One Way to Compensate and Keep Your Bank’s Top Talent


compensation-6-11-19.pngBank-owned life insurance (BOLI) continues to be an attractive investment alternative for banks, given the number of banks that hold policies and high retention rates across the industries. An increasing percentage of banks hold BOLI, many of them using the policies as an important part of their compensation and retention strategies for key personnel.

A significant industry trend driving interest in BOLI is their use by banks in compensation strategies to attract and retain the best talent. Bank management and boards of directors are reevaluating their existing compensation plans and strategically implementing new ones in order to retain key executives given increasing competition for scarce talent.

BOLI assets reached $171.16 billion at the end of 2018, growing 2 percent year-over-year, according to the Equias Alliance/Michael White Bank-Owned Life Insurance (BOLI) Holdings Report. Sixty-four percent of banks reported holding BOLI assets; about 71 percent of banks with more than $100 million in assets owned BOLI. Most BOLI purchased is by banks that hold existing policies; of those banks, more than half have purchased BOLI as an add-on for a current group of executives. In 2018, about 86 percent of new premiums were invested in general account products, compared to hybrid and separate account products, according to IBIS Associates.

Although the pace of BOLI purchases slowed last year compared to 2017, purchases exceeded $1.7 billion and were steady throughout 2018. The reasons for slower BOLI purchases were due to continued strong loan demand that reduced bank liquidity and the reduction in the tax-equivalent yield on BOLI following the federal corporate tax cut.

Credited interest rates and net yields, the crediting rate minus the cost of insurance charges, on new BOLI purchases are expected be similar to 2018 figures. The interest rates that carriers can obtain on investment-grade securities held for between five and 10 years has remained relatively flat, given the modest increases in this portion of the yield curve. Corporate bonds usually comprise the largest holding in the portfolio, but it can also include commercial mortgages and mortgage-backed securities, private placements, government and municipal bonds, a small percentage of non-investment grade bonds and other holdings.

BOLI plans fund many of the most common retention plans, which can include supplemental executive retirement plans, deferred compensation plans, split-dollar plans and survivor income plans. Additionally, some banks are using deferred compensation plans to create flexibility in designing plans to retain young “up and coming” officers. Unlike a supplemental executive plan, which provides a specific benefit at a specific date or age, a deferred compensation plan allows the bank to make contributions to the executive’s account using a fixed dollar amount, fixed percentage of salary or bonus or a variable amount based on performance. A deferred compensation plan also permits voluntary deferrals of compensation, which could be valuable to executives who would prefer to defer more compensation but are limited in the 401(k) plans.

BOLI financing helps offset and recover some or all of the expenses for the employer. For example, a bank provides an officer with supplemental retirement benefits of $50,000 per year for 15 years, for a total cost of $750,000. The bank could purchase a BOLI policy on the officer with a net death benefit of $1 million to $2 million that would allow it to recover the cost of the paid benefits, as well as a return on its premium.

We expect that community banks will continue to implement these types of nonqualified benefit plans in 2019, using BOLI to help attract and retain key personnel.

Takeaways from the BB&T-SunTrust Merger


merger-2-27-19.pngIn early February, BB&T Corp. and SunTrust Banks, Inc. announced a so-called merger of equals in an all-stock transaction valued at $66 billion. The transaction is the largest U.S. bank merger in over a decade and will create the sixth-largest bank in the U.S. by assets and deposits.

While the transaction clearly is the result of two large regional banks wanting the additional scale necessary to compete more effectively with money center banks, banks of all sizes can draw important lessons from the announcement.

  • Fundamentals Are Fundamental. Investors responded favorably to the announcement because the traditional M&A metrics of the proposed transaction are solid. The transaction is accretive to the earnings of both banks and BB&T’s tangible book value, and generates a 5-percent dividend increase to SunTrust shareholders. 
  • Cost Savings and Scale Remain Critical. If deal fundamentals were the primary reason for the transaction’s positive reception, cost savings ($1.6 billion by 2022) were a close second and remain a driving force in bank M&A. The efficiency ratio for each bank now is in the low 60s. The projected 51 percent efficiency ratio of the combined bank shows how impactful cost savings and scale can be, even after factoring in $100 million to be invested annually in technology.
  • Using Scale to Leverage Investment. Scale is good, but how you leverage it is key. The banks cited greater scale for investment in innovation and technology to create compelling digital offerings as paramount to future success. This reinforces the view that investment in a strong technology platform, even on a much smaller scale than superregional and money center banks, are more critical to position a bank for success.
  • Mergers of Equals Can Be Done. Many have argued that mergers of equals can’t be done because there is really no such thing. There is always a buyer and a seller. Although BB&T is technically the buyer in this transaction, from equal board seats, to management succession, to a new corporate headquarters, to a new name, the parties clearly went the extra mile to ensure that the transaction was a true merger of equals, or at least the closest thing you can get to one. Mergers of equals are indeed difficult to pull off. But if two large regionals can do it, smaller banks can too.
  • Divestitures Will Create Opportunities. The banks have 740 branches within 2 miles of one another and are expected to close most of these. The Washington, D.C., Atlanta, and Miami markets are expected to see the most branch closures, with significant concentrations also occurring elsewhere in Florida, Virginia, and the Carolinas. Deposit divestitures estimated at $1.4 billion could present opportunities for other institutions in a competitive environment for deposits. Deposit premiums could be high.
  • The Time to Invest in People is Now. Deals like this have the potential to create an opportunity for community banks and smaller regional banks particularly in the Southeast to attract talented employees from the affected banks. While some banks may be hesitant to invest in growth given the fragile state of the economy and the securities markets, they need to be prepared to take advantage of these opportunities when they present themselves.
  • Undeterred by SIFI Status. The combined bank will blow past the new $250 billion asset threshold to be designated as a systemically important financial institution (“SIFI”). While each bank was likely to reach the SIFI threshold on its own, they chose to move past it on their terms in a significant way. Increased scale is still the best way to absorb greater regulatory costs – and that is true for all banks.
  • Favorable Regulatory Environment, For Now. Most experts expect regulators to be receptive to large bank mergers. Although we expect plenty of public comment and skepticism from members of Congress, these efforts are unlikely to affect regulatory approvals in the current administration. It is possible, however, that the favorable regulatory environment for large bank mergers could end after the 2020 election, which could motivate other regionals to consider similar deals while the iron is hot.
  • Additional Deals Likely. The transaction may portend additional consolidation in the year ahead. As always, a changing competitive landscape will present both challenges and opportunities for the smaller community and regional banks in the market. Be ready!

How to Build Shareholder Value When Economic Growth Slows


shareholder-12-4-18.pngBanking has been on an impressive run since the end of the 2009 recession. Now, as the industry finds itself with sky-high valuations, the market is wondering what banks can do for an encore.

Whatever comes next must be defined by a clear strategy for building shareholder value. That’s because the next 12-18 months are likely to show some level of marketplace pullback. A recent Wall Street Journal article reported that the U.S. economy has likely peaked and that we should expect slower growth on both the consumer and business sides. This means that formulating a strategic plan is increasingly vital.

These six ideas offer some places to start:

1) Balance CRE exposure with C&I growth
One of the commercial growth engines has been the commercial real estate space. But as the demand cycle begins to flatten, many small and mid-size banks are refocusing their attention on the commercial and industrial loan sector. Although it’s a slower, relationship-oriented build, there is an opportunity for a more sustainable, mutually beneficial relationship that could span several years. As a result, we expect continued demand for high-performing C&I lenders over the next 18-24 months who can drive the right kind of volume for the banks.

2) Bolster non-interest income businesses
Non-interest income has always been a big topic. But the banking industry needs to go beyond simply focusing on service-fee opportunities. That can mean creating new businesses around payments, treasury management and areas of wealth management. It can also include non-traditional businesses like insurance, which can offer a nice annuity-based income stream.

3) Play hard in the talent wars
Nearly 60 percent of employers struggle to fill job vacancies within 12 weeks—and by 2030, the global talent shortage could reach upwards of 85 million people. For banks, this means emphasizing three basic strategies that go beyond monetary compensation: a) Develop and enhance career development and retention programs; b) create an emotional bond between employees and the bank itself; and c) involve human-resource executives in formulating deliberate talent-search strategies.

4) Ensure value realization in a pricey M&A market
Banks need a clearly defined strategy around managing mergers and acquisitions. Where will banks find targets and opportunities? Whether the strategy is opportunistic or deliberately acquisitive, banks must create a structured playbook that more than earns back the premium paid by the acquirer.

5) Develop a deliberate deposit strategy
There is no single answer to the deposit funding challenge facing most banks today. But here are areas worth exploring: a) Make sure retail checking and money market products are positioned to retain loyal checking customers; b) bolster treasury management solution capabilities and develop industry niches to grow specialty deposits; and c) align sales team goals and incentives to reflect the priority of deposit growth and retention. The key is putting together a detailed funding plan–and executing a deposit strategy that balances deposit growth with overall cost of funds in 2019.

6) Execute on the channel delivery shift
Make plans to keep moving into a digital world and navigate the world of tech. This really comes down to ensuring a significant return on your channel investments. When making any investments in delivery channels—whether brick-and-mortar, contact centers or a digital strategy—they have to be looked at in three areas. How much will the investment help with customer acquisition? How much will it help to retain profitable clients? And what is the cost?

Building a great strategic plan is actually creating a great story—for the board, for investors, for the employee base and for prospective talent. Then, when looking at financial rigor and value, embrace the idea of relentless execution with milestones, key performance indicators and focus. Success is derived not just from the plan, but also from the notion that everybody has their fingerprints on it by the time the process is done.

No matter the focus over the next three to five years, break it down into its basic parts, create a story and execute on it. Because in the end, success comes down to relentless execution.

How To Manage Talent in a Parfait Organization


talent-11-7-18.pngThe banking industry sits at an interesting crossroads from a talent management perspective. Demographically, many banks are layered like a parfait, with as many as four distinct generations working in the organization, each with its own set of personality traits, likes and dislikes.

The oldest generation—the baby boomer generation, now running the bank for several years—is beginning to retire in increasing numbers. The Generation X cohort, which follows the boomers, is moving into senior management, the best and brightest among them soon to rise to the CEO and CFO level, if they haven’t already.

Generation Y, otherwise known as millennials, are now far enough along in their careers to have gained some meaningful experience, and the really talented ones are identifiable to the bank. Most members of the final and largest cohort, Generation Z, are still in high school and college, although the oldest ones are entering the workforce. At 26 percent of the population, Gen Z will be a force for the next several decades.

This dramatic generational shift is forcing banks to become more proactive in how they manage their talent, particularly millennials, who will comprise a significant part of the industry’s workforce in the near future. The importance of creating opportunities for those individuals was a significant theme in day two of Bank Director’s 2018 Bank Compensation and Talent Conference, held at the Four Seasons Resort and Club at Las Colinas in Dallas, Texas.

In a session on talent management, Beth Bauman, an executive vice president and head of human resources at the Bank of Butterfield, a NYSE-listed $11 billion asset bank domiciled in Bermuda, described the situation at the bank when she joined it in 2015. Butterfield had frozen salaries and done relatively little hiring for several years as it struggled to recover from the financial crisis. So Bauman, along with senior management, has worked to bring in new talent so the bank can continue to grow.

A key element of that hiring effort has been to create a talent management program so Butterfield’s younger employees can have their careers guided, with the most talented groomed for higher positions within the bank.

Bauman sees this as a key to successfully managing the generational change occurring now throughout the industry. “Regardless of the size of your bank, you can have an effective talent management program,” she says.

Talent management has been very much on the minds of the conference attendees. In an audience survey that polled the 300-plus people who were there, 45 percent said it has become both more difficult and costly to attract and retain talented staff—a result not surprising in an economy where the unemployment rate is just 3.7 percent. Banking also has the disadvantage of not being perceived as an exciting employment opportunity for many job seekers, particularly millennials.

Sixty-one percent of the survey respondents said their bank is actively and intentionally recruiting younger employees like millennials and Gen Z’ers.

Similarly, more than 70 percent said in the last two years their bank has expanded its internal training programs to develop younger leaders within the organization.

As increasing numbers of baby boomers approach retirement (the youngest boomers are in their mid-50’s), and Gen X’ers take their place in the management hierarchy, it will create an opportunity for millennials to move up as well. Gen X’ers are the smallest of the four demographic groups at just 20 percent of the population, so the banking industry will be forced to rely disproportionately on millennials as this generational shift occurs.

This is why training programs that focus on talented younger employees in the organization are so important.

We’ve all heard the jibes about millennials’ self-absorption, or their refusal to return voicemail messages, but the fact is the oldest among them are already buying homes and raising families, and when the day comes to run the bank, they’ll need to be ready.

Solving the Puzzle of Compensation Plans and Diversity


compensation-11-6-18.pngThere are some tasks that seem innocuous and administrative, but are nevertheless incredibly important. Assembling the puzzle pieces of effective executive and employee compensation plans is one such task.

This is why hundreds of bank executives and directors have assembled at Bank Director’s 2018 Bank Compensation and Talent Conference in Dallas, Texas, this week.

A number of themes began to emerge on the first day of the annual event, hosted at the Four Seasons Resort and Club at Las Colinas, the first of which is that many banks and their boards are still fully figuring out exactly how to structure executive and employee pay.

The starting point, according to a panel of experts from Compensation Advisory Partners and Kilpatrick Townsend & Stockton LLP during a morning workshop, is the interagency guidance issued in 2009 by the Federal Reserve, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.

There are three overarching principles:

  • Provide employees incentives that appropriately balance risk and reward.
  • Be compatible with effective controls and risk-management.
  • Be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

These may seem simple in theory, but the challenges for banks are real and complicated, which explains why compensation plans at so many banks are still a work in process.

On one hand, banks face one of the most competitive labor markets in decades, with the lowest unemployment rate in half a century. To attract talented workers, banks have to pay accordingly, which is why so many bankers raised their hands during a Monday morning workshop when asked if their banks boosted their minimum wages after tax reform passed Congress late last year.

On the other hand, as Steve Hovde, chairman and CEO of Hovde Group LLC, pointed out in his analysis of the industry, banks are facing well-seasoned business and credit cycles. This creates a quandary about how aggressive a bank should be in incenting rapid growth, as loans made at the top of an up cycle tend to be the first to go sour at the bottom of the next down cycle.

Moreover, while this may seem counterintuitive, there was wide agreement among attendees at the workshop that regulators aren’t currently focused on the design of compensation plans. The sole exception, according to at least one attendee, concerns how mortgage originators are being compensated, likely a reaction to the issues that surfaced two years ago at Wells Fargo & Co.

Another theme to emerge during the workshop involved diversity and inclusion initiatives, which all banks seem focused on addressing.

It’s important to distinguish between those two initiatives, observed one of the workshop’s panelists.

“Diversity is about inviting people to the party,” she noted. “Inclusion is about giving everyone an opportunity to dance.”

The challenge in banking, as in other industries, is tackling unconscious bias—social stereotypes people form outside their own conscious awareness.

No rational banker today would admit being biased against hiring or promoting women or minorities. Yet the demographic statistics in the industry speak clearly to a lack of diversity, especially at the upper levels of management.

One way to address this is simply through awareness. This was a point that Kate Quinn, the chief administrative officer of U.S. Bancorp, echoed two months ago at Bank Director’s Bank Board Training Forum in Chicago.

“Everyone has prejudices,” said Quinn at the time. “To address them, you first have to be aware they are there.”
And this isn’t just about hiring a diverse workforce; all employees must also be given an equal opportunity to excel. This is the distinction between diversity and inclusion in the corporate world.

An interesting point brought up during the workshop was that entry-level jobs throughout the financial industry tend to be fairly representative of the broader population. But as you look up the organizational chart, that diversity dissipates.

The lack of diversity at the top sends a strong signal, noted one attendee. Her point was, if, as a woman or minority, there isn’t someone like you on the board or who serves as an executive, then you are left with the impression you don’t have the same opportunity to advance.

Ultimately, though, if you listen to bankers, it’s clear that diversity and inclusion have become priorities at many institutions.
After all, to compete for talent, it’s not only how much you pay, it’s also the culture of your institution that will serve as a magnet for the next generation of employees.

How Netflix and JPMorgan Can Help Your Bank Win Right Now


strategy-11-2-18.pngAs one of the best-performing stocks on Wall Street, you can bank on Netflix spending billions of dollars on even more original programming, even without a profit. Likewise, JPMorgan Chase & Co.’s consumer and community banking unit attracted a record amount of net new money in the third quarter.

How do I know this, and what’s the same about these two things?

Read their most recent earnings reports. Netflix doesn’t hide its formula for success, and JPMorgan boasts about its 24 percent earnings growth, fueled by the consumer and community banking unit, which beat analyst projections.

While we all have access to information like this, taking the time to dig into and learn about another’s business, even when not in direct competition or correlation to your own, is simply smart business, which is why I share these two points in advance of Bank Director’s annual Bank Compensation & Talent Conference.

Anecdotes like these prove critical to the development of programs like the one we host at the Four Seasons outside of Dallas, Nov. 5-7.

Allow me to explain.

Executives and board members at community banks wrestle with fast-shifting consumer trends — influenced by companies like Netflix — and increasing financial performance pressures influenced by JPMorgan’s deposit gathering strategies.

Many officers and directors recognize that investors in financial institutions prize efficiency, prudence and smart capital allocation. Others sense their small and mid-size business customers expect an experience their bank may not currently offer.

With this in mind, we aim to share current examples of how stand-out business leaders are investing in their organization’s future in order to surface the most timely and relevant information for attendees to ponder.

For instance, you’ll hear me talk about Pinnacle Financial Partners, a $22 billion bank based in Nashville. Terry Turner, the bank’s CEO, shared this in their most recent earnings report:

“Our model of hiring experienced bankers to produce outsized loan and deposit growth continues to work extremely well. Last week, we announced that we had hired 23 high-profile revenue producers across all of our markets during the third quarter, a strong predictor of our continued future growth. This compares to 39 hires in the second quarter and 22 in the first quarter. We believe our recruiting strategies are hitting on all cylinders and have resulted in accelerated hiring in our markets, which is our principal investment in future growth.”

This philosophy personally resonates, as I believe financial institutions need to (a) have the right people, (b) strategically set expectations around core concepts of how the bank makes money, approaches credit, structures loans, attracts deposits and prices its products in order to (c) perform on an appropriate and repeatable level.

Pinnacle’s recruitment efforts also align with many pieces of this year’s conference. We will talk strategically about talent and compensation strategies and structuring teams for the future, and we will also explore emerging initiatives to enhance recruiting efforts.

We will also explore big-picture concepts like:

Making Incredible Hires
While you’re courting top talent, let’s start the conversation about joining the business as well as painting the picture about how all of this works.

Embracing Moments of Transformation
With advances in technology, we will help you devise a clear vision for where your people are heading.

Creating Inclusive Environments
With culture becoming a key differentiator, we will explore what makes for a high-performing team culture in the financial sector.

As we prepare to welcome nearly 300 men and women to Dallas to talk about building teams and developing talent, pay attention to the former Federal Reserve Chairman, Alan Greenspan. He recently told CNBC’s “Squawk Box” that the United States has the “the tightest market, labor market, I’ve ever seen… concurrently, we have a very slow productivity increase.”

What does this mean for banks in the next one to three years? Hint: we’ll talk about it at #BDComp18.

Future Banking Leadership Formula: Talent, Technology and Training


talent-11-1-18.pngIt’s an old phrase but still rings true today: An organization thrives when you get the right people in the right jobs.

That’s easy to say, but not always easy to do. Future leadership in banking is of great concern to boards today. And while there are myriad methods of finding good people, three key considerations in finding the right people include talent, or a transitioning generation in leadership; technology, or a heightened need for new and better ways to get the job done; and training, or existing employees looking for that golden career opportunity.

Talent: Transitioning Generations
Understanding generational differences is critical if a bank is seeking to attract young talent. Failure to understand these differences will only result in frustration. For example, boomers and millennials may not see eye to eye on a number of things. Older workers talk about “going to work” each day. Younger workers view work as “something you do,” anywhere, any time. If you’re looking for younger talent, whether on your board or within your bank leadership group, take the time to understand these generational classes. The more you know about their needs, expectations, and abilities, the easier it will be to attract them to your organization, resulting in growth that thrives on their new talent.

For younger talent, the hiring process needs to be short and to the point, with quick decision making. Otherwise, they’re quickly scooped up by competitors. Another key area is a greater focus on company culture. Millennials, for example, are sensitive to the delicate balance between work and life. Some may easily turn down a decent paying job for one that provides more control over his or her schedule and life.

Take the time to read, learn, understand, and seek out that younger talent you believe will move your organization to the next level.

Technology: An Opportunity to Rethink What People Do
In the time it takes to write, publish and read this article, the technology target for banks has moved exponentially. Keeping up requires a great deal of focus, investment and thinking outside the box. And because of the pace of change in technology, a chief technology officer (CTO) is a critical part of today’s banking leadership team.

The qualities needed in an effective CTO include the ability to challenge conventional wisdom, move decisively toward objectives and flexibility. Since long-term growth and expense management quite often are dependent upon the right technology, the CTO plays a major role in management’s long-term strategic planning for the bank. Even now, technology is performing the work entire departments used to do just a few years ago.

An effective CTO will help ensure the bank is ready to move into new growth phases of the business, including internet banking, enhanced mobile banking, cybersecurity, biometrics, and even artificial intelligence.

Training: The Value of Existing Employees
While utilizing online recruiting systems can help you find good people, there could be gems right down the hall. Growing talent from within is too often overlooked. Traditionally, boards have felt this is a job for the CEO or human resources. But some have argued that a lack of leadership development poses the same kind of threat that accounting blunders or missed earnings do. This lack of leadership development has two unfortunate results: 1) individual employees seeking to make a greater contribution never get the opportunity to shine and 2) the bank loses a potential shining star to the competitor down the street.

Lack of an effective development program is shortsighted and diminishes the value of great employees. Today’s boards must take specific steps in becoming more involved in leadership development. First, encourage your executive team to be more active in developing the leadership skills of direct reports. Second, expand the board’s view of leadership development. Take an active role in identifying rising stars and let them make some of the board presentations. In this way, the board can assess for itself the efficacy of the company’s leadership pipeline. And meanwhile, the rising stars gain direct access to the board, gleaning new perspectives and wisdom as a result.

As boards consider their duties and responsibilities, identifying future leadership should be at or near the top of the list. Organizational growth depends on it and the bank will be better able to embrace an ever-changing generational, technological and business environment.

Talent and Customer Experience Can Be Evaluated Three Different Ways


incentive-10-31-18.pngTo maintain a competitive advantage over peers, two areas of strategic focus we have seen increase include enhancing the customer experience and attracting and retaining the right talent. Specifically, many banks are focused on digital transformation and technological efficiencies as well as human capital management to attract the right talent, including diverse talent, to be able to achieve the strategic priorities.

Companies are clearly emphasizing the importance of these two strategic priorities, but how you measure success is challenging. And, do you incentivize management based on progress? The goal for boards is to have executives focus on objectives that will ultimately drive performance and long-term shareholder value.

Some organizations are beginning to align incentive-based compensation with these strategic priorities; however, objective measurement of progress or success may often require a subjective judgement.

Customer experience and engagement: The banking industry runs on relationships and maintaining these connections, which is shifting as customer demand for new and faster technology evolves. While ensuring customer security is still important, the focus once on customer service has now shifted to the customer experience. To measure this, we often see a portion of the total incentive tied to customer engagement, typically measured through surveys, customer retention, or strategic technological or digital initiatives.

Two examples of companies that utilize customer-centric metrics include American Express and Unum Group. Both weight customer experience and satisfaction as standalone metrics in the annual incentive plan. Citigroup uses a scorecard to assess top management performance and compensation, 30 percent of which is tied to non-financial objectives.

Digital Transformation: The changes in the banking industry have increased the demand for tech talent to implement digital strategies, particularly those involved in improving the customer experience. Banks need to decide whether they will rely on internal talent and resources to develop proprietary new technologies, or if they will go outside the industry to find talent. In recruiting this talent, financial services firms find themselves in competition with tech companies that can provide significant equity opportunities and may have less-traditional work arrangements.

Financial services companies must be creative in attracting this talent with perks like open offices, flexible work arrangements and separate pay structures for niche talent. Goldman Sachs’ dress code, and JP Morgan Chase & Co.’s relocation of its tech team to a more modern, open-floor office are examples.

Diversity and Inclusion: Driving some of these strategic priorities are talent issues that have been a hot topic in the boardroom. Studies have shown a diverse workforce provides for more diverse thinking, and a better performing organization. We are seeing some organizations incorporate improvements in diversity and inclusion in their incentive plan metrics:

  • Prudential Financial: Performance shares include a diversity and inclusion modifier (+/- 10 pp). Executives at the senior vice president level and above will be subject to a performance objective to improve the representation of diverse persons among senior management through 2020.
  • Citigroup: 18-member operating committee will be measured on the progress of raising the percentages of women and African Americans in management positions by 2021.
  • American Express: Has had talent retention and diversity representation goals as part of the annual incentive plan since 2013.
  • Old National Bancorp: Has included diversity and inclusion targets in the annual incentive plan as a negative modifier since 2016.

The use of a modifier for Prudential Financial and Old National Bancorp may be due to the amount of influence an executive may have over the goal. Regardless of the weighting, inclusion of these metrics is a signal about the importance of the issue.

When boards are considering which strategic metrics to incentivize executives, the focus should be on management’s priorities, such as innovation, security, employee satisfaction or employee diversity. The key is attracting, hiring and retaining the right people who will align with the company’s strategic priorities. That is what differentiates one company from the next and those with a competitive edge.

Fueling Future Growth


2017-Compensation-White-Paper.pngOver the past year and a half, there’s been a lot of good news for the banking industry. New regulators have been appointed who are more industry-friendly. Congress managed to not only pass tax reform, but also long-awaited regulatory relief for the nation’s banks. And the economy appears to remain on track, exceeding 4 percent gross domestic product (GDP) growth in the second quarter of 2018, according to the Bureau of Economic Analysis.

Bank Director’s 2018 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, finds that the challenges faced by the nation’s banks may have diminished, but they haven’t disappeared, either.

Small business owners are more optimistic than they’ve been in a decade, according to the second quarter 2018 Wells Fargo/Gallup Small Business Index survey. This should fuel loan demand as business owners seek to invest in and grow their enterprises. In turn, this creates even more competition for commercial lenders—already a hot commodity given their unique skill set, knowledge base and connections in the community. Technological innovation means that bank staff—and boards—need new skills to face the digital era. These innovations bring risk, in the form of cybercrime, that keep bankers—and bank regulators—up at night.

For key positions in areas like commercial lending and technology, “banks have to spend more,” says Flynt Gallagher, president of Compensation Advisors. “You have to pay top dollar.”

But a solid economy with a low unemployment rate—dropping to 3.8 percent in May, the lowest rate the U.S. has seen in more than 18 years—means that banks are facing a more competitive environment for the talent they need to sustain future strategic growth.

And regulatory relief doesn’t mean regulatory-free: With the legacy of the financial crisis, along with the challenges of facing economic, strategic and competitive threats, all of which are keeping boards busy, there’s more resting on the collective shoulders of bank directors than ever before, and boards will need new skill sets and perspectives to shepherd their organizations forward.

For more on these considerations, read the white paper.

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

7 Things Bank Boards Should Focus on in the Year Ahead


board-9-10-18.pngThe world of corporate governance today has a brighter spotlight on boards of directors than ever before. While bank regulatory relief has provided a long-awaited respite, bank examiners seem to be zeroing in on governance, director performance and board succession. Here are 7 things directors should have on their radar screens in the year ahead:

  1. Defining Innovation. Digitization and innovation are the buzzwords, but truly embracing the transformations taking place all around us can be daunting.  Pondering how technology has altered our client relationships and acquisitions means thinking out of the box, which may be a challenge for some directors and bank executives. A refresh of the bank’s website is not an innovation—it is table stakes.  True innovative thinking requires more proactivity and planning, and likely some outside perspectives as well. Boards should encourage management to craft a plan to address to these challenges, which are key to remaining relevant.
  2. Talent Management. Historically, boards viewed talent management as the purview of executive leadership and the CEO, except when it came to CEO succession. In today’s talent-deficient environment, though, boards need to hold the CEO and senior team much more accountable for developing the next generation of leaders and revenue generators. If your bank wants to perform above the mean, then the senior team must be composed of very strong players well suited to execute your strategic plan. A true linkage between the business strategy and human capital strategy has never been more critical for success and survival.
  3. Revisiting Compensation Strategies. Balancing the tradeoffs between enhanced compensation packages and performance/accountability has become a significant challenge for compensation committees and CEOs. In this competitive talent climate, banks need to make sure that their compensation practices properly reflect the bank’s market and goals, motivate the right behaviors, and incentivize key players to both perform, and remain, with the institution. Fresh board thinking in this area may be appropriate, particularly for banks that have been less performance driven with their incentive programs, or do not have the currency of a publicly listed stock as a compensation tool.
  4. Enhanced Accountability and Self-Assessment. Just as boards need to truly hold their CEO accountable for institutional performance, boards need to hold themselves accountable as well. Governance advocates are pushing for boards to assess their own performance, both as a group and individually. Directors should have the fortitude to evaluate their peers—confidentially, of course—to identify areas for improvement. Directors should be open to this feedback, and work to improve the value they bring to the institution.
  5. Onboarding New Directors and Ongoing Training. Plenty of data reinforces that new executives as well as board members contribute more rapidly when there is a formal approach to ramping up their knowledge of the company. Expectations of new directors should be clear up front, just as any new employee. A combination of information and inculcation into the institution provides context for decision-making; clarifies the cultural norms; and often reveals the hidden power structures, including the boardroom. A strong onboarding program forms the foundation for ongoing board education. There should be an annual plan for each director’s education to maintain currency, refresh specific skills, and to stay abreast of leading governance practices.
  6. Board Refreshment. Are we truly building a board of diverse thinkers with the range of skills needed to govern appropriately today? Age and tenure have become flashpoints around continued board service, in reality they avoid dealing with declining contributions and underperforming directors. Every board seat is a rare and precious thing, and needs to be filled with someone who broadens the collective skills and perspectives around the board table. Board nominating and governance committees need to manage accountabilities for existing—and particularly for prospective—directors, and be willing to make the tough calls when needed. Underperforming directors should be encouraged to raise their game or be asked to step aside.
  7. Leading by Example. In today’s information-driven society with endless social media channels and instant visibility, C-Level leaders and board members are under the microscope. Lapses in judgment, breaches of policy or inappropriate behavior, once validated, must be dealt with quickly and decisively. The company’s brand reputation and credibility are always at risk. The board itself—along with the CEO, of course—must set the standard for ethics and compliance and lead from the front. Every day.

Bank Boards will continue to be under scrutiny no matter the environment. More importantly, a bank’s board must be a strategic asset for the institution and provide strong oversight and advice. The expectations of good governance have never been higher, and successful boards will raise their own performance to ensure success and survival.