision a hybrid work environment, with both in-person and at-home work, during the next three years.

One of those who dislikes the idea of hybrid work is Fifth Third Bancorp CEO Tim Spence. But Spence has an interesting take on why hybrid or remote work doesn’t work well for banking. While many bank CEOs talk about the importance of in-person work to foster a certain culture, Spence sees another reason, too. While tech companies may embrace the concept of a diverse workforce throughout the world plugging in via videoconferences and online chat, banks have long been deeply rooted in their communities where they do business.

The questions every bank faces are now: Will workers feel as motivated to volunteer and make financial donations when they’re not working in local communities where the bank operates? What happens to a corporation’s philanthropic endeavors when its workforce is diffused through the country?

I met up with Spence in late October at the company’s headquarters in Cincinnati. “My biggest fear about the movement in some quarters of the economy toward remote work is that it’s severing the link between headquarters employers and their responsibilities to the communities where their employees live,” he says.

Like many banks, Fifth Third’s financial success is tied up in the success of its communities. The $206 billion bank traces its roots to Cincinnati back more than 160 years; today, it is a major philanthropic entity in the Queen City and its employees contribute sizable volunteer hours. For Spence, being in a community means physical presence and the ability to be out with clients.

“There’s not another regional bank with a more significant share of its balance sheet attached to manufacturing and transportation and logistics companies than Fifth Third,” he says. “Those folks had to [work in-person during the early days of the pandemic] and we needed to be there with them.”

That doesn’t mean no one works from home at Fifth Third. Spence says about 15% to 20% of positions are eligible for remote work. The rest of the employee base works with their managers if they need an alternative work arrangement, for example, to accommodate caregiving responsibilities. But there’s no across-the-board hybrid work that’s available to all employees.

These issues have been on my mind lately as I head to Bank Director’s Bank Compensation & Talent Conference Nov. 7 to Nov. 9 in Dallas. Compensation consultants, executive recruiters and human resources officers at banks will talk about designing compensation programs, attracting and retaining staff and the ever-shifting regulatory environment. Stay tuned for more on those topics in the days ahead.

The War for Talent in Banking Is Here to Stay

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It seems that everywhere in the banking world these days, people want to talk about the war for talent. It’s been the subject of many recent presentations at industry conferences and a regular topic of conversation at nearly every roundtable discussion. It’s called many things — the Great Resignation, the Great Reshuffling, quiet quitters or the Great Realignment — but it all comes down to talent management.

There are a number of reasons why this challenge has landed squarely on the shoulders of banks and organizations across the country. In the U.S., the workforce is now primarily comprised of members of Generation X and millennials, cohorts that are smaller than the baby boomers that preceded them. And while the rising Gen Z workforce will eventually be larger, its members have only recently begun graduating from college and entering the workforce.

Even outside of the pandemic disruptions the economy and banking industry has weathered, it is easy to forget that the unemployment rate in this country was 3.5% in December 2019, shortly before the pandemic shutdowns. This was an unprecedented modern era low, which the economy has once again returned to in recent months. Helping to keep this rate in check is a labor force participation rate that remains below historical norms. Add it all up and the demographic trends do not favor employers for the foreseeable future.

It is also well known that most banks have phased out training programs, which now mostly exist in very large banks or stealthily in select community institutions. One of the factors that may motivate a smaller community bank to sell is their inability to locate, attract or competitively compensate the talented bankers needed to ensure continued survival. With these industry headwinds, how should a bank’s board and CEO respond? Some thoughts:

  • Banks must adapt and offer more competitive compensation, whether this is the base hourly rate needed to compete in competition with Amazon.com and Walmart for entry-level workers, or six-figure salaries for commercial lenders. Bank management teams need to come to terms with the competitive pressures that make it more expensive to attract and retain employees, particularly those in revenue-generating roles. Saving a few thousand dollars by hiring a B-player who does not drive an annuity revenue stream is not a long-term strategy for growing earning assets.
  • There has been plentiful discourse supporting the concept that younger workers need to experience engagement and “feel the love” from their institution. They see a clear career path to stick with the bank. Yet most community institutions lack a strategic human resource leader or talent development team that can focus on building a plan for high potential and high-demand employees. Bank can elevate their HR team or partner with an outside resource to manage this need; failing to demonstrate a true commitment to the assertion that “our people are our most important asset” may, over time, erode the retention of your most important people.
  • Many community banks lack robust incentive compensation programs or long-term retention plans. Tying key players’ performance and retention to long-term financial incentives increases the odds that they will feel valued and remain — or at least make it cost-prohibitive for a rival bank to steal your talent.
  • Lastly, every banker says “our culture is unique.” While this may be true, many community banks can do a better job of communicating that story. Use the home page of your website to amplify successful employee growth stories, rather than just your mortgage or CD rates. Focus on what resonates with next generation workers: Your bank is a technology business that gives back to its communities and cares deeply about its customers. Survey employees to see what benefits matter most to them: perhaps a student loan repayment program or pet insurance will resonate more with some workers than your 401(k) match will.

The underlying economic and demographic trend lines that banks are experiencing are unlikely to shift significantly in the near term, barring another catastrophic event. Given the human capital climate, executives and boards should take a hard look at the bank’s employment brand, talent development initiatives and compensation structures. A strategic reevaluation and fresh look at how you are approaching the talent wars will likely be an investment that pays off in the future.