Who would you add to this list of the top community bank CEOs?

about|that|ratio

We are getting close to that time of year when people start writing their top ten lists, providing year-in-review posts and taking out the proverbial crystal ball.  In this spirit, my post-Thanksgiving piece provides a list of bank CEOs I met this year that impressed me with both their bank’s performance & personal leadership styles.  From the outside looking in, I have to assume shareholders and employees alike appreciate what each has done for their organization.

Wait, this isn't Bank Director's news team... Look at this leadership

A few days ago, David Reilly authored a piece in the Wall Street Journal entitled “Wanted: Dance Partners for Bank Merger Ball” (sorry, registration required).  Citing Bank Director’s annual M&A research report, he reminded us that it takes two to tango — and “that is still the issue for investors expecting, or hoping for, a significant pickup in bank merger activity in 2015.”  As we showed in our survey of about 200 bank directors and executives…

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Growth Driving Hires, But Many Banks Still Don’t Tie Pay to Performance

What’s going to be the primary driver for executive hires at the nation’s banks in 2015? Growth and strategy, say a whopping 80 percent of the 175 bank CEOs, human resources officers, chairmen and board members participating in an audience survey at Bank Director’s 2014 Bank Executive & Board Compensation Conference yesterday at Chicago’s Swissôtel. Meyer-Chatfield Compensation Advisors sponsored the survey. Just 4 percent expect regulations to drive hires.

This lines up with what we saw in the 2014 Bank Compensation Survey earlier this year. And it looks like competition for lenders will remain tough in 2015–62 percent expect to see the strongest demand for lending executives next year, an increase of 41 percent from lending hires in 2013 (also according to the 2014 Bank Compensation Survey). And despite the banking industry’s struggles to keep up with innovation, just 14 percent expect technology executives to be in high demand.

One-quarter of respondents expect at least one key executive departure in 2015. Departing talent may prove difficult to replace, as 41 percent say a lack of talented candidates in their market is the most challenging aspect in attracting executive hires.

Almost half of the respondents cite corporate culture as the primary factor that makes their bank attractive to potential hires, while just 4 percent cite the bank’s compensation program. That said, tying compensation to performance, at 59 percent, remains the top compensation challenge facing bank boards, and 40 percent say that the development of competitive compensation packages is the most challenging aspect when it comes to attracting and retaining talent. There’s no doubt that aligning pay with long-term strategy continues to challenge bank boards: In an audience survey later in the day, 68 percent revealed that tying pay to performance is a bigger challenge for compensation committees than dealing with regulation.

Despite these challenges, almost 40% don’t believe that CEO pay should always be directly tied to the bank’s performance, as revealed in an audience survey later in the day.  Previously, the 2014 Bank Compensation Survey found that less than half of respondents tied CEO pay to the bank’s strategic plan, and more than one-quarter said that CEO compensation was not linked to their bank’s performance.

Interested in more highlights from the 2014 Bank Executive & Board Compensation Conference? Al Dominick, Bank Director’s president, provides his perspective on About That Ratio, and highlights why banks must reward creativity and innovation HERE. Editor Jack Milligan explains the importance of corporate culture HERE.

Financial Research: Grappling with Technology

Bank leaders want to know more about how to leverage technology to make their institutions more profitable, but don’t know where to start, reveals the 2014 Growth Strategy Survey. Bank Director and CDW surveyed 145 independent directors and executives in June and July to uncover technology’s role in growth strategy.

Growth-Survey-Group-1Bank leaders know that technology can make their banks more efficient, and know that customer demands are only growing. But less than one-third talk about technology at every board meeting, and one-quarter of banks lack the IT staff to grow the bank.

Growth-Survey-Group-4When asked about the top technology concerns for their banks, keeping up with the evolution of mobile banking is a concern for more than half. Data analytics is also top of mind, and the survey finds that big banks are better users of data. Forty percent of respondents overall use business intelligence tools and analytics within their organization, but more than three-quarters of banks over $5 billion in assets currently use data to support growth goals.

Growth-Survey-Group-2One-third are concerned that the bank’s core processor impedes the bank’s ability to innovate. Community banks in particular depend on vendors for their technological expertise, yet half say that their core processor is slow to respond to innovations.

Growth-Survey-Group-3It’s important to note that many of these concerns about innovation and the use of data tie into growing concerns about competition from outside the industry. Eighty-four percent of respondents say that today’s highly competitive environment is their greatest challenge when it comes to growing the bank, and 83 percent worry about nonbank competitors. Banks above $5 billion in assets reveal a heightened concern about PayPal and Amazon.

Full survey results are available online at BankDirector.com.

Are You Part of the Conversation?

origamibirds_MFYour financial institution may be the heart of its community, but once the conversation goes online, does your bank follow?

The Financial Brand published a piece earlier this week on the 5 LinkedIn Myths Bankers Need to Shake, detailing research from consulting firm St. Meyer & Hubbard and marketing technology firm kadince.com that found that more than half of banks forbid their bankers to craft relationships through LinkedIn.

This is just the latest study that highlights the problematic relationship between banks and social media. A year ago, Bank Director, in its 2013 Bank Board & Executive Survey, found that less than half of banks engage with customers through Facebook or Twitter.

Yes, there are risks in social media engagement, so your bank does need a plan. Your bank might not be on social media, but your customers are. Social media monitoring service mention says that the average company is mentioned 39 times a day and almost 300 times a week. Of these, few talk directly to the company — meaning that they won’t be talking to your bank, but they will be talking ABOUT your bank.

And in a today’s competitive environment, you might want to pay attention to the social media conversations that consumers are having about other banks in your market. According to Forbes, Verizon and AT&T are monitoring complaints about competitors like T-Mobile so they can reach out to these unhappy customers and offer their own services. Media Bistro examines this further, saying:

If you’re not using Twitter to listen to customers, you’re missing out on one of its most significant benefits. Since Twitter is an open network, you have the opportunity to use tools and search to discover what anyone is saying about any topic, in real time.

Verizon is focusing its efforts on those users that are seen as “influencers” – Twitter users that have a lot of followers. Who are the influencers in your community, and where are they? If they’re not on Twitter, they’re likely on LinkedIn, a social network built entirely around business leaders. Don’t you want to be where your customers are? Because it’s likely that your competitors will be.

The Power of ‘No’

The Wall Street Journal has a great piece on the growing prominence of chief risk officers: “After Crisis, Risk Officers Gain More Clout at Banks”. According to the piece, risk officers now have more say and are earning more for it, as much as 40 percent more than just a few years ago. Our recent research supports this:

Perhaps due to the increased prominence of the CRO, many bank boards feel that they can breathe a little easier when it comes to matters of compliance and risk management. In the 2014 Compensation Survey, we asked about the top compensation-related challenges that face bank boards today. Just over the course of the last year, the percentage that indicate that understanding and complying with regulations poses a challenge fell dramatically, from 41 percent in 2013 to 22 percent this year, a drop of almost 50 percent.

It should be noted that the decline in bank boards concerned about compliance was not as pronounced among banks with more than $5 billion in assets (though there was still a significant drop, of 16 percent). But perhaps this isn’t surprising, as the regulatory focus falls more on these banks as they approach the $10 billion threshold laid down in the Dodd-Frank Act – so the focus on risk will always be more heightened at these organizations.

Risk culture, and the board’s role in it, still has a ways to go. Less than half of bank boards regularly meet with their chief risk officer, so not every CRO has a seat at the table. But for many financial institutions, risk officers are gaining more prominence and playing a greater role in the strategic direction of the bank.

TopCompChallengesSources:

  1. 2014 Compensation Survey
  2. 2014 Risk Practices Survey
  3. “Handling Risk in the Modern Age”, Bank Director, 2nd quarter 2014

Big Disparities in Bank CEO Pay

As discussed in my prior blog post, the 2014 Compensation Survey finds that bank boards are earning more and lending is a big focus for executive hires. But the survey also delves more into CEO pay this year, and while the disparities in pay for the largest and smallest banks should be expected, it’s still jarring to see.

CEOpayBySize

For the industry overall, the median compensation amounts for bank CEOs total:

Salary: $241,600
Cash incentive: $44,600
Potential cash incentive: $57,600
Equity grants: $50,000
Benefits & perks: $21,231

Ninety-nine percent report that the CEO receives a salary, while 41 percent report that the CEO receives equity grants. Half report a cash incentive, and more than two-thirds say that the CEO receives some benefits & perks.

You’ll find more details on bank executive pay within the 2014 Compensation Survey.

Financial Research: Is a Focus on Growth Yielding Higher Board Pay?

GrapesUnsplashBank Director just released the results of its 2014 Compensation Survey, sponsored by Meyer-Chatfield Compensation Advisors, and the results may reveal some good news for the banking industry, as evidenced by two key trends:

Lending is fueling more executive hires than compliance or risk, with boards focusing more time on loans. Loan officers are in strong demand at banks of all sizes, with more banks citing growth than regulations as the driving force behind change at the executive level. 

Bank boards are earning more. After getting their regulatory ducks in a row, a renewed focus on profitability may have translated into increased pay and benefits for bank directors. With median fees set at $750 per board meeting and median annual retainers at $20,000, bank directors are seeing a modest income for their service. However, the view isn’t as rosy for small banks: Almost half of boards at banks with less than $500 million in assets haven’t increased pay since at least 2010, and director pay is significantly lower at these institutions.

You’ll find the complete results to the survey, including median pay data for CEOs and boards, HERE.

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