Takeaways from the Bank Director 2016 Compensation Survey

The annual Bank Director Compensation Survey, sponsored by Compensation Advisors, seeks to illuminate banking industry trends by surveying banking executives and directors about compensation. The results are now in for 2016’s survey, and they highlight critical issues in the banking worldwith regards to attracting and compensating executives and other top employees. Here are some of the major takeaways from the report.

Recruiting and compensating commercial lenders is among the top three compensation challenges for 2016

High demand positions are often difficult to fill. If your bank is struggling to find commercial lenders, you are not alone. In the Bank Director survey, 40% of respondents named recruiting commercial lenders as one of their top 3 concerns, and the reason many gave was that there simply aren’t enough talented commercial lenders out there.  As a result, they are willing to compensate highly in order to fill these roles.

Takeaway: When you’re dealing with a limited pool of talent, it’s crucial to ensure that the top performers in the industry comes to you rather than your competitors. Remember that if you have talented commercial lenders working at your bank, they’re likely getting calls from recruiters. Effective compensation strategies are more important to attract commercial lenders than they’ve ever been, and once you have the top lenders in your organization, you should use long-term incentives to keep them.

More than half of executives consider equity a highly valued part of compensation, but most respondents don’t consider equity effective on its own

While the survey revealed that 54% of executives value equity, only about a third of all respondents consider equity useful when used on its own. It’s a common misconception among banks that equity compensation is the main factor that will retain your executives. If executives don’t value the equity, its retention value is useless. It’s not the only way to tie executive interests to that of the shareholders.

Takeaway: If you’re offering equity, make sure it’s valued by participants—and don’t use it as your only incentive. Explore alternatives to use in place or as a compliment to equity.

Compensation and benefit costs are also among the top compensation challenges

Since filling competitive positions and keeping those employees in place requires heftier compensation packages, it’s no surprise that in the competitive banking environment, organizations are having difficulty covering the costs of those packages. Along with attracting commercial lenders, funding benefits was named as one of the top 3 challenges by 40% of respondents. Retaining key people (27%) and offering competitive pay (25%) were also major concerns.

As a result, various methods have become popular to pre-fund executive and other employee benefits. Nonqualified plans are widely used because the IRS imposes limitations on qualified plan contributions.If properly designed, Nonqualified Deferred Compensation (NQDC) plans can be used to fund retirement benefits and as part of a long term retention plan.

Takeaway: Offsetting compensation and benefits costs continue to be a topic of consideration. Make sure you conduct benchmark studies to understand market practices and what type of compensation is valued, and then figure out how to fund it.  Strategies to investigate include Bank Owned Life Insurance (BOLI) and other methods of providing lifetime benefits with cost savings.

Staying aware of banking industry trends can propel you ahead of your competition

Staying ahead of industry trends is necessary to remain competitive, so it’s important to be aware of what other banks are doing with regards to compensation, and it’s important to find ways to address common challenges. You’ll be in a great position if your bank addresses those challenges while your competitors are struggling. Working with an expert with industry experience can help you determine which trends are right for your bank to follow and how you can offer the most competitive compensation.

2019_Compensation_Survey 2016_Compensation_Survey_Report