Do Independent Chairs Reduce CEO Pay?

In an advisory vote earlier this year, shareholders roundly rejected JPMorgan Chase & Co.’s executive compensation package, particularly a whopping  $52.6 million stock option award for CEO and Chair Jamie Dimon. But at the same time, shareholders voted against a proposal to split those roles.

The proxy advisory firms Glass Lewis and Institutional Shareholder Services favor separating the CEO and chair roles. “Executives should report to the board regarding their performance in achieving goals set by the board,” Glass Lewis explains in its 2022 voting guidelines. “This is needlessly complicated when a CEO chairs the board, since a CEO/chair presumably will have a significant influence over the board.”

An analysis of Bank Director’s Compensation Survey data, examining fiscal year 2019 through 2021, finds that CEOs earn less when their board has an independent chair. Most recently, the 2022 Compensation Survey, sponsored by Newcleus Compensation Advisors, found that banks with separate CEO and chair roles reported median total CEO compensation of $563,000, compared to $835,385 where the role was combined. 

The results are striking, but they should be taken with a grain of salt. The information collected from the survey, which is anonymous, doesn’t include factors like bank performance. Respondents skewed toward banks with an independent chair. And data alone can’t sufficiently describe what actually occurs in corporate boardrooms.

“I can’t really say which model works better. Look at Jamie Dimon; that’s worked really well for the shareholders of JPMorgan Chase, whereas I think there have been three or four initiatives to try to split that role,” says Jim McAlpin Jr., a partner at the law firm Bryan Cave Leighton Paisner. McAlpin also serves on the board of Bank Director’s parent company, DirectorCorps. “It was voted down every time by the shareholders.”

CEOs typically negotiate when and whether they’ll eventually be named chair when they join a bank, says McAlpin. “If you have a very impactful, strong CEO who wants to be chair — most boards will not deny him or her that position, because they want [that person] running the bank.” It’s a small price to pay, he adds, for someone who has such a dramatic influence on the bank’s performance. “There is nothing more important to the bank than a CEO who has a clear vision, who can show leadership, form a good team and can execute well,” says McAlpin. 

But it’s important to remember that boards represent the interests of the shareholders. “The most important thing a board has to do is hire and retain a quality CEO. Part of retaining is getting the compensation right,” says McAlpin. “It’s important for the board to control that process.” 

McAlpin favors appointing a lead director when the CEO also has the chair position, to provide input on the agenda and contribute to the compensation process. 

Truist Financial Corp., in response to shareholder pressure around chair independence in 2020, “strengthened” its lead independent director position, according to its 2022 proxy statement. Former Piedmont Natural Gas Co. CEO Thomas Skains has served as lead independent director of the Charlotte, North Carolina-based bank since March 2022. Skains has the authority to convene and set the agenda for executive sessions and other meetings where the chair isn’t present; provide input on the agenda, and approve board materials and schedules; and serve as a liaison between the independent directors and CEO and Chair William Rogers Jr. 

But one individual can’t single-handedly strengthen the board, says Todd Leone, a partner and global head of executive compensation at McLagan. The compensation committee is responsible for the company’s pay programs, including executive compensation, peer benchmarking, reviewing and approving executive compensation levels, recommending director compensation, evaluating the CEO’s performance and determining the CEO’s compensation. With that in mind, Leone says the strength of the compensation committee — and the strength of its committee chair — will influence the independence of these decisions.

Leone also believes that increased diversity in the boardroom over the years has had a positive effect on these deliberations. “A diverse board, in my experience, they’re asking more questions,” he says. “And through that process of asking those questions, various things get unearthed, and the end result generally is stronger pay programs.”

Twelve years of Say-on-Pay — where public company shareholders offer an advisory vote on the top executives’ compensation — has also benefited those decisions, he says. Today, most long-term incentive plans are based on a selection of metrics, such as return on assets, income growth, asset quality and return on equity, according to Bank Director’s 2022 Compensation Survey. And in August, the U.S. Securities and Exchange Commission passed a pay versus performance disclosure rule that goes into effect for public companies in the fiscal year following Dec. 16, 2022.

“There’s a much higher bar for getting these plans approved,” says Leone, “because the compensation committees feel much more responsibility for their role in that process.”

In McAlpin’s experience, the best CEOs have confidence in their own performance and trust the process that occurs in the boardroom. “If they don’t like the results, they’ll give feedback, but they let the process unfold,” he says. “They don’t try to overtly influence the process.”

Heading into 2023, Leone notes the whipsaw effects that have occurred over the past few years, due to the pandemic, strong profitability in the banking sector and looming economic uncertainty. These events have had abnormal effects on compensation data and the lens through which boards may view performance. “We’re in a very volatile time, and we have been on pay since the pandemic,” says Leone. “Boards, [compensation] committees and executive management have to be aware of that.” 

Back to the Office

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.

Top Priorities for Compensation Committees Today

The compensation landscape in banking is constantly evolving, and compensation committees must evolve with it. We want to highlight three priorities for bank compensation committees today: the rising cost of talent, the uncertain economic environment, and the link between environmental, social, and governance (ESG) issues and human capital and compensation.

The Rising Cost of Talent
The always-fierce competition for top banking talent has intensified in recent years, especially in certain pockets like digital, payments and commercial banking. Banks are using a variety of approaches to compete in this market and make their compensation and benefits programs more attractive, including special one-time cash bonuses or equity awards, larger annual or off-cycle salary increases, flexible work arrangements and other enhanced benefits.

In evaluating these alternative approaches, compensation committees must weigh the value each offers to employees compared to the cost to the bank and its shareholders. For example, increasing salaries provides near-term value to employees but results in additional fixed costs. Special equity awards that vest over multiple years provide less near-term value to employees but represent a one-time expense and are more retentive.

We expect the “hot” talent market, combined with inflation, to continue applying upward pressure on compensation. However, the recent rate of increase in compensation levels is untenable over the long-term, particularly in the current uncertain economic environment. Banks will need to optimize other benefits, such as work-life balance and professional development opportunities, to attract and retain top talent.

The Uncertain Economic Outlook
In 2021, many banks had strong earnings as the quicker-than-expected economic recovery allowed them to reverse their loan loss provisions from 2020. As a result, many banks could afford to pay significantly higher incentives for 2021’s performance than they did for 2020’s performance. The performance outlook for 2022 is unclear. Inflation, rising interest rates and macroeconomic uncertainty will impact bank performance results in 2022. Results will likely vary significantly from bank to bank, based on the institution’s business mix and balance sheet makeup.

Compensation committees will need to consider how the push and pull of these factors impact financial results and, as a result, incentive payouts. Some compensation committees may need to consider adjusting payouts to recognize the quantifiable financial impact of unanticipated conditions outside of management’s control, like the Federal Reserve’s aggressive interest rate increases. Banks may find it harder to quantify the financial impact of other economic conditions, like inflation. As a result, many compensation committees may find it more effective to use discretion to align incentive compensation with their overall view of performance.
Bank compensation committees considering using discretion to adjust incentive payouts for 2022 should follow three principles:

1. Be consistent: Apply discretion when macroeconomic factors negatively or positively impact financial results.
2. Align final payouts with performance and profitability.
3. Clearly communicate rationale to participants and shareholders.

Compensation committees at public banks should also be aware of potential criticism from shareholders or proxy advisory firms. The challenge for compensation committees will be balancing these principles with the business need to retain key employees in a tight labor market.

ESG and the Compensation Committee
Bank boards are spending more and more time thinking about their bank’s ESG strategies. The role of many compensation committees has expanded to include oversight of ESG issues related to human capital, such as diversity, equity and inclusion (DEI). Employees, regulators and shareholders are increasingly paying attention to DEI practices and policies of banks. In response, many large banks have announced public objectives for increasing diversity and establishing cultures of equity and inclusion.

In an attempt to motivate action and progress, compensation committees are also considering whether ESG metrics have a place in incentive plans. In recent years, the largest banks have disclosed that they are considering progress against DEI objectives in determining incentive compensation for executives. Most of these banks disclose evaluating DEI on a qualitative basis, as part of a holistic discretionary assessment or as part of an individual or strategic component of the annual incentive plan. Banks considering adopting a DEI metric or other ESG metrics should do so because the metric is a critical part of the business strategy, rather than to “check the box.” Human capital is a critical asset in banking; many banks may find that DEI is an important part of their business strategy. For these banks, including a DEI metric can be a powerful way to signal to employees and shareholders that DEI is a focus for the bank.

A Better Model for Leadership Transformation, Succession Planning

Boards at banks that are looking to position themselves for long-term success should consider leveraging a more robust executive assessment process for their senior leadership. This process can provide directors with a well-rounded picture of where their institution is now, along with specific insights to develop leaders, drive results and set up the bank for future succession for key roles.

There are three reasons that banks should consider an assessment tool and coaching with your management team. Many organizations use basic assessment tools when hiring leaders; rarely do organizations implement a more holistic executive development process that leverages the insights an assessment tool provides. But now, more organizations are experiencing the value of pairing an assessment with a leadership development plan that includes third-party coaching. Employing best practices gives top-performing organizations a dynamic executive development model to drive the following outcomes:

1. Succession planning: A strong succession plan identifies key competencies for the banks and the necessary skills for business continuity. The plan allows for focused development that meets the bank’s future business needs. A starting assessment makes development easier. Good assessments will consider an individual’s skills, personality, influence, communication and leadership abilities, plus a development plan that often includes coaching.

2. Retention: Assessments can increase engagement by creating a vision for advancement if they’re used correctly. Leaders who stagnate in a job tend to be more likely to leave. A well-rounded assessment tool can help a board uncover growth opportunities for the team and reveal untapped skills that are useful to the organization.

3. Dynamic leadership: Being your best every day is hard when you do it alone. Performers at every level can use a coach to bring out their best. An initial assessment that provides insight into the individual and team dynamics can fast forward an organization’s financial performance and set up the bank to outperform in the industry.

Assessments at all levels of the bank lead to higher engagement and retention. They can highlight tensions early, so executives and the board can proactively solve them rather than use reactive temporary fixes. But the power of assessment comes from choosing the right tool.

Top Two Mistakes
1. Assessment to check the box: Too many banks use an assessment to produce a label or outline a gap. They present these results to the team without a development plan to close the gaps, and many are left feeling underappreciated and frustrated. In these cases, assessments damage the culture. Good assessments produce data that allows boards to create a plan and take action. A great assessment does this — and then increases the readiness of participants to engage in next steps.

2. Off the shelf tool with no qualitative research component: Have you ever taken an assessment and felt constricted or limited by the way the question was asked? “Are you most like this or less like that”? You want to answer “Yes,” but that isn’t a choice. No employee likes an assessment that is difficult to complete. But at the same time, bank management teams need the quantitative data that is easy to build the big picture. The best assessment tools will combine this quantitative data with qualitative research.

When looking for an assessment tool, consider these components:
Online assessment: A user-friendly online tool can quickly capture personality insights, team dynamics and leadership strengths. Boards should look for a tool that produces insights into both individual strengths and gaps, as well as team communication.

Qualitative research: When using an assessment vendor, be sure to get a sense of their industry knowledge and experience with interviews for assessment.

• Your tools: Rounding out a powerful assessment is the incorporation of tools your bank has already used — anything from performance reviews to grit studies. The final assessment presentation can include data that the bank has previously gathered.

The War for Talent in Banking Is Here to Stay

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.

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.

Using the Succession Plan to Evaluate Talent

Boards have many duties, from overseeing the long-term strategy of the institution, to approving executive pay packages, to vetting and approving the budget. But one job that they often leave for another day: succession planning. Yet, for forward-thinking banks, having a process for succession not only can strengthen the organization in the future, but also build talent today.

Brian Moynihan, chairman and CEO of Bank of America Corp., recently spoke about this very fact. Despite not having plans to leave the institution he’s led since 2010, the 62-year-old Moynihan explained that the bank reworks its succession plan twice a year.

We have a deep succession planning process that we go through every six months [on] the board that alternates between the senior most people and then … I do it multiple levels down so we’re always looking,” said Moynihan in an interview last December with CNBC’s Closing Bell. “The board will pick somebody. My job is to have many people prepared.”

Such a clear process makes Bank of America unique, in some regards. While surveys over the years have tried to pinpoint how many companies have formal succession plans, organizations often avoid outlining it to investors, leaving it an open question. The Securities and Exchange Commission revised disclosure rules in November 2020 to encourage companies to outline human capital resources, like diversity rates, employment practices, and compensation and benefits. Of the first 100 forms filed by companies with $1 billion in market capitalization, only 5% of the companies added any additional detail to the succession planning process, according to researchers working with Stanford University and corporate data provider Equilar. Bank Director’s 2019 Compensation Survey found 37% of bank executives and board members reporting that their bank had not designated a successor or potential successors for the CEO.

So much of a bank’s long-term success has to do with having a clear plan if the head of the business must leave. This becomes especially true if the CEO must step aside suddenly, like for a health concern or other emergency. It’s on the board to lead this search. But when done right, it can also become a powerful tool to prepare internal and external talent, a process embraced by the current CEO. 

David Larcker has studied CEO succession planning as a professor at Stanford Graduate School of Business, where he leads the school’s Corporate Governance Research Initiative. “One of the two key things that boards do is hiring and firing the CEO,” says Larcker. Many boards, though, “do not put in enough time and effort in succession,” he adds.

By not taking an active approach to this part of the job, it can lead to the wrong hire, resulting in years of poor management. Larcker says one of the reasons for a lack of proper succession plans is often because it’s one of the least exciting roles a board undertakes, so it gets put to the backburner. Plus, since you rarely replace the CEO, it’s not always a priority.

Larcker and his research team sought to identify what occurs when a board lacks a succession plan. They looked at scenarios where the CEO left abruptly, either because the person resigned, retired or made other transitions. These are often the reasons disclosed to the public; in reality, the company may have fired a CEO without stating that fact. Out of the various scenarios, the researchers identified situations where the board and CEO likely parted ways due to performance. 

Out of all the media citations, 67% of the time the company named a permanent successor in the announcement; in 10% of the cases, it appointed a permanent successor but after a delay; and 22% of the time it named an interim successor. Those moments of upheaval provide investors with the clearest insight into whether the board took a proactive approach to succession, since the plans aren’t often public.

When a company named an interim successor, that was one of the clearest signs that the organization fired the CEO without a plan in place, and the stock performance of the company performed the worst after the announcement. Also, it’s worth noting that 8% of the time, the company named a current board member to the CEO role. When that occurred, the company’s stock price often performed worse than when internal or external candidates were chosen. 

What separates the organizations that can name a successful permanent successor from those that can’t? Often, it’s the organizations that have a clear line to the talent that’s growing inside and outside of the bank.

John Asbury knows all too well the need for this line of succession — it’s how he got the head role at Atlantic Union Bankshares, Corp., a $20 billion public bank based in Richmond, Virginia.  When Asbury was tapped as CEO in 2017, he followed G. William Beale, who had helmed the bank — then known as Union Bankshares Corp. — for almost 25 years. The bank had done a full executive search starting two years before Beale stepped away. Now, despite not having any plans to retire, Asbury, 57, takes the job of building succession within the entire organization seriously. 

“There are too few people in the industry who understand how the bank actually works or runs front to back,” Asbury says. “Oftentimes they have their area of specialty and not much else.”

Asbury, who sits on the board of directors as well, works with his human resources and talent evaluators to identify those within the organization who can fill executive roles. In addition to empowering them as executives, he gets them face time with the board. This provides the board with the ability to interact and know the talent that the bank has in the stable. 

“We want these folks to understand how the organization works, and we want them at the table to talk about not just strategy for their business unit, but the bank strategy as well,” Asbury says.

Asbury recently showed this leadership style in a public way by announcing that President Maria Tedesco would add the role of chief operating officer, and he would hand over managing many of the day-to-day operations to Tedesco. This isn’t a succession plan put in place. Instead it’s giving Tedesco the ability to have 85% of the organization reporting to her, while she and other executives at the bank continue to report to Asbury. 

Asbury thinks the move was needed to allow him the freedom to focus on growing Atlantic in other ways. But it also provides Tedesco with hands-on training in managing the organization. Despite the move, Asbury says that it doesn’t prevent him from working with the board on succession plans. 

The compensation committee, which Asbury does not sit on, also runs succession planning at Atlantic Union Bank. Sometimes boards may be hesitant to discuss succession if the current CEO views the discussion as antagonistic. But Atlantic Union undergoes an emergency succession plan evaluation once a year — currently, Tedesco would step in as interim CEO if something unexpected occurred to Asbury. She even sits in on every board meeting except when the executive team is being discussed. 

It’s a conversation that boards cannot be afraid to have. “If the CEO is on the board, that committee or board, has to own the process,” Larcker says.

What doesn’t work when it comes to succession planning? Having the new CEO step into the company while the outgoing CEO continues to helm the business for a few months to a year, added Larker. This design creates confusion from both the leadership and the staff on who they should listen and report to. “Ultimately, it’s a bad sign,” Larcker says.

Asbury knows that all too well. When he took the Atlantic Union role, Beale held the CEO position for three months while Asbury got acquainted with the organization. Within a few weeks, though, Beale let Asbury know that he would clear out the office and Asbury could call him if any questions arose. “Shorter is better in terms of transition,” Asbury adds. 

That can only happen with a plan in place.