2021 Compensation Survey Results: Fighting for Talent

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Did Covid-19 create an even more competitive landscape for financial talent?

Most banks increased pay and expanded benefits during the pandemic, according to Bank Director’s 2021 Compensation Survey, sponsored by Newcleus Compensation Advisors. The results provide a detailed exploration of employee benefits, in addition to talent and culture trends, CEO performance and pay, and director compensation. 

Eighty-two percent of respondents say their bank expanded or introduced remote work options in response to Covid-19. Flexible scheduling was also broadly expanded or introduced, and more than half say their bank offers caregiver leave. In addition, most offered bonuses to front-line workers, and 62% say their bank awarded bonuses tied to Paycheck Protection Program loans, primarily to lenders and loan production staff.     

And in a year that witnessed massive unemployment, most banks kept employees on the payroll.

Just a quarter of the CEOs, human resources officers, board members and other executives who completed the survey say their bank decreased staff on net last year, primarily branch employees. More than 40% increased the number employed overall in their organization, with respondents identifying commercial and mortgage lending as key growth areas, followed by technology.

The 2021 Compensation Survey was conducted in March and April of 2021. Looking at the same months compared to 2020, the total number of employees remained relatively steady year over year for financial institutions, according to the U.S. Bureau of Labor and Statistics.

Talent forms the foundation of any organization’s success. Banks are no exception, and they proved to be stable employers during trying, unprecedented times.

But given the industry’s low unemployment rate, will financial institutions — particularly smaller banks that don’t offer robust benefit packages like their larger peers — be able to attract and retain the employees they need? The majority — 79% — believe their institution can effectively compete for talent against technology companies and other financial services companies. However, the smallest banks express less confidence, indicating a growing chasm between those that can attract the talent they need to grow, and those forced to make do with dwindling resources. 

Key Findings

Perennial Challenges
Tying compensation to performance (43%) and managing compensation and benefit costs (37%) remain the top two compensation challenges reported by respondents. Just 27% say that adjusting to a post-pandemic work environment is a top concern.

Cultural Shifts
Thirty-nine percent believe that remote work hasn’t changed their institution’s culture, and 38% believe the practice has had a positive effect. However, one-quarter believe remote work has negatively affected their bank’s culture.

M&A Plans
As the industry witnesses a resurgence of bank M&A, more than half have a change-in-control agreement in place for their CEO; 10% put one in place in the last year.

Commercial Loan Demand
More than one-quarter of respondents say their bank has adjusted incentive plan goals for commercial lenders, anticipating more demand. Ten percent expect reduced demand; 60% haven’t adjusted their goals for 2021.

CEO Performance
Following a chaotic and uncertain 2020, a quarter say their board exercised more discretion and/or relied more heavily on qualitative factors in examining CEO performance. More than three-quarters tie performance metrics to CEO pay, including income growth (56%), return on assets (53%) and asset quality (46%). Qualitative factors are less favored, and include strategic goals (56%) and community involvement (29%).

CEO Pay
Median CEO compensation exceeded $600,000 for fiscal year 2020. CEOs of banks over $10 billion in assets earned a median $3.5 million, including salary, incentives, equity compensation, and benefits and perks. 

Director Compensation
More than half of directors believe they’re fairly compensated for their contributions to the bank. Three-quarters indicate that independent directors earn a board meeting fee, at a median of $1,000 per meeting. Sixty-two percent say their board awards an annual cash retainer, at a median of $21,600. 

To view the full results of the survey, click here.

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.

Optimizing Your Branch Network

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12-29-14-Fiserv.pngIn this day of razor-thin interest margins and heightened competition, most banks are focusing on becoming more efficient to increase profitability. Yet, many of these financial institutions may be looking for efficiency gains and cost savings in the wrong places. It’s fine to streamline work processes, scrutinize vendors and tighten the belt on discretionary spending, but that’s not really where the fat is.

The fact is, branch networks and their associated costs, including personnel, make up about two-thirds of a typical bank’s non-interest expense. If you want to make a dent in your cost structure, you have to focus on more intelligent management of people and facilities.

How important is this? Bank Intelligence Solutions, an advisory arm of Fiserv, conducted a study of America’s banks, in which our team gathered metrics such as revenues per branch, core deposits per branch, number of deposit accounts and revenues per employee. We found that 45 percent of banks have an excess branch capacity problem. Their allocation of resources is out of alignment with the needs of the marketplace. As a result, inefficiency and weak performance continue to create a drag on earnings. It’s one of the top issues that banks need to address in 2015 and beyond.

Smart branch optimization begins with tapping into and interpreting data—using market analysis and your bank’s internal reporting to execute informed business decisions.

Know Your Markets
First, you have to understand the markets in which your branches operate, from both a consumer and commercial perspective, as dictated by your unique operating strategy. You need to know the makeup of households and businesses, as well as their product propensities and current growth rates. Is the area populated by young families or retirees? What is the ratio of homeowners to renters? Are the businesses predominantly retail, service-oriented or industrial? Then you need to understand the competitive dynamic – the market saturation of the geographic area, who you are competing with and how effectively.

This market profile, drawn from current census data and other information sources, drives other important questions: Based on current trends, what does the future of the market look like? Considering the types of households and businesses in the market, what product and service set will be most appealing and helpful to them, now and in five years? Answering these questions helps you move beyond a one-size-fits-all branch strategy to serving specific community needs.

Rank Your Branches by Performance
You need to understand the markets, but also how well your branches are succeeding in those markets. How does your bank measure success at the branch level? Review key metrics to measure branch performance, such as the number of accounts, profitability of the branch, fee income and transaction activity. Are you generating sufficient revenue from the loan, deposit and fee activity at the branch? These are all metrics available in your internal data.

Decisions, Decisions
Now that you have your rankings, it’s time to use that information to make some decisions about the future of your branches, choosing from four options:

  • Keep: This branch is performing well, with good growth potential.
  • Close: The community has changed in the last five years and there’s not enough growth to sustain a branch at this location.
  • Move: This branch is not performing well where it is, but market analysis suggests that a move to an area in close proximity would result in more traffic and greater success.
  • Consolidate: Two branches are located fairly close together, and the market data supports the idea of serving this community with one branch instead of two.

What if your bank doesn’t have all the funds up front to make the needed changes to your branch network? Prioritize which branches you need to invest in first, and execute a phased plan over your projected timeframe. And remember, some of your reinvestment may pay for itself if you’re closing a few branches.

Embracing a Unified Approach
Data-driven decision making can bring new focus to your financial institution’s branch strategy and marketing efforts. But whether you attempt branch optimization using these techniques on your own, employ software tools or engage consultants to guide you through the process, it must be a team effort.

It is critical to be in agreement, enterprise wide —from retail to lending to the executive team —on the process you’re going to use and the metrics you’re going to measure and track over time. Even more important is having full executive team buy-in on how to weight these factors. Finally, it must be understood that you’re going to use this analysis to make real decisions.

With smart branch optimization, the goal is growth. Good analysis, intelligently used, can propel you toward it.

To learn more about making the most of your branch network, view Driving Smart Branch Optimization Decisions from Market Analysis, a recorded presentation from Fiserv.

Is Your Bank Ready for Basel III Compliance?

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10-13-14-fiserv.pngBoard members have an important role to play in implementing the latest directives from the Basel Committee on Banking Supervision.

The first implementation deadlines are looming for the standards in the Third Basel Accord, commonly known as Basel III. It’s time for bank directors to make sure they’re up to speed.

Basel III comes into play at a time of worldwide economic uncertainty. Promulgated by the Basel Committee on Banking Supervision, the international forum for supervisory matters based in Basel, Switzerland, this comprehensive set of regulations seeks to instill greater stability and confidence in the banking system by dealing with deficiencies exposed by the financial crisis of the late 2000s.

The Basel III framework includes six key requirements for banks:

  • Hold more and better-quality liquidity
  • Maintain more and better-quality capital
  • Achieve enterprise risk management maturity
  • Ensure robust, comprehensive stress testing
  • Enhance capital adequacy assessments
  • Integrate comprehensive and actionable capital and strategic planning

A new risk-weighted capital framework to determine regulatory capital adequacy based on Basel III becomes effective for community banking organizations (non-complex, with assets between $500 million and $10 billion) on January 1, 2015.

Community Bank Readiness
Many managers and officers of community banks and small regional banks have told me they believe Basel III is really not an issue for them because they’re extremely well-capitalized. However, if these bankers haven’t run the Basel III calculator provided on each banking regulator’s website, their confidence may not be warranted. The risk ratings under Basel III are radically different from anything we’ve seen in the past. And you can’t determine true capital adequacy simply and solely on the basis of the new regulatory capital ratios. Those ratios are merely the ante into the game, the minimum requirement.

In today’s banking environment, the only true measure of capital adequacy is economic capital measured in a customized way for each financial institution, stress-tested to consider all risk elements across the full probability spectrum. A fresh assessment and approach are needed before you can say you’re well-capitalized in a Basel III world.

A Board Responsibility
Basel III should be a top-of-mind concern with every member of the board. Directors have a critical fiduciary role in ensuring Basel III compliance, and in capital and strategic planning in general. The board should be front and center in these areas:

  • Defining risk appetite. First and foremost, boards of directors must define the level of risk that is acceptable for their organizations. Within acceptance of that risk, they must determine what commensurate returns they expect the financial institution to earn.
  • Scenario planning. Through stress testing and scenario planning, boards of directors should look at all potential outcomes and their impact on capital, from low- to high-probability events. Directors should help frame some of these scenarios and stress tests, and thoroughly understand the results. The board must also have a firm grasp on how integrated strategic and capital plans are driving decision making—including risk assumption, resource allocation and the tactical actions of the organization.
  • Right-sizing capital. The board of directors must be instrumental in making sure that the bank’s capitalization properly aligns with the risks assumed by its banking business model. I am an advocate for the “Goldilocks School of Banking.” Like the porridge sampled by the little blonde-haired girl, capital needs to be “just right”—neither too much nor too little, and customized for the financial institution.

RAROC: The One True Metric
Risk-adjusted return on capital (RAROC) is the most all-encompassing performance indicator your organization can employ in assessing your capital position. It is the only metric that considers both full risk and potential return in a strategic business equation.

RAROC is suitable for assessing your total organization, individual business units, products, customers and customer segments. It enables you to determine your economic capital and capital adequacy, while helping optimize how you allocate capital and resources. Risk-adjusted analysis helps your organization intelligently price customer transactions, evaluate profitability, incentivize employees and right-size capital to your risk profile.

The benefits of RAROC are substantial and far-reaching. I encourage your board to insist on using this important tool.

Getting Started
Basel III awareness and compliance begin with the board asking two things of management:

  • Education. Whether it’s provided by the executive team or an outside consultant, the board should insist on a one- to two-hour overview of Basel III—not just focusing on what the regulations require, but also the implications for your banking business model and a strategy to respond.
  • Basel III status report. The board must ask if the executive team has run the pro forma calculations for Basel III capital compliance, and where the capital levels stand today in light of Basel III requirements.

This simple, two-step questioning process is absolutely essential. If it isn’t already underway at your financial institution, it should begin at your next board meeting.

For more information on capitalization and regulatory compliance, see Orlando Hanselman’s white paper, Capital Conundrum: A Call for Clarity and Action.

Getting the Most Out of Your Branch Network

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8-25-14-fiserv.pngWith narrowing net interest margins, less-than-optimal loan volumes and service charge fees under fire, it’s more difficult than ever for America’s financial institutions to plan for the future and achieve their strategic objectives. You probably believe you’ve squeezed every drop of efficiency out of your operations already. What’s the key to further efficiency, profitability and growth in this environment?

It all comes down to the branch.

Branches represent 66 percent of the non-interest expense for the average financial institution, at a time when consumers are making the transition moving to online and mobile channels. That’s why banks must maximize the value of the branch to position themselves for success. Financial institutions of all sizes can profit from creating what I call a “branch planning playbook.” This is a highly structured process of reimagining your branch network, and the time to start is now.

An Honest Appraisal
You can begin by stepping back and asking some tough questions.

  • What has been the historical purpose of your branches? Document how each one has performed, based on this purpose. Imagine the shape of your branch network if you were starting over today.
  • Does your funding strategy make sense? How you fund your bank—with wholesale or low-balance accounts, for example—shapes your path to high performance.
  • Do you have excess capacity? All financial institutions experience excess capacity as they add branches. The question is how long they will subsidize it.
  • How do your branch efficiency metrics stack up to those of high-performing peers? Measure core deposits, revenue and number of accounts per office. Then size up revenues, loan volume, deposit totals and number of accounts per full-time equivalent employee.
  • What are your franchise-level growth goals? Determine how these goals compare to the growth projections in the market.

Evaluate Each Market
Now you should have a picture of where your financial institution has been, where you stand and where you want to go. Next, you must examine how that matches up with your marketplace and how you can improve your position.

For a complete market view, you’ll need market analysis tools. There’s a wealth of data available and you want software that can identify both competitive saturation and the demographics of your potential customers. These tools are indispensable as you complete these steps for each branch:

  1. Define the geographic market. Typically, this is an area with about 20,000 households and businesses.
  2. Identify the primary market type. Is this market consumer-oriented, commercial or diverse? Is it large or small, urban or rural? Define its growth characteristics.
  3. Measure market growth potential. Get five-year and annualized growth estimates for consumer and commercial loans and deposits.
  4. Evaluate your best consumer and commercial segment opportunities. Upscale earners or growing families, for example, represent solid prospects.
  5. Quantify your best product opportunities. Select products and services that appeal to your top consumer and commercial segments.
  6. Analyze market competition. Identify your competition, their locations and market share.
  7. Evaluate your current customer base. Identify the household and business types with which you resonate. Analyze wallet share and gauge customer loyalty.
  8. Build a branch strategy matrix. This is expressed as a quadrant diagram that sorts your branches according to current market position and market growth potential, identifying top branch performers as well as branches that may be candidates for closure or consolidation.

Define Focus and Set Clear Goals
Armed with your research, you can now set up your branches for greater success. Narrow the focus of each branch to products and services that fit the market. For example, you might designate a branch as an origination point for commercial deposits, catering to the health services industry. Then, staff accordingly.

Set obtainable goals. Your goals should be conditioned by what you’ve learned about the growth potential and competition in the market.

Executing the Plays
The strategic framework in the branch planning playbook provides an orderly plan for refining your branch network to achieve strategic objectives. It will mean making important decisions—perhaps even closing or consolidating branches. But you can rely on the intentional use of market analytics to help maximize your financial institution’s investment in current branches and inform your decisions to open new ones.

I encourage you to start imagining a more focused future, today.

To further explore the process for creating your own branch planning playbook, review the Branch Planning Checklist from Fiserv.