Independent Banker - September 2020 - 26

PORTFOLIO
time, the funds are tax deferred, and they earn a rate of
return equal to the bank's return on equity. This approach
creates a cascading effect, so year one funds are fully available
in year six, while year two funds will be fully vested in
year seven.
According to experts, the beauty of a deferred compensation
plan is two-fold. First, it ensures bank teams continue
to focus on long-term goals instead of just short-term gains.
Second, it keeps high performers and leaders tethered to
the organization.
" Deferred compensation gives you the golden handcuff, "
says Kathy Smith, principal at Bank Compensation Consulting,
an advisory firm based in Plano, Texas. " If they pay all
of their compensation out in cash, then there's nothing tying
that person to the bank. ... If they add to it some form of
deferred compensation that [employees] leave on the table
if they walk away, that starts giving a handcuff for retention. "
Smith notes that deferred compensation has been a trend
for a long time, but it continues to climb in popularity with
community banks. In addition, banks are identifying other
programs to help bolster retention rates, including special
forms of monetary recognition. The Crowe survey found
that since 2012, 15% more banks have implemented a
rewards system based on years of service to encourage lower
turnover and increase officer retention.
" Banks can stand out from their competition by implementing
these golden handcuffs in all different forms,
" Banks can stand out
from their competition by
implementing ... golden
handcuffs in all different
forms, whether it's equity,
synthetic equity, deferred
comp or a combination. "
-Kathy Smith, Bank Compensation Consulting
whether it's equity, synthetic equity, deferred comp or a
combination, " concludes Smith. " It's not all the same, one
size fits all. "
As each community bank determines its own program,
one thing stands certain: The days where salary and bonus
equaled compensation are over. In today's environment,
attracting the right talent may depend upon how creative a
bank is willing to be with its compensation package.
Colleen Morrison is a writer in Maryland.
How is COVID-19 affecting compensation?
Many community banks boast
strong performance-based
incentive plans and are now
asking themselves, if goals have
shifted due to COVID-19, what
happens to compensation?
" Your budget got completely
changed by the pandemic, and
all of your priorities changed, "
says Mark Heinemann, president
and chief financial officer of
Farmers State Bank of Hartland
in Albert Lea, Minn. " But if you
start changing things midstream
on [staff], for good reason, they
are unhappy. "
That's why Kathy Smith,
principal at Bank Compensation
Consulting, encourages
community banks to be
flexible and to consider one-off
allowances or overall shifts for
2020. She advises her clients to
structure programs to allow room
for models to evolve. If priorities
shift, so, too, can compensation.
" I'm finding my current clients
who already have a goal-oriented
plan in place are [asking], 'We set
these goals up before COVID ever
happened. Are we going to meet
any of our goals?' " says Smith.
" We're trying to tell them, 'Let's
be flexible, yet focused. Let's see
what's going to happen at the
end of the third quarter. ... Then
we can make a determination [on]
what we need to do at the end of
this year to adjust.' "
On the upside, COVID-19
also may bring with it new
opportunities to expand
intangible benefits, such as
remote work. " We're seeing,
from recruiters even, a lot of
candidates presenting the
requirement of working from
home [since COVID-19], " says Dan
Maddox, chief executive officer of
Citizens State Bank in New Castle,
Ind. " We can really broaden our
reach geography-wise and throw
a much wider net to a larger pool
of candidates. "
18 Q ICBA Independent Banker Q September 2020
Independent Banker - September 2020

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