For the third year we present exclusive reports on this website from Crowe Horwath LLP from its annual Financial Institutions Compensation and Benefits Survey. To review last year’s series and recommendations, see Crowe Horwath Compensation Study.
Developing an effective compensation structure is always a top human resource concern in financial institutions. A critical component of this effort is aligning the salary and benefits being offered with the current market for the position being filled.
Survey data, such as that found in the annual Crowe Horwath LLP Financial Institutions Compensation and Benefits Survey, can be particularly useful for aligning compensation to the market. This article, the third in a series reporting on the 2014 survey responses, focuses on ways banks can use survey data and other tools to adjust their salary, incentives, and benefits programs to reflect market conditions. (Links for earlier articles in the series appear at the end of this one.)
Use a variety of data sources
An effective compensation strategy relies on a broad range of data sources—more than any single survey can provide. For example, the Crowe survey queries participants about a broad range of human resources issues including salary trends, incentives and bonuses, employee benefits, training programs, director compensation policies, and current human resource department priorities. In addition to the overall responses, the survey results are broken down into categories that reflect institution size as well as the population of the communities in which the banks’ headquarters are located.
Yet even this broad range of national survey information is not enough—by itself— to enable the development of a well-thought-out compensation structure. Local surveys, such as those compiled by chambers of commerce or local business publications, could augment the information to provide a more close-up view of local salary trends and economic conditions.
Moreover, many financial institution departments—information technology, for example—require specialized skills and training that are in demand in industries other than banking. When analyzing salary levels for employees in such fields, surveys that are not industry-specific can provide an additional valuable perspective.
It is critical, of course, to always be sure you are using the most recent survey data from each source. Compensation levels in some fields can be quite volatile, reflecting shifts in supply and demand for certain specialized skills.
Determine where you want to be in the market
Simply adjusting pay scales to the median levels on a salary survey is not an effective strategy. There can be sound competitive and strategic reasons for a bank to pay above or below the median levels reported by peers.
To make such strategic decisions more effectively, banks should look for survey data that provide more than just the average pay for a position. Additional information such as first quartile, median, and third quartile numbers can make it possible to fine-tune a salary strategy for each particular position and to formulate a more informed strategy overall.
For example, the 2014 Crowe survey reveals an interesting shift in the general compensation strategies among banks of various sizes. For the first time in several years, smaller banks said they are more likely than larger banks to pursue an above-market compensation strategy, as shown in the exhibit.
During the previous three years, a higher proportion of larger banks were pursuing compensation strategies that were more than 10% above the market. Moreover, the gap between larger and smaller banks was growing each year.
In 2014, however, the situation reversed, as 19.3% of smaller banks reported using an above-market compensation strategy, compared to only 13.6% of banks with more than $1 billion in assets. Recognizing such shifts can help banks anticipate coming salary trends and reassess their strategies when appropriate.
In addition to studying overall compensation trends, it also is helpful to study trends for specific job titles in terms of both salaries and performance incentives. In each instance, a bank must make a deliberate decision about whether to lead, match, or follow the market for certain job categories, taking into consideration market conditions and the bank’s larger strategic objectives.
For example, many banks currently are adjusting their retail banking strategies in response to dwindling branch traffic by replacing traditional tellers and new-account representatives with more versatile universal bankers. To effectively execute this strategy and attract qualified talent, a bank might choose to pay above-market salaries for universal banker positions while pursuing median or below-market strategies for other positions.
Explore other tools for understanding the market
Salary and compensation surveys are valuable tools for comprehending the market for various positions, but human resource departments should take advantage of other valuable resources and techniques, as well.
• Conversations with other human resource professionals.
In addition to meetings organized by trade and professional associations, human resource practitioners also can benefit from less structured, more informal interactions. Getting together several times a year for a casual breakfast or lunch with a group of other professionals can be a valuable way to “keep your ear to the ground.”
If your institution is struggling to fill a certain type of position, comparing notes with other professionals in the banking industry could alert you to possible solutions, such as a school or college that offers relevant courses and that has graduates who are potential candidates. Pending or rumored acquisitions also can offer potential sources of qualified talent.
• Employee conversations.
Exit interviews can provide useful insights. However, by their very nature, they tend to focus on reasons why the bank failed to retain a trained and qualified employee. To take a more proactive approach, many institutions are now also engaging in “stay interviews.”
In stay interviews, a bank’s best performers or employees who are being groomed for higher positions are interviewed about what they like about the organization or what has kept them on board for many years.
To distinguish this event from a regular performance review, the interview should be conducted by a human resource representative rather than the employee’s immediate supervisor.
In addition to finding out firsthand which benefits or cultural aspects of the organization are particularly effective, stay interviews offer a more subtle advantage as well. The very act of singling out an employee for a formal interview can reinforce positive feelings about the organization.
Letting someone know you value his or her opinion is, in itself, a form of recognition, which tells employees they are appreciated and are considered leaders in the institution.
Media and research
In addition to formal research, professional publications often offer early insights into what others in the profession are doing and which techniques are proving to be most effective.
For example, human resource organizations have long advocated wellness programs, in which employers provide not only health insurance benefits but also positive support for improving all aspects of employees’ lives.
Free or discounted health club memberships, nutritional programs, financial planning services, and other resources aimed at helping employees live more balanced lives can offer a powerful reinforcement to employees. Again, this tells them that they are valued. Staying abreast of professional media reporting can alert a bank to compensation and benefits trends it might otherwise overlook.
Don’t be a slave to the data
When aligning compensation to the market, it’s important to remember the basic principles of fairness and motivation. Surveys and other data sources provide valuable documentation for devising a compensation strategy, but in the end each institution must make its own deliberate decision about what balance of base salary and bonus compensation is appropriate for each position and whether it wants to match, exceed, or pay less than the market.
- Mastercard and Citi Ventures Invests in Contextual Data
- Netherlands Fintech Executives Frustrated by Salary Restrictions
- Regional Banks and Institutions Give Employers Lower Ethics Rankings
- UMPQUA Bank Releases Middle Market Report
- UBS and Deutsche Bank Mishaps Prove Value of Strong Communications and Human Resources Departments