Compensation – About That Ratio

November 2, 2018November 2, 2018

Making Great Hires

Quickly:

Next week, Bank Director hosts its annual Bank Compensation & Talent Conference at the Four Seasons outside of Dallas, Texas. In advance of the event, a few of my thoughts on how banks might be inspired by Netflix, JPMorgan Chase & Co. and Pinnacle Financial Partners.

WASHINGTON, DC — As one of the best-performing stocks on Wall Street, you can bank on Netflix spending billions of dollars on even more original programming, even without a profit. Likewise, JPMorgan Chase & Co.’s consumer and community banking unit attracted a record amount of net new money in the third quarter.

How do I know this, and what’s the same about these two things?

Read their most recent earnings reports. Netflix doesn’t hide its formula for success, and JPMorgan boasts about its 24% earnings growth — fueled by the consumer and community banking unit — which beat analyst projections.

While we all have access to information like this, taking the time to dig into and learn about another’s business, even when not in direct competition or correlation to your own, is simply smart business, which is why I share these two points in advance of Bank Director’s annual Bank Compensation & Talent Conference Bank Director’s annual Bank Compensation & Talent Conference. Anecdotes like these prove critical to the development of programs like the one we host at the Four Seasons outside of Dallas, Nov. 5-7.

Allow me to explain.

Executives and board members at community banks wrestle with fast-shifting consumer trends — influenced by companies like Netflix — and increasing financial performance pressures influenced by JPMorgan’s deposit gathering strategies.

Many officers and directors recognize that investors in financial institutions prize efficiency, prudence and smart capital allocation. Others sense their small and mid-size business customers expect an experience their bank may not currently offer.

With this in mind, we aim to share current examples of how stand-out business leaders are investing in their organization’s future in order to surface the most timely and relevant information for attendees to ponder. For instance, you’ll hear me talk about Pinnacle Financial Partners, a $22 billion bank based in Nashville. Terry Turner, the bank’s CEO, shared this in their most recent earnings report:

“Our model of hiring experienced bankers to produce outsized loan and deposit growth continues to work extremely well. Last week, we announced that we had hired 23 high-profile revenue producers across all of our markets during the third quarter, a strong predictor of our continued future growth. This compares to 39 hires in the second quarter and 22 in the first quarter. We believe our recruiting strategies are hitting on all cylinders and have resulted in accelerated hiring in our markets, which is our principal investment in future growth.”

This philosophy personally resonates, as I believe financial institutions need to:

Employ “the right” people;
Strategically set expectations around core concepts of how the bank makes money, approaches credit, structures loans, attracts deposits and prices its products in order to;
Perform on an appropriate and repeatable level.

Pinnacle’s recruitment efforts align with many pieces of this year’s conference. Indeed, we will talk strategically about talent and compensation strategies and structuring teams for the future, and explore emerging initiatives to enhance recruiting efforts. We also explore big-picture concepts like:

Making Incredible Hires

While you’re courting top talent, let’s start the conversation about joining the business as well as painting the picture about how all of this works.

Embracing Moments of Transformation

With advances in technology, we will help you devise a clear vision for where your people are heading.

Creating Inclusive Environments

With culture becoming a key differentiator, we will explore what makes for a high-performing team culture in the financial sector.

As we prepare to welcome nearly 300 men and women to Dallas to talk about building teams and developing talent, pay attention to the former Federal Reserve Chairman, Alan Greenspan. He recently told CNBC’s “Squawk Box” that the United States has the “the tightest market, labor market, I’ve ever seen… concurrently, we have a very slow productivity increase.”

What does this mean for banks in the next one to three years? Hint: we’ll talk about it at #BDComp18.

September 20, 2016September 20, 2016

What Does a Board Member Get Paid?

The banking industry seems to be doing well based on a variety of measures — profitability is high, credit quality is much improved and tangible capital ratios are stronger than ever. However, such financial measures don’t necessarily reflect the challenges facing many institutions to attract, compensate and retain standout executives and talented board members. So, in advance of Bank Director’s 12th annual Bank Executive & Board Compensation Conference (held October 25 + 26 at the Ritz-Carlton Amelia Island), I thought to share this snapshot on what a bank pays, on average, to its board members.

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This information comes from our 2016 Compensation Survey, sponsored by Compensation Advisors, a member of Meyer-Chatfield Group. This annual research report, now available for free on BankDirector.com, examines trends in executive and board compensation, including the compensation related issues faced by boards and senior executives.

This survey tracks salary data for CEOs, chairmen and independent directors & was completed online by 262 directors, chief executive officers, human resources officers and other senior executives from U.S. banks in March 2016. Supplemental data on CEO and board compensation came from the proxy statements of 105 publicly traded institutions for fiscal year 2015.

November 7, 2014December 31, 2014

This Week in Pictures (and Videos)

As I wrap up the week, let me take a look back at Bank Director’s annual Bank Executive & Board Compensation conference vis-a-vis video recaps and a gallery of pictures from the Swissotel Hotel in Chicago.

Video Recaps

If you’re curious for a <90 second summary of our time in the Windy City, take a read at what I wrote on Monday (Does Anyone Want To Work At A Bank?) or Tuesday (Trending at #BDComp14) and check out these two videos. The first, of our talented editor Jack Milligan; the second, my two cents.

Picture Time

Welcoming folks to Chicago

Early arrivals

Jack and I welcoming folks in

Mika is always posing for the camera!!!

Nice shoes

First Financial’s dynamic CEO

A look to the right side of the stage

Sharing a laugh w/ some of our panelists

Jack Milligan, Bank Director’s Silver Fox

A pop of color

Winding down

Strong Board, Strong Bank

Aloha Friday!

November 3, 2014November 3, 2014

Does Anyone Want To Work At A Bank?

Admittedly, the question driving today’s title is not the easiest to answer. Without the training programs once offered, without the cache of an Apple and without the stability of a career path, you might wonder why any smart, ambitious and talented professional would take a job in banking. Surprised I’d write this from Chicago and Bank Director’s annual Bank Executive & Board Compensation conference? Read on.

As I start to write today’s piece, it strikes me that without the help of LinkedIn, I don’t immediately know a single person my age (37) that works for a traditional bank — let alone operates at an executive level. This is a HUGE problem for the future when one considers the growing divide in public perceptions of banks with the actual business operations in place. Look, I’m not throwing stones. Heck, I would have loved to get into a management training program when I graduated from W&L in 1999. Its just that almost every big bank that historically trained the “next generation” of bankers had shelved their programs.

While I don’t work directly for a financial institution, I am lucky to spend days like today finding inspiration from bank executives, board members and services providers. Mostly, these are people who see the banking space as one that does need change, but does not deserve dismissal. So as the Swissotel starts to fill with “traditional bankers,” I anticipate three big themes; namely, the recruitment, development and compensation of a leadership team and the workforce of the future.

In Terms of Recruitment…

If you subscribe to the idea that “tone from the top” is key for building a culture of success, take heed of our editor’s opinion. Jack Milligan recently blogged on “The Bank Spot” that “the #1 best practice for a bank’s board of directors is to hire a high performance CEO.” In his words:

Of all the things that boards do, this might be the most obvious – and yet it’s also the most important. A good CEO works closely with the board to develop a strategy that fits the bank’s market and has the potential to create a high level of profitability. They bring in good talent and do a good job of motivating and leading them. And they have the ability to execute the strategic plan and deliver what they said they will deliver. Having a high performance CEO doesn’t guarantee success, but I think it will be very hard to be a high performing bank without one.

In Terms of Development…

In my mind, having the right leader in place dramatically improves the attractiveness of an institution to potential employees. Here, I look at what bankers like Ron Samuels and Kent Cleaver are doing in Nashville at Avenue Bank and Mike Fitzgerald at Bank of Georgetown in Washington, D.C. Creating a culture where one is pushed to contribute to the bank’s growth seems obvious. But I can tell you, putting people above products and financial profits isn’t always the easiest thing to do (right as it may be). Developing talented executives takes both patience and confidence. Indeed, one must be comfortable doing more than simply empowering others to be a team player. Here, a passage from L. David Marquet’s (a retired Captain in the U.S. Navy) “Turn the Ship Around” bears quotation. The premise: don’t empower, emancipate.

Emancipation is fundamentally different from empowerment. With emancipation, we are recognizing the inherent genius, energy and creativity in all people, and allowing those talents to emerge. We realize that we don’t have the power to give these talents to others, or ’empower’ them to use them, only the power to prevent them from coming out.

It might be easy in a highly regulated environment to see this logic and find excuses to it not applying to banking. But if a submarine captain can transform one of the worst performing boats into one of the most combat-effective submarines, perhaps these words might be re-read.

In Terms of Compensation…

Not to throw a wet blanket on the last two points, but as our team found in a recent survey, bank boards recognize the need to tie compensation to the performance of the bank in the long term, yet they continue to struggle with how to get the pieces in place to attract and reward the best leaders to meet the institution’s strategic goals. So I find it particularly interesting that less than half of the banks we surveyed tie CEO pay to the strategic plan or corporate goals, and more than one-quarter of respondents say that CEO compensation is not linked to the performance of the bank.

I’m checking back in tomorrow from the conference. If you’re on Twitter and interested in the conversation, feel free to follow @BankDirector, @AlDominick and #BDComp14.

October 31, 2014

Let’s Talk Compensation

This Sunday, I fly to Chicago for Bank Director’s annual Bank Executive & Board Compensation Conference. As I prepare to head towards the city that splits its allegiance between the Cubs & WhiteSox, my thoughts move from baseball — congratulations to the new World Series champion San Francisco Giants — to the people, products and performances of various financial institutions. As I will be blogging and tweeting from our annual event, I thought to use today’s post to tee-up what you can expect on AboutThatRatio.com next Monday, Tuesday and Wednesday.

Since the demise of AIG, Bear Sterns and Lehman Brothers in 2008, take a minute and think about how many significant changes have occurred throughout the entire financial community. From new capital requirements to greater scrutiny on executive compensation, these “Dodd-Frank” years remind me of the aftermath of Sarbanes-Oxley’s introduction in the early 2000s in as much as board members continue to wrestle with the ‘what ifs’ and ‘how comes’ of the regulatory environment.

While much of the action taken by nearly every institutions a few years ago can best be described as reactionary and defensive, it strikes me that there are quite a few banks transforming their operating models to stay both relevant and competitive today. For this reason, I am excited for our team to host several hundred bank executives and outside directors focused on the creation of sustainable long-term value for shareholders next week. In terms of posts:

Monday’s looks at the recruitment, development and compensation of a bank’s most essential talent — both within a bank and on its board.
On Tuesday, the “main day” of our conference, I will share the trending topics from the day. Last year, I wrote how board members and executives continued to struggle with measuring executive performance and retaining key talent.  At the same time, I made note that many felt the environment in which banks operate in demands productivity, proficiency with technology and the ability to sell. So I’ll juxtapose last year’s findings with this year’s themes.
Wednesday’s piece will be a bit simpler, a 90 second video I’ll have filmed from the conference.

Next Friday’s column? More of a behind-the-scenes picture recap of the conference as I recently did for Bank Director’s “anniversary.” Throughout, you can keep track of various conversations on Twitter by following @BankDirector and me, @AlDominick and/or by using #BDComp14.

Happy Halloween!

June 12, 2014June 13, 2014

The Bank Audit & Risk Committees Conference – Day Two Wrap Up

With all of the information provided at this year’s Bank Audit & Risk Committees conference(#BDAudit14 via @bankdirector), I think it is fair to write that some attendees might be heading home thinking “man, that was like taking a refreshing drink from a firehose.” As I reflect on my time in Chicago this week, it strikes me that many of the rules and requirements being placed on the biggest banks will inevitably trickle down to smaller community banks. Likewise, the risks and challenges being faced by the biggest of the big will also plague the smallest of the small. Below, I share two key takeaways from yesterday’s presentations along with a short video recap that reminds bankers that competition comes in many shapes and sizes.

Trust, But Verify

To open her “New Audit Committee Playbook” breakout session, Crowe Horwath’s Jennifer Burke reinforced lessons from previous sessions that a bank’s audit committee is the first line of defense for the board of directors and shareholders. Whether providing oversight to management’s design and implementation with respect to internal controls to consideration of fraud risks to the bank, she made clear the importance of an engaged and educated director. Let me share three “typical pitfalls” she identified for audit committee members to steer clear of:

Not addressing complex accounting issues;
Lack of open lines of communication to functional managers; and
Failure to respond to warning event.

To these points, let me echo her closing remarks: it is imperative that a board member understand his/her responsibility and get help from outside resources (e.g. attorneys, accountants, consultants, etc.) whenever needed.

Learn From High-profile Corporate Scandals

Many business leaders are increasingly aware of the need to create company-specific anti-fraud measures to address internal corporate fraud and misconduct. For this reason, our final session looked at opening an investigation from the board’s point-of-view. Arnold & Porter’s Brian McCormally kicked things off with a reminder that the high-profile cyber hacks of Neiman Marcus and Target aren’t the only high-profile corporate scandals that bankers can learn from. The former head of enforcement at the OCC warned that regulators today increasingly expect bank directors to actively investigate operational risk management issues. KPMG’s Director of Fraud Risk Management, Ken Jones, echoed his point. Ken noted the challenge for bank executives and board members is “developing a comprehensive effort to (a) understand the US compliance and enforcement mandates — and how this criteria applies to them; (b) identify the types of fraud that impact the organization; (c) understand various control frameworks and the nature of controls; (d) integrate risk assessments, codes of conduct, and whistleblower mechanisms into corporate objectives; and (e) create a comprehensive anti-fraud program that manages and integrates prevention, detection, and response efforts.”

A One-Minute Video Recap

To comment on this piece, click on the green circle with the white plus (+) sign on the bottom right. If you are on twitter, I’m @aldominick. P.S. — check back tomorrow for a special guest post on AboutThatRatio.com.

February 28, 2014

FI Tip Sheet: The Innovator’s Dilemma

Over the past few years, I have seen significant change within the banking community — much of it defensive or in response to government intervention and oversight. According to a white paper recently published by McLagan, “a great deal has been said about the excesses and errors of the past; however (sic), the current focus for banks, in particular, must be on the need to innovate or risk becoming stagnant and losing the ability to compete for exceptional talent.” This morning’s column focuses on the “innovator’s dilemma,” vis-a-vis three questions.

Do We Need Sustainable or Disruptive Technology ?

I have talked with a number of Chairmen and CEOs about their strategic plans that leverage financial technology to strengthen and/or differentiate their bank. After one recent chat, I went to my bookshelf in search of Clayton Christensen’s “The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.” His book inspired today’s title — and fuels this first question. Christensen writes about two types of technologies: sustaining and disruptive. Sustaining technologies are those that improve product performance. As he sees it, these are technologies that most large companies are familiar with; technologies that involve improving a product that has an established role in the market. Most large companies are adept at turning sustaining technology challenges into achievements. However, large companies have problems dealing with disruptive technologies — an observation that, in my view, does not bode well for many traditionally established banks.

“Discovering markets for emerging technologies inherently involves failure, and most individual decision makers find it very difficult to risk backing a project that might fail because the market is not there.”

While risk is inherent to banks of all sizes, taking chances on emerging technologies continues to challenge many officers and directors. To this end, I thought about the themes explored in Christensen’s book after spending time in Microsoft’s New York City offices last week. While there, I heard how big banks are generating revenues by acquiring new customers while retaining, up-selling and cross-selling to existing customers. I left impressed by the various investments being made by the JP Morgans of the banking world, at least in terms of customer relationships and experience management along with analytics and core system modernization. I do, however, wonder how any entrenched bank can realistically embrace something “uber-esque” (read: disruptive) that could truly transform the industry.

Do We Have the Staff We Need?

Consider the following question from the perspective of a relatively new hire: “I have a great idea for a product or service… who can I talk with?” A few months ago, Stephen Steinour, the President & Chief Executive Officer at Huntington Bancshares, keynoted Bank Director’s annual Bank Executive & Board Compensation conference and addressed this very thing. As he shared to an audience of his peers: “the things I assumed from my era of banking are no longer valid.” Rather than tune out ideas from the field in favor of age and experience, he explained how his $56Bn+ institution re-focused on recruiting “the right” employees for the company they wanted (not necessarily what they had), with a particular emphasis on attracting the millennial generation into banking. He admitted it’s a challenge heightened by public perception of the industry as one that “takes advantage of people and has benefited from government bailouts.” Still, he made clear the team they are hiring for reflects a new cultural and staffing model designed to drive real, long-term change. I wonder how many banks would (or could) be so bold?

Do We Have The Right Business Model?

I’ve heard it said that “forces of change” will compel banks to reinvent their business models. Take the business model of core retail banking. According to a piece authored by McKinsey (Why U.S. Banks Need a New Business Model), over the past decade, banks continued to invest in branches as a response to free checking and to the rapid growth in consumer borrowing. But regulations “undermining the assumptions behind free checking and a significant reduction in consumer borrowing have called into question the entire retail model. In five years, branch banking will probably look fundamentally different as branch layouts, formats, and employee capabilities change.” Now, I’m not sure banking’s overall business model needs a total overhaul; after all, it still comes back to relationships and reputations. Nonetheless, many smaller banks appear ripe for a change. And yes, the question of how they have structured their business is one some are beginning to explore.

To comment on this piece, click on the green circle with the white plus sign on the bottom right. Looking ahead, expect a daily post on About That Ratio next week. I’ll be in Nashville at the Hermitage Hotel for Bank Director’s Bank Board Training Program. Leading up to, and at, this educational event, I’ll provide an overview on the various issues being covered. Namely, risk management and auditing issues, compensation, corporate governance, regulation and strategic planning. Thanks for reading, and Aloha Friday!

November 8, 2013November 8, 2013

The Race is On

The race is on… to expand into new markets, to add new talent, to introduce new technologies that attract and engage customers. This race, playing out in cities and towns across the country, applies to many industries. For our purposes, let me build on this theme vis-a-vis three takeaways from Bank Director’s annual Bank Executive & Board Compensation Conference in Chicago.

(1) How companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world was front-and-center in Chicago. As I wrote earlier this week, the environment that this country’s 7,000 or so banks operate in demands productivity, proficiency with technology and the ability to sell. Finding the right people to lead such efforts, especially when you consider that every organization has a different set of “players” with a unique collection of knowledge, experience and skills, proves challenging. Complicating matters is the fact that all banks are required to regularly assess whether any of their compensation plans encourage unnecessary or excessive risk-taking that could threaten the safety and soundness of the institution.

(2) Putting together compensation plans that reward growth and responsible risk takes many shapes. However, the “adverse economic cycle” has dampened some employees’ opportunities to earn — and at a corporate level, has slowed the anticipated pace of bank consolidation. While larger banks continue to increase in size, many smaller institutions are fighting for survival in today’s regulatory and low-interest rate environment. According to SNL, there were 235 whole-bank M&A transactions announced and 51 failed bank transactions for a total of 286 deals in 2012. Total deals, as a percentage of overall banks in the U.S., have remained relatively consistent over the years between 3% and 4%. Some interesting stats, courtesy of the Hovde Group:

Since 2000, sellers over $1 billion in assets have commanded a 32% premium over those sellers less than $1 billion;
In 323 transactions since 2000, sellers over $1 billion averaged a valuation of 246% of tangible book value; and
In 2,729 transactions since 2000, sellers less than $1 billion averaged a valuation of 187% of tangible book value.

M&A activity is once again heating up as financial institutions look to achieve necessary scale to compete and thrive… and while I will not wager on the exact number of deals that will mark 2013, I will take the over on 2012’s results.

(3) The relevance of scale, the pace and volume of M&A activity and the dynamic tension between the “bid-and-ask” takes center stage at our next conference: our 20th annual Acquire or Be Acquired Conference. Held at the Frank Lloyd Wright-inspired Arizona Biltmore, we’ve put together a program that looks at the strategies potential acquirers might consider to the practical considerations the board needs to discuss. As proud and pleased as I am for this week’s successful event, I am already gearing up to open our biggest conference the week before the Super Bowl. Widely regarded as one of the financial industry’s premier M&A conferences, I am super excited by the hard work put in by our team and even more stoked to spend the next few months getting ready to welcome everyone to the desert. To that end, I will begin to expand upon the topics and trends that influenced the development of this year’s program in future posts.

Aloha Friday!

November 5, 2013November 6, 2013

A Postcard from Chicago

Sometimes, saying hello is easier than saying goodbye… at least, that’s what I felt (and wound up sharing) as I took to the stage to wrap up today’s Bank Executive & Board Compensation Conference at the always awesome JW Marriott in Chicago.

(1) Leading up to the conference, our editor (Jack Milligan) and I heard from board members and executives that they continue to struggle with measuring executive performance and retaining key talent.  At the same time, the two of us see the environment that banks operate in today demands productivity, proficiency with technology and the ability to sell. So for this, our 9th annual event, we took care to focus on compensation trends, talent attraction and retention strategies. In addition, we made sure to include sessions that look at how the next few years’ merger activity might influence incentive compensation plans and performance-based pay structures. All told, over 110 banks from 38 states were represented in the audience — each, it seemed, engaged in conversations about how their particular bank might shape its workforce to meet the demands of tomorrow.

(2) Next year, we will almost certainly include breakouts and/or general sessions on nominating/governance committee issues. We may also take a deeper look at “millennials” in the work force. But this year, I found several presentations geared to critical questions facing boards and management that tied in to immediate growth opportunities. For example, Steve Hovde posed questions like:

Is adequate organic growth even available today?
In today’s hyper-competitive loan market, can sufficient loan growth and loan yields be achieved?
Are branches in urban markets more important than rural markets?
How many employees must we hire to achieve organic loan growth objectives?
Are we better off deepening penetration of existing markets or expanding physical premises into neighboring markets or both?
What steps can we take to enhance Web and Mobile platforms?

While larger banks continue to increase in size, many smaller community banks are fighting for survival in today’s regulatory and low-interest rate environment. These questions, when juxtaposed with compensation trends and strategies, were certainly on the minds of many in attendance.

(3) As I walked off the stage today, it was hard not to see banking’s business model being significantly challenged in today’s interest rate environment. With deposit costs near zero and fierce competition for loans driving down yields, many smaller banks appear to be running on fumes. For many, organic loan growth is almost nonexistent, and strategic M&A is the only other way to amass scale today. For this reason, some say that banking’s business model is broken, but I’m not sure I agree. I posed this question to a panel of CEOs to wrap up yesterday’s program and am curious to hear from readers of About That Ratio. Is our model broken? If it is, can it be fixed — or what will replace it? Feel free to comment below or via a DM on Twitter (@aldominick)