ABA Banking Journal - June 2008 - (Page 22)

Community Banking Roundtable debates Rx for medical plan costs in June’s Digital Magazine Employee healthcare expenses represent one of the most challenging pieces of bankers’ HR puzzle. To read our panel’s take on this, go to www.ababj.com and click on “Digital Magazine” in the toolbar. bonus. There’s no entitlement.” Goodenow says employees know which job tiers carry this or that level of shares in the overall incentive pay scheme, and that this provides encouragement to those who want to make more money. They understand that they must advance into those categories that carry higher bonus percentages. “If there is a position posted that’s a ‘Tier 2,’ someone below that tier knows it will be a better position for them,” says Goodenow. “On the other hand, if someone wants to just come to work and stay in the Tier 1 position, that’s great, too, because we need those people as well.” Thinking outside the calendar The typical bank compensation plan has an annual focus, but some banks have found that this no longer fits well with their current reality. For instance, Alabama’s Robert Jones says his United Bank has been in expansion mode, and the costs of that have tended to obscure some performance achievements. “We’ve always operated on an annual plan and our incentives were tied to those annual objectives,” says Jones. “This year, we’ve taken a two-year approach, because we knew that our expansion strategy was going to depress earnings.” So, according to the game plan, “we’re paying incentives based on a lower threshold than we would typically see,” says Jones, “but we’re accruing a supplemental payment based on the full twoyear performance, which is after the new operations are open to customers.” Jones acknowledges that there is a gamble here. If incentives are the “carrot,” after all, the carrot ideally ought to be close enough to remain on the carrotseeker’s mind. Jones says the bank is trying to “keep the focus” by issuing relevant measures to employees in the short-term. Merchants & Farmers Bank & Trust Co., Leesville, La., has been undergoing a similar expansion, says Ken Hughes. “We’ve been visiting with our board about our annual executive bonus grid,” says Hughes, “and we’ve been making a 22 JUNE 2008/ABA BANKING JOURNAL case for using a lower threshold this year.” In the case of Hughes’ team, a dozen executives are on the bonus grid, and they are all working toward a team goal. Hughes doesn’t want the expansion costs to cut the productivity of the executive incentive plan. It’s meant far too much to the bank. The formula behind the program consists of 65% based on net income for each year, with additional portions allocated to new loan production and to the bank’s efficiency ratio. The bank started its program about six years ago. “At the time, we were netting about $1.2 million a year, and now we’re netting over $2.6 million a year,” says Hughes. “We pay the executive group about $350,000 in total bonuses.” Hughes says there was no change in the team. The plan made the difference. “They had no incentive to give us new ideas or to try anything new,” says Hughes. “If they did, and it worked, their bonus, under our old plan, didn’t rise. On the other hand, if their new effort flopped, it might have gotten them fired.” With incentive pay in place, however, “the same 12 people are now primarily responsible for doubling our earnings over the last six years.” Tips from the roundtable upervisory post challenges. One of the supposed “givens” of American corporate life is that everyone wants to move up, and should, to be successful. “Often, you’ll take someone who’s an excellent employee, and you’ll decide to make them a supervisor,” says United Bank’s Robert Jones. “And that can be a failed strategy, if they don’t have the right characteristics to supervise people.” To help screen out such cases, Jones has recently been using a tool called the Omnia Profile. This is a personality profiling tool from The Omnia Group, Inc., Tampa, Fla., www.omniagroup.com. “We’ve been using Omnia for a number of years for senior positions,” says Jones. However, increasingly candidates for supervisory posts have not been satisfactory, so the bank began using the tool for those positions. The tool uses psychometrics. Each test costs roughly $100, so Jones says the bank generally has the relevant department head and the head of human resources screen candidates and conduct the first rounds of interviews. Then the most promising candidates take the Omnia test. Jones reads the tool’s evaluations prior to meeting the candidates. “I get a little better feel of who the person is,” Jones says. • ounger employees want inclusion. New Washington State’s Pat Glotzbach says one key difference he’s noticed between older, more traditional bank employees and new generations is the desire for inclusion of the latter. While older employees are content to stay back home, newer ones crave learning opportunities. They want to be taken along when managers go to business conferences and similar events. “They want you to show them that they’re part of the scene,” Glotzbach says. “And with them, education is the key, it really is.” S Sticking with the traditional “I guess, philosophically, we’re in another boat,” says Legends Bank’s John Klebba. “Our board has never bought into what I would call a modern sense of incentives. However, we do have a profitsharing contribution, and it is distributed on the basis of a percentage of salary.” Harking back to Robert Jones’ warning about “unintended consequences,” Klebba notes that this was always his father’s concern about putting in an incentive scheme that rewarded lending and other activity by volume. “He worried that those consequences would rear up and bite you unless you really had a plan that was fail-proof,” says Klebba. “And I don’t think anybody’s ever come up with a plan like that.” PERFORMANCE PAY continued on page 26 Y Subscribe at www.ababj.com http://www.ababj.com http://www.omniagroup.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - June 2008

ABA Banking Journal - June 2008 Contents Editor’s Column Do Fee-based Services Have an Edge? Snapshot: Net Interest Margins Vary Sharply with Size 100th Anniversary: Then & Now Letters ABA Resources ABA Chairman’s Position "What? No Annual Surprise Bonus?" Pass the Aspirin Cover Story: Top Community Banks: How They Did... ...And How They Did It Charter Bank First East Side Savings Bank Mackinac Financial Corp. The Peoples Bank Managing the E-mail Monster In Brief Handling PEPs in the Age of "L'affaire Spitzer" Mailbox Banker’s Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - June 2008

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