Evaluating Executives’ 2020 Performance

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Bank boards know that the world has shifted dramatically since January, when they drafted  individual executives’ performance expectations. Using those outdated evaluations now may be a fruitless exercise.

As the impact of the pandemic and the social justice movements continue to unfold across the United States, boards may not feel that they have much more clarity on performance expectations currently than they did back in March. At many banks, credit quality has replaced loan volume as the key operating priority. Unprecedented interest rate cuts have further deteriorated earnings power.

Many boards of directors are revisiting how to evaluate the executive team’s individual performance for fiscal year 2020, considering these new realities for their businesses. Individual performance evaluations are a tool for evaluating leadership behaviors and abilities; as such, it sends a clear indication of what the board values from their leaders. After a year like this, all stakeholders will be interested to know what the board prioritized for their bank’s leadership. 

Considerations for Updated Individual Performance Evaluations
This year has been defined by unprecedented developments that broadly and deeply impact all stakeholders. More than any other industry, banks have been called on to support the country using every tool in their toolkit. Reflecting this broad impact, bank boards may find it useful to establish a revised framework for evaluating leadership performance using six “Critical Cs” for 2020:

  • Continuity of Business: How quickly and effectively was the bank able to transition to a new operating model (including remote work arrangements, staffing essential workers in office or branch, etc.) and minimize business disruption?
  • Customer Satisfaction: How were customers impacted by the change in the operating model? If measured, how did the scores vary from a normal year?
  • Credit Quality: Where are the trends moving and how are executives responding? Did the institution face legacy issues that took some time to address and may be compounding current issues?
  • Capital Management: What balance sheet actions did executives take to strengthen the bank’s position for the future?
  • Coworker Wellbeing: What was the “tone at the top”? How did executives respond to the needs of employees? If measured, how did the bank’s engagement scores vary from other years?
  • Community Support: What did the bank do to lead in our communities? How effective was the bank in delivering government stimulus programs like the Small Business Administration’s Paycheck Protection Program?

For publicly-traded banks, the compensation discussion and analysis section of the proxy statement should provide a thorough description of the rationale and process used for realigning these criteria and the evaluation approach used to assess performance. Operating results are likely to be well below early-year expectations for most banks; as a result, shareholders will be keenly interested in how leadership responded to the current environment and how that informed pay decisions by the board.

This year has created an unprecedented opportunity to test the leadership abilities of the executive team. Using the six “Critical Cs” will help boards assess the performance of their leadership teams in crises, craft a descriptive rationale for compensation decisions for fiscal year 2020, as well as evaluate leadership abilities for the future.

Combatting Employee Malaise During the Pandemic

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The coronavirus pandemic has upended how people work, and how they feel about that work — changes that may persist over the long term.

While many companies have adjusted to working remotely, the uncertain duration of the pandemic has left some employees feeling a sense of malaise and listlessness. Bank Director reached out to Brendan Smith, who holds both a clinical therapy degree and an MBA, to learn more about how office workers, managers and business leaders can address these feelings and prepare for the future.

As “The Workplace Therapist,” Smith helps companies eliminate workplace dysfunction through workshops, executive coaching, consulting and content on his blog, podcast and books. This conversation has been lightly edited for length and clarity.

BD: What is your read of where the U.S. workforce is, five months into the coronavirus pandemic, based on what you’re hearing?
BS: 2020 has been an interesting year from the workplace standpoint. The biggest word I’m hearing from people who come to me is “motivation.” They’re not motivated anymore. Part of the reason why is they’re stuck. Every day is the same thing: coming down into their office, getting on the same Zoom calls at the same time. There’s no variety.

The other interesting thing that happened is that when people first started working virtually, they said, “I have all this free time because I’m not commuting.” Everyone realized that and started using what would have been commute time to schedule meetings. A lot of people I talk to have meetings starting at 7:30 or 8 in the morning, and have meetings that go all the way to 6:30 in the evening.

BD: A lack of motivation is also a problem for workplaces even in normal environments. What’s different about this broader lack of motivation?
BS: The lack of motivation before was really tied to lack of growth: I’m not growing at the pace I want, I don’t have the right opportunities in front of me, I’m wanting something else. This is different. This lack of motivation is tied to feeling stuck or trapped: I don’t have options, I’m stuck doing the same thing over and over again, I can’t go out and explore. People feel like they’re out of options.

BD: Why is a lack of motivation detrimental to the workplace and why do employers and managers need to address it?
BS: The lack of motivation results in people doing the bare minimum. That’s detrimental right now because everybody has things they need to be working on: pivoting, changing, adapting to survive. Survival requires more than the bare minimum. If everyone at your company is doing the bare minimum, you’re a sinking ship.

BD: What are you telling people dealing with this unique lack of motivation? How can people adapt or transition to this new environment and new reality?
BS: What’s happening is that we thought things would come back to normal by this point but now, it feels more a rollercoaster: we’re going down another hill, and we’re not sure when the coaster will end. That uncertainty breeds anxiety, and it contributes even more [to the] feeling of [being] trapped.

Let’s talk about how you get out of this. There was a famous theologian at Emory University’s theology school named Jim Fowler who used to say “You want to give people hope and handles.” Hope and handles is the best antidote for the time we’re in now.

With hope — people need to anchor to something in the future that motivates and excites them. We know that there will be some kind of normal, at some point in the future. We just don’t know when.

What handles represents is “What can I do now?” In times of uncertainty, one antidote is clarity. While we can’t be clear on how things are going to look a month from now, we can be clear on this week. What’s something people can do this week that either leads them towards something they’re excited about in the future, or gives them what they need?

BD: Do you recommend fewer Zoom calls as well? Or is there anything that managers can do to bring hope and handles for their employees?
BS: Hope and handles is for everybody. But one thing that managers need to do in times of chaos is create more structure and consistency, while also mixing in some variety. Maybe it’s not always a Zoom call — I’ve been recommending people switch video calls into phone calls.

From a motivation standpoint, I think it’s healthy for managers to have some hope and handles conversations right now with members of their team, to help people reframe and feel a little more in control. Something like, “I know we’re stuck in this hamster wheel now, but when things get back to normal, what is one thing you want to either do more of, change or improve for your role specifically?” Or for something a little more structured, there’s a simple technique of asking three questions: Stop, start, continue. “What’s one thing that you think we should stop? What’s one thing we should start doing differently? And what’s one thing we should continue?”

The other thing I would say to managers is to really work on honoring and protecting boundaries. Boundaries are really important for us in life. The way technology has evolved has broken down all natural boundaries between work and home. For me, protecting boundaries is not doing work calls outside of certain hours. Managers need to recognize that everyone’s experiencing the blending of work and life now, and be respectful of people’s boundaries and the needs of their particular situation.

BD: I understand that a lot of the advice for helping people cope is to remind them of a more-normal future. But do you have any advice to help people become more comfortable with the ambiguity in the present?
BS: Let’s talk about this from a business or banking standpoint. There’s a school of thought that strategic planning is silly, because no one can see into the future and there are too many variables.

What you should consider doing instead is an exercise called “scenario planning.” You map out different scenarios and factor in the variables that may change; for example, rising or lowering Covid-19 infection rates. If it lowers and then everything gets to a healthy point, then what [does] the economy look like? If it goes up, what happens? If it stays flat, what happens? While you can’t predict the future, you’ve got enough different scenarios of what might happen so that when the future does start to unfold, you just map it to one of your scenarios.

It probably would not be unhealthy for managers to do a bit of planning with their teams on how they want to handle the remainder of the year. We’ve got enough months under our belt doing this virtual thing that it would probably would be a healthy exercise for teams to create a plan of how you want to operate, assuming that this is going to be the way that that we roll.

Successful Change: Managing Human Capital Risk During Implementation

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risk-3-26-18.pngMany financial services companies are in the process of implementing significant change initiatives or poised on the brink of doing so. As discussed in our previous article, many such efforts fail to meet expectations because leadership has underestimated the human capital risks that threaten strategy execution. But effective implementations can mitigate critical people-related risks while building employee understanding, commitment and resiliency.

The Typical Transition From the Past to the Future
Regardless of the type of change—for example, a consolidation, acquisition or new business model—employees must go through a process of transition. A transition that is smooth reduces the depth and duration of lost productivity, as well as unwanted turnover, and expands the organization’s capacity for future changes.

Employees often initially focus on change as an ending to what they know as familiar, which can foster uncertainty and negative attitudes, such as assuming the change won’t work. Leadership must help employees move first to a mindset that is more neutral and accepting, so employees are willing to give the change a try. From there, management can help employees begin to see the change as a new beginning and understand that the new organization can do better or more.

With most change initiatives, almost every employee is affected to some degree. Employees might need to adapt to a new technology system or move to a different facility. They could find themselves in a much larger department or with a different level of authority. Some of the changes in employees’ individual experiences will play a greater role in the potential for project success than others and therefore warrant greater change management attention. For example, leadership could expend more energy dealing with how managers react to having their authority altered than on employees who merely need to learn new procedures for approvals.

Note that it is not only reductions in authority that require leadership attention. Managers in a smaller bank where the president made all of the salary and promotion decisions might find it difficult to adjust after being acquired by a larger institution where they are expected to be more actively involved in such matters.

Transition Monitoring and Management
Financial services companies should create a change effectiveness scorecard to evaluate the impact, readiness, adoption and benefits realization of each change initiative. Metrics might include the percentage of business results achieved, individual or department change readiness (at project launch and quarterly intervals going forward), training completion rate, key employee retention, client satisfaction, quality of production and employee engagement.

Employee engagement can be measured through responses to pulse surveys conducted on a regular basis to track and improve employee understanding of and buy-in on the change project. These short surveys ask respondents to rank from 1 to 5 the accuracy of statements such as:

  • I understand how this transformation can benefit our employees, customers and community.
  • I believe the communications I receive from the transformation team.
  • I feel that I have enough opportunities to learn about the transformation.
  • I know where to go when I have questions about the transformation process.

When it comes to change projects, individual leaders or employees typically fall into one of four categories based on their level of engagement, performance and impact on project success. Each category calls for different management strategies during project implementation:

  • Advocate (high impact, high engagement): Leadership should recognize and reward high-impact employees who are actively and vocally on board and performing well, and consider increasing their project responsibilities.
  • Supporter (low impact, high engagement): These employees demonstrate their high level of commitment to the project by effectively providing assistance or resources, even though they are not critical to satisfying high-impact project objectives. Leadership should consider increasing their project-related roles and responsibilities.
  • Laggard (high impact, low engagement): These individuals have a low level of commitment to the project—even if they are performing well—but are essential to meeting the project objectives. Leadership should address their low engagement in hopes of moving them to advocate status. For example, the management team could consider demonstrating what’s in it for the employee if the project succeeds. If that effort fails, leadership should consider reassigning these employees from high-impact areas where they could negatively influence others and project success.
  • Bystander (low impact, low engagement): These individuals demonstrate a low commitment level, and their impact is not vital to meeting project objectives. Leadership might consider their potential for greater project impact and address reasons for low engagement.

The human capital risks associated with change initiatives could prove the difference between ultimate success or failure. Particularly when change affects customers, the employee experience has a direct effect on customer experience. By properly managing employees throughout the transition, bank leadership can help employees see change not as a negative ending, but as a positive beginning.

Human Capital: An Underestimated Element of Successful Change

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capital-2-26-18.pngFinancial services companies of all sizes are modifying their business models to stay competitive. But managing organizational change is a major business challenge, as evidenced by the fact that 70 percent of critical change initiatives fail to meet management expectations. One reason for the high failure rate is that leadership often underestimates the effort necessary to properly handle the human capital element—that is, the employee awareness, understanding and commitment required to achieve success.

When a change initiative is a bank consolidation, acquisition, turnaround or the implementation of a new competitive business model, there is little margin for error. Directors typically focus on the financial or operational risks associated with the resulting organization, but they would be wise to expand their oversight to the potential effects on people and culture, which in turn affect how well the organization can serve customers, its perception in the community and its sustainability.

The Role of Human Capital in Change Initiatives
It’s understandable that bank directors and management tend to concentrate on the risks that can be expressed in spreadsheets and financial statements, but ultimately, it is the people of the organization that create—or impede—success.

An organization’s staff should be well prepared to use the new business processes and systems going forward, for example. Employees also should be prepared for changes to job roles and responsibilities that frequently occur due to business process improvements and new technology integration. Importantly, staff must understand not just the “how” but also the “why” behind the change if they are going to buy in.

The extent of the risk associated with a change initiative is generally driven by the extent of the impact on employees, and their readiness and ability to change. This risk increases when changes:

  • Affect more employees;
  • Affect more aspects of work;
  • Affect more locations;
  • Represent a large departure from the status quo;
  • Or represent a disruptive change, as opposed to an incremental change.

Common changes may include changes in employee roles, culture, staffing, relationships, competencies, authority, information, training, expectations and facilities. The changes that have a greater potential impact will require more active change management, while those that are less likely to cause significant waves simply can be monitored.

Once a bank’s leaders understand the change risk associated with an initiative, they can devise a plan for managing the change and communicating with employees about it.

Four Critical Transitions
An effective plan for managing business change accounts for several essential staff and culture transitions, each of which comes with its own change risks. Fortunately, each transition can be managed if leaders analyze and address the relevant issues in advance.

  1. Organizational transition: Leadership must determine the strategies, structures, processes, employee reward systems and people tactics (for example, hiring, development and retention) that will be affected or that must change.
  2. Employee transition: What changes will be required of individual employees and departments, and are they ready and able to do so? Changes may involve job roles, responsibilities, workflows and expectations. In times of change, employees naturally wonder, “what’s in it for me, and what’s needed from me?” Leadership must be able to clearly answer these questions.
  3. Cultural transition: Bank leaders need to determine how the current culture (in the case of consolidations, turnarounds or realignments) or the new culture (in a merger or acquisition) will accelerate or delay achievement of the organization’s goals. They also should analyze whether current behaviors in the organization are the optimal behaviors and how the culture will need to change (for example, leadership style, decision making or authority).
  4. Infrastructure transition: Leadership must understand if desired business changes will require changes to the processes and systems that support employees, such as performance reporting or payroll and benefits systems and, if so, the cost, timing and resource implications.

Bank leaders must act as influencers and role models during the execution of change, but their effect on results, and employees’ levels of commitment and performance, will vary depending on a few factors. Do the bank’s leaders possess the necessary skills, knowledge and abilities to perform the requisite responsibilities? Do bank leaders have the required level of commitment to perform the necessary roles and responsibilities? And finally, is their management style a cultural fit for their organization?

The ability to accomplish successful change depends on a range of factors, including some that might not traditionally be considered. Bank leaders must identify and manage their people and culture risks to maximize the odds of obtaining the desired results.

What Skills and Expertise Will Banks Need in the Next Five Years?

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As new regulations and slim profit margins challenge the banking industry, the skills and backgrounds of the employees who work in banking must change as well. Bank Director asked legal experts to address the question of how the talent needs of the industry will shift in the next five years.

How will the banking industry’s personnel needs—including executives within the C-suite—change over the next five years?

Stanford_Cliff.pngWhile banks will continue to rely on service providers for efficiencies, expect a premium to be placed on those middle managers who can negotiate and manage third-party relationships. Encouraged by the regulators, banks have become increasingly attuned to the risk management burdens of outsourcing, particularly with regard to consumer-facing services and information technology. In the bank C-suite, expect to see continued strong demand for those with risk management, compliance, technology, information security and credit risk backgrounds.

—Cliff Stanford, counsel, Alston & Bird LLP

fisher_keith.pngIn recent years, we have already seen the need for dedicated Bank Secrecy Act/Anti-Money Laundering compliance officers and Community Reinvestment Act officers. In the information technology area, there will be a need for a chief information officer and possibly a separate chief information security officer. Both the C-Suite and the boardroom will also have a need for individuals with extensive, detailed regulatory and compliance experience to assist with policymaking and strategic planning, especially to keep the compliance burden cost effective.

—Keith Fisher, Ballard Spahr LLP

Sharara_Norma.pngMore bank consolidation is expected in the next five years, so executives in the C-suite need to be prepared to be leaders of change. Along with the board, they need to create and implement a vision that reflects the bank’s brand and corporate culture. Recently, some banks have created a position of chief culture officer that reports directly to the CEO. That position involves much more than simply training the new people on how your systems work. Rather, the focus is on moving the bank forward as one family with one voice and one mission, and overcoming the natural tendency for an “us versus them” culture that often follows an acquisition.  

—Norma Sharara, Luse Gorman Pomerenk & Schick, P.C.

Lamson_Don.pngThe risk management expertise needed by a bank is increasingly dictated by regulatory standards. In addition, regulatory reform and legislative developments will continue to be important on both sides of the Atlantic. Thus, it will be important for banks to maintain personnel, including C-suite personnel, who can maintain relationships with regulators and other relevant policymakers, and effectively communicate with the public about the positive role of banks in the economy. Implementation of new rules and enforcement actions will continue, and therefore compliance and legal staff will continue to play key roles as new policies and systems are designed and banks respond to regulatory inquiries.

—Don Lamson, Shearman & Sterling LLP

Peter-Weinstock.jpgRisk management and technology will continue to require executive oversight. Institutions that do not have C-level talent addressing such areas will be expected to add them as they grow. The bigger question is what level of committee and task force infrastructure will be needed to respond to the increasingly interdisciplinary nature of banking? We are getting to the point that bankers are unable to schedule time with customers among the jumble of committee and task force meetings. Unfortunately, I do not see a quick change to such meeting proliferation.

—Peter Weinstock, Hunton & Williams LLP