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Compensation planning for financial institutions in 2021

Jun 29, 2020

Compensation planning for 2021 will spark interesting discussions for many financial institutions this fall.

COVID-19 has required banks to quickly pivot to remote work arrangements, respond to a tremendous influx of loan requests (PPP and mortgage), continue to provide uninterrupted service to customers, and continue to seek qualified and increasingly more expensive talent.

We anticipate that the fall-out from COVID-19 will continue to impact business and industry well into 2021. As banks reflect upon the compensation arrangements extended to employees over the past several months, they will need to project which arrangements will continue and which will be modified or “sunset” in 2021.

Banks have compensated employees in several different ways in 2020 due to COVID-19 such as:

  • Continuation of pay even when not working, often in excess of what legislation may have required.
  • Appreciation or premium pay for those who have continued to work.
  • Significant overtime pay for positions that needed to respond to service demand.
  • Bonuses/Incentives to recognize performance and contributions.
  • Contribution toward home internet services and other remote supply and equipment needs.
  • Payout or carryover of unused PTO or vacation benefits (anticipated).
  • Flexible work hours and/or reduced schedules.

In addition, the pivot has caused many banks to revisit staffing models and to evaluate talent through a new lens asking questions such as:

  • Will the bank continue to offer any enhanced compensation arrangements?
  • Is the bank appropriately staffed, understaffed, overstaffed?
  • If overstaffed or understaffed, which departments and positions?
  • Is the bank able to redeploy employees in overstaffed departments into understaffed departments?
  • If not able to redeploy, will the bank restructure and/or eliminate positions and employees?
  • Who are the top performing employees in the bank?
  • If positions eliminated, will salary continuation be offered and for what period?
  • What new positions will be needed post-COVID-19?

Many industries have been hit hard by COVID-19. Employers have had to terminate employees, furlough employees, reduce wages, reduce hours or other tactics to remain viable. Therefore, for 2021, it is yet unclear what the compensation trend projections will be, and it is likely it will vary widely based upon industry and by position. For example, with the move to a remote workforce, it is anticipated that there will be surge in hiring information technology positions. Following the fundamental supply versus demand concept, this will inevitably drive up competitive salary levels. Another example might be the increased competition for and increased wages for competent loan processors.

Let’s face it — the shortage of qualified, competent employees has not disappeared. In fact, it many have gotten worse for a number of positions, e.g., mortgage loan processor

While it may be anticipated that salary structure movement trends for 2021 may be flat or less than the projected trend of 2.2% for 2020 across all industries, banks need to consider their unique situation and the competition for talent. There is no doubt that competition will continue – the silver lining may be more potential candidates available to consider, especially for entry level retail and professional positions. If pulling prospective candidates in from other industries, not only do banks need to consider compensation planning, banks will also need to consider the learning and development costs as well.

Today is the time to start considering and budgeting for the bank’s compensation strategy for 2021.  It is critical to understand the current state of the bank’s total compensation program that encompasses base, annual incentive, and deferred components. Engaging in the formal analysis and development of a compensation program based upon market data will then enable the bank to further tailor and customize the program to meet its own unique needs and market.

If the executive team can’t confidently answer the question of what is the bank’s overall comparison-ratio relative to the compensation philosophy and the competitive market, then it is time to invest time and resources to craft a plan and strategize to ward off any potential siphoning of talent on the basis of pay.

And speaking of market-based pay, identify the compensation and benefits surveys (at least two or three) that you trust and rely upon when analyzing compensation. When asked, complete the survey. The information you get out of a published survey is only as good as the data that goes into it. It is very important to contribute to surveys and not just rely on others to provide the data. Without such data, compensation becomes a much more reactive and speculative discussion.

Wipfli’s Community Bank Executive and Board Compensation Survey for the Midwest Region will soon be sent and is celebrating its 15th year, thanks to our community banks completing the survey. New this year will also be our Southeast Region survey.  As our footprint grows so does our ability to bring quality information to our clients and community banks.

Let’s connect and talk compensation for 2021! Visit wipfli.com/fi-hr.

Author(s)

Julia Johnson
Julia A. Johnson
Director, Organizational Performance
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