Independent Banker - September 2020 - 25

roles. The results indicate an overall investment
in branch staffing, with frontline staff benefiting
from " higher-than-expected " increases between
2017 and 2019.
" Our [frontline staff] compensation is still
far higher than almost every other bank I ever
talk to, " Heinemann says. " I think that's a huge
mistake that a lot of organizations are making.
[These staff] are the face of the bank, and they're
the most important interaction that we have with
our customers on a regular basis. When you pay
better wages, you get better employees. "
Yet, standard compensation alone no longer
seals the deal. Beyond salary and bonus,
prospective employees look for other financial
incentives, such as 401(k) contributions and
student loan subsidies. Millennials in particular,
who according to Experian have an average
of nearly $35,000 in student loan debt, see these
other forms of benefits as supplementing their
full compensation.
In addition, prospective employees may be
looking for investment opportunities in the bank
itself, including profit shares and employee stock
ownership plans (ESOPs). The National Center
for Employee Ownership estimates that there are
more than 6,600 ESOPs covering more than 14
million participants in the U.S., with employees
controlling about 8% of corporate equity.
However, ESOPs aren't right for every institution.
For community banks that are family
owned or where minority shareholders aren't
desired, synthetic equity or phantom stock plans
create another compensation offering. In these
plans, the synthetic equity stockholder receives
the equivalent of an equity shareholder without
actually holding the shares. This allows them
to earn compensation-usually on a deferred or
vested basis-without earning voting rights and
diluting ownership.
Retaining top performers
Once a community bank has developed a
compensation package that enhances its position
as a hiring employer, it's time to develop programs
that ensure the bank is retaining its best and
the brightest. HR consultancy G&A Partners
estimates that it can cost between 30% and 150%
of an existing employee's salary to replace them.
Retaining top performers therefore remains
" The best people perform even
better when you pay them a higher
salary. They are internally motivated
and feel like they need to justify
their worth to the organization and
to themselves. "
-Mark Heinemann,
Farmers State Bank of Hartland
Quick stat
15%
more banks have
implemented a
rewards system
based on years
of service to
encourage lower
turnover and
increase officer
retention since
2012
critical from a financial perspective, as well as
from an operating one. Yet, COVID-19 aside
(see sidebar on page 18), retaining employees is
becoming increasingly challenging: Since 2014,
the turnover rate for those in nonofficer positions
has more than doubled, reaching an average of
24% in 2019, according to the Crowe survey.
" Certainly, for the retention component, the
compensation does play a role, " says Dan Maddox,
chief executive officer of $675 million-asset
Citizens State Bank in New Castle, Ind. " Up until
[COVID-19 hit], it was a very competitive job
market, so you had to be competitive. "
Today, retaining employees goes beyond meeting
the market salary-wise. Bank leaders know
that culture, shared mission, work/life balance,
and other " soft " benefits must factor into their
models, but employees are also looking for concrete
offerings to bolster standard salary and
bonus. That's why some banks are identifying
creative solutions to provide " hard " incentives
in ways that further tie the employee to the organization.
Case in point: Deferred compensation
plans-those structured for payouts following a
certain period of time-have become a carrot to
reward employee effort and keep them connected
to the bank.
For example, a community bank may set up a
deferred cash incentive plan for its star performers
or leadership staff. This plan's evaluation metrics
may align with those of the standard annual plan
for payout, but along with it, there's a five-year
vesting period for the funds earned. During that
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