Retaining top executives is of utmost importance to community banks who wish to remain competitive in a constantly evolving landscape. Community banks must compete against other banks, credit unions, and even other companies as leadership skills transcend industries. Unfortunately, many fall prey to misconceptions about executive retention and tend to approach compensation practices the wrong way. Compensation practices must be effective in retaining top employees for the future success of the organization.
Here are 5 common myths about retaining bank executives and why you shouldn’t fall for them.
Myth #1: Equity compensation will always be successful for retaining bank executives
Equity will always remain an important part of executive compensation. When executives hold stock in your company, the shareholders’ interest in the company’s success becomes aligned with their own. Despite this, while boards typically see a lot of value in equity compensation and therefore offer it as a selling point to executives, the value may have limitations for the executive.
Tax burdens, inability to exercise options, and the lack of liquidity in the stock can all have a negative impact on the selling features or perceived value of equity. That is not to imply equity is not valued, but the boards and executives must understand the shortfall of equity compensation and mitigate it with other tools.
Understanding how and when to use equity is key to the value of the compensation structure. Prior to granting more equity because of the status quo, you should identify if there is true value being realized by the participants and shareholders.
Myth #2: An executive retirement program will lock down my executives
Many banks are under the impression that a nonqualified executive retirement program such as a salary continuation plan is the key to retaining top employees. This is only true if that form of compensation is valued by the participant. The life-stage (not age) of an executive will determine if this type of plan is desired.
Compensation packages should always be tailored to where the executive is in life. Even when retirement is a concern for an executive, it may not be the most pressing, as an executive might be more concerned about sending their children to college or caring for a parent. In any case where retirement is not at the forefront of the executive’s mind, you need to craft compensation strategies that take their true needs into account.
Myth #3: They will never leave this bank because they have been here “X” years
Many banks make the mistake of putting energy into crafting great packages to attract new talent while neglecting their existing talent. Maybe you feel comfortable that your veterans aren’t going anywhere. After all, their tenure with your bank can be counted in decades, right? The truth is that executives with long term experience and solid track records are in high demand. Consulting firms specifically seek out these experienced individuals; other organizations will be excited to acquire them.
Simply put, banks must be conscience of the competitiveness of their compensation packages and no longer lean on “employee loyalty” as a strategy for retaining key personnel.
Myth #4: They will stay because there are no similar opportunities in the area
Smaller communities tend to be limited when it comes to both talent and career opportunities. Do you consider it an advantage that there is limited opportunity in your area with respect to other banks or industries? If so, you may want to rethink your position.
Bankers today are being recruited into many different types of verticals. In addition, with advancements in technology, highly skilled leaders are constantly being recruited despite historical geographical limitations. Due to the ease of working remotely, state or county borders no longer determine accessibility. Be aware of the changing landscape, and create an environment that can leverage these technological advancements to your advantage.
Myth #5: Competitive compensation is the only thing that matters for retaining top employees
The 2014 Compensation Bank Director Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group, indicated that compensation was number 3 on the list of importance relative to moving to a new position. Number 2 was the bank’s stability, and the number 1 answer was company culture. Although compensation cannot be ignored, if a toxic culture exists in your bank, it will be difficult to retain top performers.
Conversely, an uplifting and exciting culture will create a vibrant, contagious environment that will naturally retain your talent. The better you can understand your successes or failures related to culture, the higher the probability you can create an environment that will attract and retain the talent you want.
Retaining bank executives is easy if you understand what they value
Understanding how to structure compensation and to take advantage of your firm’s culture is crucial in today’s banking environment. Creating value for your employees will no doubt lead to enhanced retention. Whether you are aware of this fact or not, your key talent is being recruited, so start locking down your key talent today with customized compensation plans. Failure to take proactive measures to keep the talent you want may result in static shareholder value, extended timeframes for strategic planning, or worse.
Working with an outside compensation consultant can be helpful for developing plans that truly function to retain executives. Retaining key personnel should not be taken lightly in today’s competitive environment, but if you avoid these 5 common misconceptions, your community bank will be on the right track.