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.

October 21, 2016October 21, 2016

Evaluating Board Performance

New regulations, technological innovations and a highly competitive environment that leaves little room for error have placed unprecedented demands on the time and talents of bank boards and their individual directors. As many who support the banking space can attest, a strong board begins with a set of enlightened governance policies and procedures that center on honesty, personal integrity and accountability.

At Bank Director, we coined the phrase “strong board, strong bank” in response to the mounting pressures placed on the banking community. Over the years, we have introduced new research projects, conferences and magazine issues to provide exceptionally timely and relevant information to a hugely influential audience.

As I prepare to head down to Florida (and the Ritz-Carlton, Amelia Island) this weekend for our annual Bank Executive & Board Compensation conference, I am anticipating conversations about potential regulatory changes and current strategic challenges related to a bank’s growth and profitability. Alongside my colleagues Michelle King and Amanda Wages, I also expect to field questions from the audience (depicted in the image above) about how high performing corporate boards employ evaluation tools that match the talents & experiences of their board members to an organization’s strategic goals. FWIW, I anticipate such inquiries as many consultants and attorneys encourage such assessments — and the board performance self-evaluation tool we designed & offer to banks has earned a strong reputation for providing an independent review of a board’s effectiveness.

To be sure, 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 banks and their boards. So in advance of our annual event, I asked our research team to roll up the results from twenty-two bank boards — all randomly selected — that completed a performance survey this year.

While tempting to look at individual board results and draw conclusions, anonymously lumping this group together allows some interesting patterns to emerge given more then 200 individual responses:

50% recognize a need for more diversity on the board;
55% say they need more expertise/knowledge in technology on the board, and 44% indicate a need for more training on IT issues;
51% are dissatisfied with some aspect of the bank’s succession plan, for the CEO and/or the board; and
56% are certain they have the M&A experience to meet the bank’s growth goals (44% say no or are unsure).

While these four points caught my eye, I asked our Director of Research, Emily McCormick, what stands out to her. In her words:

“Many boards lack a consensus on their succession plan, meaning that they’re often not on the same page regarding the depth of that plan. That, to me, is a red flag.”

Anecdotally, many bank CEOs — and board members — that I’ve talked with in person know they need new skills, particularly in technology, and recognize a need for diversity. But as we find, few want to add additional board members. A fact to keep in mind next week as we explore how to build and support the best teams based on the strategies and tactics being used by successful companies today.

We designed our Bank Service offerings to help board members and senior executives develop strategies to help their bank grow, while demonstrating excellence in corporate governance that shareholders and customers deserve and today’s regulators demand. To learn more, click here.

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 5, 2014December 31, 2014

A 90 Second Look at the ‘Innovation Requirement’ Facing Banks Today

While the larger banks in the U.S. continue to increase in size, many community banks are fighting for survival in today’s regulatory and low-interest rate environment. Here is one key takeaway from yesterday’s Bank Executive & Board Compensation Conference.

Up next? Pictures on Friday from the conference.

November 4, 2014December 31, 2014

Trending at #BDComp14

This January, at Acquire or Be Acquired, I wrote that most successful banks have a clear understanding and focus of their market, strengths and opportunities. So one big takeaway that builds on this idea from our annual Bank Executive & Board Compensation conference (#BDComp14 via @BankDirector): it is time for a bank’s compensation committee and HR officer to reassess their viability of their performance plans and incentive programs.

Today’s agenda covered a lot of ground; namely, how economic, technological and demographic trends are reshaping the financial community. With nearly 300 attendees with us in Chicago, I heard a lot of interesting comments and questions made throughout the day. Three that stood out to me from our “on-the-record” presentations:

The Fed’s policies are forcing banks to ask tough questions: When will rates rise? Should I make fixed rate loans in the 4% range? How will this play out? How does it affect my stock value? (Steve Hovde, the CEO of the Hovde Group)

It is not what you do for people that they remember; it is how you make them feel. (Scott Dueser, the Chairman & CEO of First Financial Bankshares)

When it comes to Dodd-Frank, I thought we’d be through it all, but its still going full force (Susan O’Donnell, a Partner at Meridian Compensation Partners)

Trending topics
Overall, the issues I took note of were, in no particular order: loan growth is now paramount to profitability; with cybersecurity risks growing, protection is becoming more and more costly (especially in terms of time & resources); standardized loan products are reducing competitive advantages of community banks (naturally impacting compensation plan participants); if compensation plans are overly complicated, step back and ask if your are trying to solve for something else; culture and performance is what it’s all about.

More to come from Chicago tomorrow…

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!

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)

November 1, 2013November 1, 2013

On Fee Income + Staying Relevant

So I shared my excitement for the RedSox World Series victory earlier today… Before I pack my things for a trip to the JW Marriott in Chicago, let me share three things I learned this week that relate to bank CEOs and their boards, not baseball and beards.

(1) As our very talented editor, Jack Milligan, wrote in the current issue of Bank Director, when it comes to fee income, “drivers tend to fall into three general categories, beginning with a variety of consumer-based fees from such things as foreign ATM withdrawals, overdraft protection plans, debit card transactions and some checking accounts.” I bring this up as Jack and the team at Bank Director magazine ranked the top 50 publicly traded banks based on their ratio of non-interest income to total operating revenue for 2011 and 2012. The totals for both years were then averaged, which determined the order of finish. All banks listed on the New York Stock Exchange and NASDAQ Stock Exchange were included in the analysis (which was performed by the investment banking firm Sandler O’Neill + Partners in New York). At the top of the ranking are New York-based Bank of New York Mellon Corp., State Street Corp. in Boston and Chicago-based Northern Trust Corp. For a full look at the results, click here. For the story itself, register for free on BankDirector.com to access the digital issue of the magazine.

(2) Clearly, banking’s profit model is going through a period of transition. Here, companies like StrategyCorps play an interesting role in helping financial institution meet their needs for more fee income without upsetting its customers. No one — at least, that I know — wants to pay for basic, traditional retail banking services. They resent when a new fee is added on to an existing free service or product with no additional value (case-in-point, Bank of America’s $5 debit card fee debacle). So as Mike Branton wrote in the Financial Brand, “financial institutions must seek new ways to incorporate non-traditional services that connect with consumers’ lifestyles.” StrategyCorps took to Finovate’s Fall stage in NYC in September to demo, in less than 7 minutes, how financial institutions can use an enhanced mobile experience to successfully bring in fee income. Take a look.

(3) Finally, I will be tweeting throughout our annual Bank Executive & Board Compensation conference next week (using hashtag #BEBC13). This year’s 9th annual event focuses on compensation trends, talent acquisition/attraction and retention strategies. In addition, it looks at how the next few years’ merger activity might influence incentive compensation plans and performance-based pay structures. I intend to post a few “postcards” from Chicago throughout the week — the first (tentatively set for Tuesday) on how companies develop executives, attract leadership and approach compensation in today’s highly competitive and economically challenging world.

Aloha Friday!