Research Report: An Uphill Struggle for Talent

The banking business became more expensive last year, as banks were forced to pay up to attract and keep talent. Some of the talent pressures stem from temporary hurdles, such as inflation. But Bank Director’s 2022 Compensation Survey, sponsored by Newcleus Compensation Advisors, points to broader existential challenges the industry faces in cultivating talent for the long term.

Respondents almost unanimously report that their banks raised non-executive pay last year to keep talent, and a majority also raised executive compensation. But higher pay did not necessarily translate into an easier time recruiting, with clear majorities of bankers and directors indicating that it had also become more difficult to attract and retain talent in 2021.

“Banks are just one industry. I don’t think they’re going to be spared what every other industry is experiencing in terms of the shortage of talent and a reluctance, perhaps, of some people to come back,” says Flynt Gallagher, president of Newcleus Compensation Advisors.

Of course, the banking industry has some unique nuances to its particular talent challenges. Competition for commercial bankers has always been stiff, for instance, and it’s likely to intensify as banks look to commercial lending to offset net interest margin compression.

Demand for talent hasn’t been limited to specialty roles; entry-level and branch staff were also difficult to hire and retain in 2021. Some of that, no doubt, was influenced by the pandemic and its ripple effects, but banks also had a lot more competition for even entry-level workers. Job candidates with cash handling experience pretty much had their pick of opportunities, and banks weren’t competing solely with other financial institutions.

“In many of our markets we’re not just competing with banks anymore,” says Eric Thompson, chief human resources officer at San Antonio-based Vantage Bank Texas. “We’re competing with the grocery store that’s now offering $20 an hour.”

To read more about talent challenges and managing compensation expenses, read the white paper.  

To view the survey results, click here.

Modernizing Total Rewards Programs to Attract, Retain Talent

The labor market has shifted dramatically and, in many ways, is more competitive than ever.

Low unemployment and decreasing labor force participation has caused high vacancy rates and increased the time to fill open positions. It’s also pressured employers to increase compensation and enhance their total rewards packages to keep up with changing employee expectations.

These market dynamics mean banks need to review their total rewards package. You may find your bank’s people strategy, and current and future workforce, have evolved beyond the total rewards offerings. You might be investing in benefits and programs that aren’t valuable to employees. Here are three top total rewards trends to consider for your bank.

Compensation
For most companies right now, compensation increases budgets that are already falling short due to rapidly rising inflation. Employers are frustrated that they are stretching budgets and profitability by spending more on wages, without necessarily seeing an increase in their ability to attract and retain. Employees are frustrated that their wage increases aren’t keeping pace with inflation; their personal budgets are stretching, particularly at entry-level positions.

In addition, certain specialized and high demand jobs that can be performed remotely — especially in areas such as technology and cybersecurity — means banks are facing competition from local, national and international companies.

Here are ways to succeed in compensation:

  • Short-term incentive programs: Are there ways to enhance your short-term or annual incentive programs? Currently, nearly 91% of employees receive some sort of variable pay, according to Willis Towers Watson’s 2020 US Annual Incentive Plan Design Survey. Increasing the eligibility to additional groups can make the total compensation package more attractive and competitive, as long as it is clearly communicated and understood. Consider accelerating the payouts to semi-annually or quarterly, so employees receive the value more frequently than once a year.
  • Long-term incentive programs: Traditional long-term incentive plans are simply a compensation arrangement with a delayed timing element. While simple to administer, they can lack flexibility that connects employees to the benefits, which creates true retention.

A nonqualified retention program, or sometimes called a SERP (supplemental employee retirement plan) offers the additional benefits of investment discretion, where employees may self-direct their unvested balances across a 401(k)-type menu of funds. SERPs also offer distribution and taxation discretion that allows employees to control the timing of the distribution of benefits. Employers can give employees the opportunity to re-defer their benefits, keeping them invested in a tax-deferred vehicle after they’ve vested. Additionally, a nonqualified program allows plan sponsors a great deal of flexibility when it comes to vesting schedules. Participants can customize schedules and contribution occurrences to fit the organization’s objectives.

  • Compensation philosophy and communication: Employees will develop their own opinions if you don’t communicate with them directly about pay. In a world where it’s easy for employees to gather salary information online, being clear and transparent about the compensation program, including how you review and determine pay rates and market competitiveness, can give your employees confidence that they will be treated fairly and equitably.

Learning, Growth and Development
The “Great Reshuffle” is leading employees to examine their purpose, work lives and future like never before. Learning and development are a key focus for some employees’ future growth and fulfillment. At the same time, companies are faced with the reality that a significant portions of their workforce may leave or retire in the next five to 10 years. Not surprisingly, according to LinkedIn’s Workplace Learning Report, the primary focus areas of learning and development programs in 2022 are:

  • Leadership and management training.
  • Upskilling and reskilling employees.
  • Digital upskilling and digital transformation.
  • Diversity, equity and inclusion.

With these core skills in mind, learning is becoming central to everyday work, and key to developing future talent. Employees who feel that their skills are not being put to good use in their current job are 10 times more likely to look for a new job than those who feel their skills are being put to good use, according to LinkedIn’s September 2021 survey.

Culture and Connection
Even the best total rewards package can’t make up for a toxic culture. It’s critical to focus on your people and provide opportunities to connect, collaborate and build relationships (whether in person or virtually). This will support your employee’s mental health while building connection with your organization, improving employee retention.

These three total rewards trends all share one thing: It’s important to have leadership and manager support to truly see success. Executives must also communicate early and often with employees in all of these areas, so they understand the true value of your bank’s offerings and have a positive and engaging employee experience. The right components of a total rewards package empowers banks to attract and retain high performing talent to drive performance to the next level.

Compensation Survey Results: An “Untenable” Talent Climate

Intensifying competition for talent is forcing banks to pay up for both new hires and existing employees.

There were two jobs for every job seeker as recently as March, according to the Bureau of Labor Statistics, and employers of all stripes may be feeling like the balance of power has shifted. The results of Bank Director’s 2022 Compensation Survey, sponsored by Newcleus Compensation Advisors, show the banking industry is no exception to these dynamics.

Seventy-eight percent of responding directors, human resources officers, CEOs and other senior executives say that it was harder in 2021 to attract and keep the talent their bank needs than in past years. They’re responding to that challenge, in large part, by raising pay. Ninety-eight percent say their organization raised non-executive pay in 2021, and 85% increased executive compensation. Overall, compensation increased by a median 5%, according to participants.

That’s led bankers to shift their priorities. Managing compensation and benefits costs (46%), paying competitively (40%) and recruiting commercial lenders (34%) have emerged as respondents’ top compensation-related challenges this year. The proportion of respondents most concerned with tying compensation to performance — the top challenge identified in past surveys, going back to 2019 — fell sharply to 21% from 43% last year.

Even in the face of rising compensation costs, they’re also focusing on retaining and keeping staffing levels stable. Fully half of respondents say their bank added staff over the past year and 34% maintained staffing levels. Just 16% decreased their total number of employees. More than half (54%) of those whose bank decreased head count cite competition from other financial institutions and companies in their markets as the primary reason for the decline.

When asked about the specific challenges their organization faces in attracting and retaining talent, bankers and directors point to an insufficient number of qualified candidates (76%), rising wages in their markets (68%) and rising pay for key positions (43%). In anonymous comments, respondents describe other difficulties, such as competition from other industries, challenges with remote or hybrid work and younger workers’ disinclination for certain types of long-term compensation.

“[W]age pressure is incredible,” writes one community bank executive . “Our most significant competitor just implemented [four] weeks of vacation for ALL new hires and pays up to 25% higher for retail banking positions. That cost structure is untenable unless we earn more. We are under extreme pressure for talent at the same time we are building out revenue business lines.”

Key Findings

Banks Pay Up
Banks almost universally report increased pay for employees and executives. Of these, almost half believe that increased compensation expense has had an overall positive effect on their company’s profitability and performance. Forty-three percent say the impact has been neutral.

Lenders In Demand
Seventy-one percent expect to add commercial bankers in 2022, which is almost certainly driven by a desire to grow commercial portfolios and offset expense growth. Over half of respondents say their bank did not adjust its incentive plan for commercial lenders in 2022, but 34% have adjusted it in anticipation of more demand.

Additional Talent Needs
Banks also plan to add technology talent (39%), risk and compliance personnel (29%) and branch staff (25%) in 2022. Respondents also indicate that commercial lenders, branch and entry-level staff, and technology professionals were the most difficult positions to fill in 2020-21.

Image Enhancement
Forty percent of respondents say their organization monitors its reputation on job-posting platforms such as Indeed or Glassdoor. Further, 59% say they promote their company and brand across social media in an effort to build a reputation as an employer of choice, while just 20% use Glassdoor, Indeed or similar platforms in this manner.

CEO Turnover
Sixty-one percent of respondents indicate that they’re not worried about their CEO leaving for a competing financial institution, while a third report low to moderate levels of concern. More than half say their CEO is under the age of 60. Respondents report a median total compensation spend for the CEO at just over $600,000.

Remote Work Persists
Three quarters of respondents say they continue to offer remote work options for at least some of their staff, and the same percentage also believe that remote work options help to retain employees. Thirty-eight percent of respondents believe that remote work hasn’t changed their company’s culture, while 31% each say it has had either a positive or negative impact.

To view the high-level findings, click here.

Bank Services members can access a deeper exploration of the survey results. Members can click here to view the complete results, broken out by asset category and other relevant attributes. If you want to find out how your bank can gain access to this exclusive report, contact bankservices@bankdirector.com.

2022 Compensation Survey: Complete Results

Bank Director’s 2022 Compensation Survey, sponsored by Newcleus Compensation Advisors, surveyed 307 independent directors, chairs, CEOs, human resources officers and other senior executives of U.S. banks below $100 billion in assets, with the majority of respondents representing regional and community banks. Members of the Bank Services program have exclusive access to the full results of the survey, including breakouts by asset category, ownership structure and region.

The annual survey benchmarks CEO pay and compensation for independent directors and non-executive chairs, and supplements respondent input with data collected from 96 public banks. This year, it also examines a competitive talent landscape, and CEO succession and performance. The survey was conducted in March and April 2022.

Click here to view the complete results.

Key Findings

Talent Challenges
Managing compensation and benefits costs (46%), paying competitively (40%) and recruiting commercial lenders (34%) have emerged as respondents’ top compensation-related challenges this year. While half say their bank added staff over the past year, 78% say that it was harder in 2021 to attract and keep the talent their bank needs.

Banks Pay Up
Banks almost universally report increased pay for employees and executives. Of these, almost half believe that increased compensation expense has had an overall positive effect on their company’s profitability and performance. Forty-three percent say the impact has been neutral.

Lenders In Demand
Seventy-one percent expect to add commercial bankers in 2022, which is almost certainly driven by a desire to grow commercial portfolios and offset expense growth. Over half of respondents say their bank did not adjust its incentive plan for commercial lenders in 2022, but 34% have adjusted it in anticipation of more demand.

Additional Talent Needs
Banks also plan to add technology talent (39%), risk and compliance personnel (29%) and branch staff (25%) in 2022. Respondents also indicate that commercial lenders, branch and entry-level staff, and technology professionals were the most difficult positions to fill in 2020-21.

Image Enhancement
Forty percent of respondents say their organization monitors its reputation on job-posting platforms such as Indeed or Glassdoor. Further, 59% say they promote their company and brand across social media in an effort to build a reputation as an employer of choice, while just 20% use Glassdoor, Indeed or similar platforms in this manner.

CEO Turnover
Sixty-one percent of respondents indicate that they’re not worried about their CEO leaving for a competing financial institution, while a third report low to moderate levels of concern. More than half say their CEO is under the age of 60. Respondents report a median total compensation spend for the CEO at just over $600,000.

Remote Work Persists
Three quarters of respondents say they continue to offer remote work options for at least some of their staff, and the same percentage also believe that remote work options help to retain employees. Thirty-eight percent of respondents believe that remote work hasn’t changed their company’s culture, while 31% each say it has had either a positive or negative impact.

How To Prepare Compensation Plans For An IPO


IPO-11-5-18.pngThe decision to take your bank public will set the course of your company for years to come. There are several critical steps to prepare your compensation program before the IPO and before your bank is a public company.

Steps to prepare for the IPO

1. Assemble Your Compensation Team
Determine the team focused on compensation matters. If you have employees with IPO experience and compensation plans, they could be a key asset. Similarly, if you have employees without IPO experience but have public company experience, they could be a key team member as well.

2. Create Your IPO-Related Task List
Your bank may have implemented many compensation and governance related items already, but they should be reviewed for their appropriateness for a public company.

Key tasks required prior to the IPO will vary, however, here is a list of compensation tasks on every pre-IPO list.

  • Develop an executive compensation philosophy and key objectives – What is your bank’s strategy? Where do you target compensation? Is your pay aligned with performance? What are the objectives of your compensation program? What message do you want to send to shareholders? Craft overarching guidelines to support the process going forward.
  • Evaluate and establish appropriate executive and director compensation levels – Prior to the IPO, your company will have to disclose its executive and director compensation. You want to be sure your compensation programs are reasonable, competitive, and based on peer group data. Establishing a suitable peer group and incorporating the data into your process is key.
  • Equity plan considerations – Will a new equity plan be required, and when will you need shareholder approval? How will you determine the share pool so long-term incentive and equity grant needs can be met for three to five years? Have you evaluated the shareholder advisory firms’ current standards to receive favorable support? Avoid any pitfalls that would result in a “no” vote recommendation.

    If the company is considering one-time IPO-related equity grants, evaluate these in light of market trends, shareholder expectations, retention concerns, financial impact to the company and dilution. Many institutions consider sizeable one-time grants a front-loaded award, and decide to wait before awarding additional equity. Such decisions are based on share pool impact, financial implications, and size of the one-time grants. Carefully determine the value of these awards to minimize risks of unfavorable optics and legal actions.

  • Design ongoing annual and long-term incentive plans – As a public company, it is important to have annual and long-term incentive plans that align pay and performance, are competitive, consistent with company objectives and provide an appropriate mix of pay. As new incentive plans are designed, know that plan details will be disclosed in future public filings. Private banks are accustomed to implementing plans that are regulatory compliant and competitive, but public disclosure has not been required.
  • Implement executive agreements – In many cases, new employment and change-in-control agreements are put in place, often the case even if similar agreements were in effect before the IPO. Several details, including the terms, are subject to public disclosure. Shareholder advisory firms take issue with certain terms and, and having them can automatically result in ‘no’ vote for Management Say on Pay and the re-election of the board’s compensation committee. It is critical to be aware of these pitfalls and avoid them whenever possible.

3. Determine appropriate technical and governance actions
There are key technical and governance issues to evaluate. Some items are required while others are not. Many are considered best practices and important to achieving strong governance. Some of the key items in this category include:

  • Drafting of the SEC required filings including the CD&A (Compensation Discussion and Analysis), compensation tables and other requirements. Reporting errors and omissions can delay the IPO.
  • Determining company stock ownership guidelines – Many new public banks do not adopt stock ownership guidelines immediately, however, if one-time equity grants are awarded, adopting such guidelines immediately sets the parameters for holding these shares. Determine who will be covered by the guidelines (e.g., executives, Section 16 officers, non-employee directors), what the required holdings are, the timeframe permitted, and other terms.
  • Drafting the Compensation Committee Charter – A charter establishes the role and responsibilities of the committee, how it will interact with the board and management, and its ability to engage outside advisors. The charter is typically published on the company’s website.

4. Create a compensation committee calendar after the IPO
Once the IPO is completed, it is important for the compensation committee to focus on its new role, responsibilities and annual tasks. Setting up a calendar of activities supports effective management and should include all areas of committee oversight.

Taking your bank public can be a very exciting endeavor. Do not underestimate the number of new issues management, the compensation committee and the board will have to become familiar with to complete a successful IPO and operate a public company. Being organized, having the right knowledge and support and a flexible timeline will be great tools to help your organization get through this process.

Compensation Planning In Today’s Talent Market



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

The Battle for Bank Talent: Trends and Strategies


Motivated, talented employees always have been critical to the success of financial services organizations, meaning there always has been competition to attract high-performing employees. However, recent research indicates that competition has heated up considerably in the past few years, making it even more important for banks to stay abreast of current trends in compensation and human resource practices.

Trends in the Battle for Talent
The most recent indicator of the intensifying competition for talent can be found in the Crowe Horwath LLP 2016 Financial Institutions Compensation and Benefits Survey. Of the many trends in compensation, incentive and benefits strategies that are tracked in this annual survey, three areas were particularly revealing in 2016:

Employees are changing jobs at the fastest pace in at least a decade, with both officer and nonofficer turnover trending sharply upward over the past two years. Some turnover is the result of consolidations or performance issues, but most turnover represents the voluntary departure of employees–usually at a significant cost to the banks.

employee-turnover.PNG

Bank staffing strategies appear to have recovered from the recession. More banks today are planning for normal growth in staffing (35.6 percent), while the number of banks planning to maintain (34.1 percent) or reduce (3.6 percent) staffing levels is declining to pre-recession levels.

staffing-plans.PNG

The percentage of banks that plan to implement above-market compensation strategies has increased steadily over the past four years. In the 2016 survey, 28.5 percent of banks reported their strategy was to pay more than 10 percent above the market average.

compensation-strategy.PNG

Taken together, these three trends–higher turnover, expected staffing increases, and growing use of above-market compensation strategies–suggest that the battle for talent is likely to continue and intensify.

Factors Driving the Competition
Viewing the survey results through the lens of current industry experience, one might reasonably conclude that bank compensation strategies are no longer responding to recession and credit crisis concerns. The survey responses suggest that banks are now being driven by a new set of economic and competitive factors including:

  • Employee expectations: As memories of recession-driven job insecurity fade, events such as bank consolidations, increased profitability and rising executive compensation are catching employees’ attention. The increased turnover rate suggests that high performers in search of better opportunities are more willing to take a chance and make a move now.
  • Growth strategies: Although mergers or acquisitions often are associated with net reductions in payroll, bank consolidations also can create demand for managers and executives who are more experienced in handling larger organizations. Other market strategies—such as enhanced digital banking or a relationship-banking approach—also can drive demand for employees with technical or consultative-selling skills.
  • Technology: Just as technology affects some of the skills needed to serve bank customers, it also is changing some employer-employee relationships. The “gig economy,” where short-term contract workers provide specialized services to multiple employers, has not yet affected most traditional bank jobs but certain positions—marketers, data analysts and website or mobile banking developers, for example—often can be filled by contract workers rather than full-time employees.
  • Competition: Banks with strong market positions in commercial lending or other desirable business lines sometimes find themselves on the defensive as they ward off competitors trying to lure away their most productive employees. Often banks end up offering selective pay boosts and bonuses to discourage so-called “lift out” strategies, in which a competitor lures away key managers or an entire department.

New Approaches to the Battle for Talent
Putting more emphasis on pay—particularly performance-based pay or incentives—is one way to attract and retain high performers. But higher pay scales are not the only solution.

Many banks that are consistently regarded as “employers of choice” are not the highest paying employers in their markets—or even the highest paying among comparable banks. Instead, they shift a portion of their workforce investments toward maintaining benefit programs and work cultures that promote work-life balance.

Some banks now present employees with an annual “total rewards statement” that spells out all the investments their employers are making in them. Such statements can help motivate employees by reminding them of their value to the organization. Individual personal recognition, status and career opportunities can also be powerful motivators.

Regardless of the specific mix of techniques that are used, the intensifying battle for talent means banks will need to pursue a deliberate, multifaceted approach to attract, motivate and retain the talented and high-performing employees they need to pursue their business strategies.

The Four Habits of Successful Bank Compensation Committees


compensation-committee-6-17-16.pngCompensation committees are responsible for setting the foundation of a bank’s compensation program, subsequently impacting the bank’s underlying culture. The banking industry is more competitive than ever, so attracting and retaining top talent should be the number one priority. With a compensation committee that is educated on industry trends and modern-day compensation best practices, your bank will be on its way to developing programs that attract and retain top talent. Here are the top four best practices a bank’s compensation committee should consider.

1. Committee Members Should Take Steps to Stay Educated
Your committee members are responsible for staying aware of compensation trends. They need to always be in-the-know of complications, IRS penalties, and other factors with unintended consequences or expenses that can impact both the bank and the executives. Committee members should regularly review market trends in executive compensation; staying aware of banking trends as well as trends in other industries will better position the bank for success in recruiting, rewarding, and retaining talent. Your board should also be educated by the committee regarding your compensation philosophy and how the committee functions.

A few areas the compensation committee has direction over include equity grants, incentive structure, benefits, qualified plans, board compensation and other aspects of compensation. The directors should have a full understanding of structuring compensation plans, and if not, the committee should consult an adviser.

2. Establish the Duties and Responsibilities of Each Committee Member
In addition to staying educated, members of the compensation committee must have a framework for their efforts. This involves establishing the duties and responsibilities of each member, but before you begin, you’ll need to develop a compensation philosophy if you don’t already have one. Without an established compensation philosophy, your compensation committee will lack direction, clarity, and consistency regarding compensation practices. In addition to putting your philosophy in print, you should ensure that everyone on your committee understands it and is able to relay its message. The philosophy should be comprehensive as well as consistent with the culture of your bank, the interests of your shareholders and market trends.

3. Review the Committee’s Performance Quarterly
Quarterly, you should hold a meeting to assess the success of your committee. Check on what’s working and what isn’t with regards to committee function, meeting processes and other aspects. It’s important to look at whether you’re hitting benchmarks—and whether you’re attracting and retaining the talent you need to hit those benchmarks. There’s always room for improvement, so discuss what the committee may need to change in order for your bank to be more successful with recruiting and retention.

4. Engage Expert Consultants When Necessary
There’s a delicate balance that must be struck with compensation; it needs to be competitive enough to retain executives but as efficient as possible to drive shareholder value. With the increasing competition for talent and the rising costs of benefits like health care plans, many banks have been pre-funding benefits through plans such as bank-owned life insurance (BOLI). Choosing the best insurance carriers and structuring pre-funding plans is something that requires outside help from qualified consultants.

Professionals can help you determine competitive compensation packages and discern what investments will bring you the greatest return for the lowest risk.

If you don’t feel your compensation committee is hitting the mark, it’s time for something to change. Rewarding talent and funding those rewards is a complicated topic, so outside help from a compensation consultant who specializes in banking may be helpful to bring direction to your committee. If your committee follows these four best practices, you’ll be on a path to success applying your finest approach to compensation and benefits plans.

Do You Have the Right Incentive Goals?


The first quarter of every fiscal year finds compensation committees and management teams wrestling with setting performance goals for the coming year’s incentive arrangements. What does that process look like for your institution?  If your company hasn’t conducted a ground-up assessment of the goal setting process in recent years, consider taking a fresh look at your approach this year.

How does your institution select the performance measures?
In Pearl Meyer’s recent survey, Looking Ahead to Executive Pay Practices in 2016 – Banking Edition, respondents indicated the following three factors as having the greatest influence on performance measure selection:

We would argue that the “long-range or strategic plan” should carry substantially more influence in the selection of performance measures than the other two factors–doing so also takes substantially more effort and intentionality. In contrast to plucking some high profile measures from the approved budget, copying what peers are doing, or appeasing institutional investors or their advisors, selecting measures that effectively support the long-range or strategic plan requires a multi-step line of thinking that starts with the end goal in mind (long-term growth in enterprise value) and drills down to very specific actions that need to occur now in order to achieve the end goal.

Some practical steps in the process include the following:

  • Outline the company’s business objectives and strategy and the drivers of long-term value creation. Then select short- and long-term incentive performance measures that directly tie to the achievement of milestones toward these goals.
  • Identify and focus on the centerpiece financial metrics that will signal success within your company, your industry and the global economic environment.
  • Incorporate both “lag” metrics (that reward achievement) and “lead” metrics (that spur desired new actions and behaviors).

Once the measures are selected, how does your institution set performance expectations?
Respondents to our survey identified the following five factors as having the greatest influence on their performance goal setting process:

For performance measures that can tie directly back to the annual budget, the budget is a very common way to establish “target” performance expectations. This can be effective and appropriate, so long as there is high confidence among the board and management team that the annual budget represents the proper amount of rigor deserving of target incentive payouts. But the budget is not terribly helpful at setting performance expectations appropriate for “threshold” or “stretch/maximum” payouts. This is where observations regarding historical performance, both for your institution and your peers, can be extremely helpful.

Evaluating actual performance against the selected measures over the last several years (preferably five or more) can provide excellent information about the likelihood of achieving specific performance outcomes and can help you to be confident that the appropriate rigor is represented at all payout opportunity levels (i.e., threshold, target and maximum). A rule of thumb for the rigor of performance expectations is as follows:

  • Threshold performance/payout should be achievable about 80 percent of the time
  • Target achievable 50 percent to 60 percent of the time
  • Stretch/Maximum achievable only 10 percent to 20 percent of the time

Observing historical performance is an excellent way to calibrate the performance expectations with the respective payout opportunities and to understand directional trending on specific measures.

Most of the attention and speculation by investor groups surrounds the potential for insufficient rigor in the performance expectations, relative to the payout opportunities. This is a valid concern. It’s also a valid concern when performance expectations are unreasonably high, relative to payout opportunities, because that could discourage employees or potentially encourage them to expose the bank to excessive risks in pursuit of otherwise unattainable levels of performance. A little effort and historical data can go a long way toward addressing both concerns.

Selecting incentive performance measures and establishing the performance expectations are not routine, one-meeting-per-year exercises. If conducted in a thoughtful, intentional manner, your incentive plan design in the first quarter of 2016 can truly support your business strategy and drive behaviors that lead to growth in the value of your company. Make 2016 the year that you challenge—and improve—your incentive goal-setting process.

Getting the Best People to Work For Your Bank



Filmed during Bank Director’s 2013 Bank Executive and Board Compensation conference in Chicago in early November. A panel of CEOs at top performing banks discuss how their companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world.

Video Length: 55 minutes

About the Speakers:

Leon J. Holschbach, President & CEO, Midland States Bancorp, Inc.
Leon Holschbach is the president & CEO of Midland States Bancorp, Inc. Prior to joining Midland, Mr. Holschbach held the positions of region market president, community bank group at AMCORE Bank, N.A., president and chief executive officer of AMCORE Bank North Central N.A. and president of Citizen’s State Bank in Clinton, Wisconsin.

Ron Samuels, Chairman & CEO, Avenue Bank
Ron Samuels is the chairman & CEO at Avenue Bank. He is an experienced leader, executive and marketer and has been a banker in Nashville, TN for 40 years. Mr. Samuels was a founder in 2007 of Avenue Bank, which today has assets of more than $725 million. Mr. Samuels is recognized as one of Nashville’s most visible and engaged community leaders, having concluded his term as chairman of the Nashville Chamber of Commerce in July 2010, along with service on many other boards and committees in the arenas of economic development, professional sports, education and more.

Frank Sorrentino III, Chairman & CEO, ConnectOne Bank
Frank Sorrentino is the chairman & CEO of ConnectOne Bank. He is responsible for its business development plan, serves as the community liaison, sits on the loan committee and serves as the bank’s spokesperson. Mr. Sorrentino has been instrumental in developing the bank’s branch and expansion strategy and oversees all marketing activities.