Strategic Compensation

“Strategic Compensation”

By Matt Brei, President and Kristen Kostner, Senior Consultant, Blanchard Consulting Group – IBA Associate Member

Our firm has been providing compensation consulting services exclusively to community and regional banks for the last seven years, and we can confidently say that one of the first things we talk about with most new clients is the strategic use of compensation. Human capital is likely the most expensive resource a bank has, and we all know our people are important in a customer facing business, so why not be strategic with it? Almost every business has a written strategic plan that states profitability goals, growth goals, three-year plans, etc. Frequently, the board and executive management spend multiple days working on such a plan. However, when it comes to compensation, less than half of banks (47% of the 201 banks surveyed in our 2016 Compensation Trends Survey) have a written compensation philosophy.

Banks are for profit businesses, so it certainly seems to make sense that their compensation programs should be in-line with the strategic goals of the organization. All employees are not the same and do not provide the same value to the bank. As such, they should not all be paid at the median of the market, always receive the same annual 3% salary increase, and receive the same bonus or incentive as their peers. Unless, of course, the strategic plan says you want to be average and you want all your people to be average as well!  We are confident that we never seen a strategic plan with those goals in it.

The Compensation Philosophy

Most organizations start the strategic compensation discussion with the development of a compensation philosophy. This document, often only a page or two, primarily identifies a few key items. 1) What are we trying to accomplish with our compensation programs, 2) What compensation programs do we have available to our employees, 3) Who qualifies for these programs and why, and 4) Where do we want to position ourselves versus market? The compensation philosophy statement should be a living document that is reviewed annually and is adjusted as necessary to support business strategy changes.

Strategic Salary Planning

Banks that are strategic with compensation will frequently have a clearly defined salary grade structure, accurate and up-to-date job descriptions, utilize external market data for position benchmarking, and a salary increase matrix for annual salary adjustments. The salary structure will have enough grades to encompass all levels of positions, and will often be used as a motivational tool to show top performers how they can progress within their current range, and where promotions could place them in the future for career growth and development. The salary structure should be tested against both internal and external bench marking to ensure it’s competitive. The entire structure should also be reviewed annually and adjusted for cost of labor and market trend increases. Ultimately, salary structures do not have to be overly complex to be effective.

Additionally, the annual salary increase process should be strategic, based on the performance of the individual, internal equity with others in the same position, his or her current positioning in their salary grade, and fit within the overall budget of the organization. Many banks utilize a salary increase matrix to assist managers in determining annual raises. The matrix generally focuses on providing the largest increases to employees who are exceeding job expectations and are positioned low in their salary grade. Employees who are simply meeting expectations and are high in their salary grade will often have very minimal increases, and employees who are not performing will generally receive no increase. Those above the maximum of their salary grade typically receive their increase in the form of a one-time lump sum payment.  These matrices help managers be strategic with their salary increase budgets and put the dollars in the right place.  The days of giving everyone the same percent of salary raise are gone.

Performance-Based Incentives

Once you have the salary component figured out, the next step is incentive-based pay. This can take the form of annual cash incentives and/or equity-based incentives. What type/s of incentive a bank utilizes will often vary depending on the company structure (public, private, etc.). Incentives may also vary depending on level of position. As an example, executives may be eligible for a cash and equity incentive plan, but staff may only be eligible for cash incentives. The key to using strategic compensation is to make sure your incentive plans are based on performance and are sufficiently motivating and rewarding key positions. The strategic goals of the organization should be incorporated into the incentive-based compensation plans. The concept is to clearly state what you want your employees to do and encourage and reward these behaviors through your incentive compensation programs. Getting everyone aligned and on the same page as to what the goals are is important for success. This takes time, communication, regular check-ins on performance, and “buy in” from the entire organization.

In today’s banking world, there is a lot of talk about incentive plans being “risky” and maybe even “evil” (example: Wells Fargo retail incentives). We strongly disagree with this sentiment. Banks are still in the business of being profitable and incentive plans have their place to help drive behaviors and reward performance. The key is to have a balanced approach between profitability goals, quality goals, and strategic goals. Some of the incentive plan “horror stories” actually prove that incentive plans work. They do drive behaviors and you simply need to be smart about what performance behaviors you are encouraging.

From our experience, the most successful banks (not unlike other industries) are those who are able to appropriately balance their profitability needs with good culture, good communication, and strategic compensation programs. Banks need to be financially successful to truly help the communities they serve. Ensuring that your compensation programs are strategically supporting the overall goals of your organization and are linked to the performance you need is essential. Make sure you are getting your “bang for the buck” with your compensation dollars being spent.

BANKERS IN THE NEWS

FOR IMMEDIATE RELEASE                                                                                                                           July 14, 2017

Idaho Bankers Association (208-342-8282)
Trent Wright, President and CEO

BANKERS IN THE NEWS

Boise Dan Heiner, SVP, Senior Credit Officer, Citizens Community Bank, Division of Glacier Bank in Boise was recently elected as the 2017/18 Chair of the Board of Directors for the Idaho Bankers Association at its Annual Business Meeting.  The meeting was held during the IBA Annual Convention. He succeeds J.V. (John) Evans, III, Executive Vice President/Regional Credit Officer, of D.L. Evans Bank.

Dan is responsible for direction and oversight of all commercial and consumer lending activities of the bank, including administration of credit policy, loan support functions, and monitoring of asset quality.

Prior to joining CCB Dan was employed by national, regional, and community banks working in several offices throughout south-eastern Idaho as a commercial and agricultural lender.  He has been in commercial banking for more than 40 years.

Dan’s various aspects of community involvement, include:
Board of Directors for the Idaho Bankers Association
Past President and current Director for the Idaho Community Bankers Association
Chairman of Chubbuck Development Authority
Past President of the Greater Pocatello Chamber of Commerce
Board Member of Bannock Development Corporation
Board Member of Eastern Idaho Development Corp
Rotary Club President

He has a Bachelor of Science degree from Idaho State University, and Graduated from Northwest AG Credit School, and the Pacific Coast Banking School- Graduate School of Banking.

Dan resides in Pocatello, Idaho with his wife, Laura. They have 4 children and 7 grandchildren, (soon to be 8).

Other Newly-Elected Officers and Directors of the IBA Board of Directors include:

Chair-Elect: Tracy Silver, Wealth Management Division Director, U.S. Bank
Treasurer: Ron Johnson, Executive Vice President & Chief Financial Officer, Bank of Commerce
Immediate Past Chair:  J.V. (John) Evans, III, Executive Vice President/Regional Credit Officer, D.L. Evans Bank

DIRECTORS:
Bruce Lowry, President & Chief Executive Officer, Ireland Bank
Don Melendez, Idaho Regional President, Wells Fargo
Jason Meyerhoeffer, CEO, First Federal Savings Bank
Justin Smith, Regional President, U.S. Bank
Lori Dizes, Senior Vice President, Region Manager, U.S. Bank
Robert Falco, Area President, Wells Fargo Bank
Toni Nielsen, Western Idaho Regional President, Zions Bank

The Idaho Bankers Association (IBA) is a statewide bankers’ trade association that represents all charter types and sizes of banks operating in Idaho.

IDAHO COMMUNITY BANKERS IN THE NEWS

FOR IMMEDIATE RELEASE         

July 14, 2017

Idaho Community Bankers Association (208-342-8282)
Trent Wright, President and CEO

COMMUNITY BANKERS IN THE NEWS

Boise Daniel Prohaska, Chairman and CEO of Idaho Trust Bank in Boise was recently elected as the 2017-2019 President of the Board of Directors for the Idaho Community Bankers Association at its Annual Business Meeting.  The meeting was held during the Idaho Bankers Association Annual Convention. He succeeds Mike Morrison, Executive Vice President & Chief Credit Officer, the Bank of Commerce in Idaho Falls.

Daniel, along with his brother Tom Prohaska, founded Idaho Trust Bank in 1994. Its trust department is the largest among Idaho-based banks and fourth largest by revenue in the Pacific Northwest. Idaho Trust Bank focuses on creating total wealth solutions for successful people in Idaho and the western United States.

Daniel currently serves as Chairman and President of the Bank’s holding company, Idaho Trust Bancorp. Prior to banking, he practiced law for sixteen years as a founding partner at The Prohaska Law Firm in Sandpoint and Coeur d’Alene. His practice focused on estate planning, trust and estate litigation, tax planning, probate and business law. Daniel received his Bachelor of Arts in Political Science from the University of Idaho and his Juris Doctor from the University of Idaho, College of Law. He is also a Graduate of the American Bankers Association National Trust School at Northwestern University.

Daniel is member of the Idaho Bankers Association, Idaho Community Bankers Association the American Bankers Association and the Idaho State Bar. He is also a past Director of the Association of Independent Trust Companies and past member of estate planning councils and state and national bar association sections. Daniel is admitted to practice law in the state and federal courts in Idaho and the United States Tax Court.

Prior to his careers in banking and law, Daniel worked as a Wilderness Ranger for the USDA Forest Service in the Sawtooth Wilderness Area of central Idaho and was a center fielder and designated hitter on college and semi-professional baseball teams. He remains an avid hiker and baseball fan.

Other Newly-Elected Officers and Directors of the ICBA Board of Directors include:

President-Elect: Rob Perez, Executive Vice President, Idaho Market President, Bank of the Cascades
Secretary Treasurer: Jason Meyerhoeffer, Chief Executive Officer, First Federal Bank
Immediate Past President: Mike Morrison, Executive Vice President & Chief Credit Officer, Bank of Commerce

DIRECTORS:
Dan Price, Community Banking President, Mountain West Bank, Division of Glacier Bank
Cheryl Sorensen, Senior Vice President, Chief Operating Officer, Ireland Bank
Jerry Lyon, President and Chief Operating Officer, Community 1st Bank
Dan Heiner, Executive Vice President & Chief Credit Officer, Citizens Community Bank, Division of Glacier Bank
Wes Veach, President and CEO, bankcda

The Idaho Community Bankers Association (ICBA) is organized as an affiliate of the Idaho Bankers Association (IBA) representing community banks in the state of Idaho.

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Thank you to Mountain West Bank

Thank you to Mountain West Bank for having IBA as a guest speaker for your Managers Conference in #SunValley. Thank you Dan Price and Russ Porter for your #leadership. #communitybankers

Agricultural Bankers Education Conference

IBA’s Ag Bankers Committee is dedicated to supporting and promoting the agricultural banking industry in Idaho. Led by ag-lending bank professionals from across Idaho, the IBA Ag Committee is focused on providing first-class educational opportunities for agricultural bankers, as well as promoting Idaho agriculture and rural Idaho communities.

Each year, the IBA Agricultural Bankers Conference; recognized as one of the top agricultural banking conferences in the state. From federal farm policy updates to crop and livestock market reports to best management practices for Ag lenders, this conference provides the information and knowledge sought by the modern agricultural lender.

The 2017 Agricultural Bankers Education Conference is scheduled for May 3-5, 2017 at the Hilton Garden Inn in Twin Falls.