Publications & Resources

May/June 2010
Leadership & People

 

Character-Driven Performance for the 21st Century Community Bank: Attracting, Retaining and Motivating Top Talent

By Curtis Carpenter and Tom Jordan

Many bank leaders believe they have a good understanding of how committed their key people are to the bank . . . until one of them leaves. In today’s environment, where a bank’s competitive advantage is, to a great degree, an outgrowth of a culture of confidence, every CEO should understand the issues that drive employees into and out of organizations and how to unleash their passion and improve their execution.

How do you compensate your people in order to create long-term performance? In an increasingly commoditized and competitive market, what rewards will motivate key performers to invest their best energies toward bank success?

Many organizations have recently verbalized great plans to expand through acquisitions during this down cycle. While opportunities certainly abound for those with capital, the key to success always comes down to the people. Any successful expansion strategy must include the right people on both the outside and inside (i.e. the customer side and the back-room, integration side).  At its core, community banking is not complex. It is about having the best people and having the correct compensation plans to motivate them.

There has been a noticeable migration of talent in recent quarters from the nation’s largest banks to community banks. Many bankers see the vast opportunities available for community banks with capital and vision. One of the important factors in making such a move is the opportunity to personally participate in the growth of shareholder wealth.

In this article, we will explore six principles of character-driven compensation. These principles hold the key to long-term employee loyalty, and will differentiate your bank from the competition.

Principle #1: The “O Factor” 
Reward key performers who are “others-oriented”, long  a tenant of the best customer service organizations, and craft a compensation package that reflects  your understanding of the executives’ immediate and long-term needs. By doing so you are creating a future for your top leaders where they know you have thought about their specific goals and built a package to reflect foresight and personal appreciation. This “O Factor” – being others-oriented – translates into tremendous loyalty at key positions, and ensures you retain your key people no matter what the competitive market offers.

You need to know your people well to offer the right package. What motivates them? What are their interests beyond work and which of these interests do they share with family and friends? How can you shape a compensation package that reflects their lifestyle and aspirations?

In his classic book, Swim with the Sharks without being Eaten Alive, Harvey Mackey shares the anecdote of one of his salespeople who gained enormous loyalty from a customer by remembering this key customer’s college alma mater, and giving the customer a gift from that college. While the financial cost was small, the act of remembering meant a great deal to the customer. In the same way, how can you build a performance program that reflects your personal understanding and commitment to your key performers?

Principle #2: Compatible Fit with Culture
In addition to recognizing key leaders who are others-oriented, the best compensation package reflects and enhances the culture of your organization. The ethos of your bank, and the people who work there, should be a vital underpinning of any executive compensation package. When a bank does this right, your key leaders know they are not only compensated based on their performance, but they also know their compensation is in line with the culture of your bank.

Principle #3: Aligned Compensation
Closely tied to the concept of the “O Factor,” the best banks make sure executive compensation is aligned to individual and team performance. As a result, there is a sense of fairness that creates loyalty and motivation throughout the team. When everyone performs at peak levels, everyone wins.

Principle #4: Measureable Key Performance Metrics
In the interest of fairness, there needs to be rigorous discipline around reporting, so that key performance indicators can be measured. Your key executives need to know exactly what their incentives are tied to, and those criteria need to be objective and independent of any perceived prejudice. Objective and measurable performance metrics motivate top performers to do their best and recruit others to do so as well.

Principle #5: Wealth Accumulation Opportunities
You should jointly discuss and develop a variety of investment vehicles with your senior leaders and key drivers. Character-driven performance programs offer the opportunity for these employees to create their own destiny. You should work with them on funding compensation plans that take into account their specific goals and aspirations. This could include family legacy planning and charitable intent. The key is being others-oriented: if they achieve their goals for the bank, what personal goals can the bank enable them to achieve?

Principle #6: Effectively Communicating Employee Value
Every good bank leader recognizes the value of the people in the organization. It is not enough, however, to personally recognize this value. The value top performers bring to your organization needs to be broadcasted across the organization and beyond. It has to be articulated and celebrated.  The best leaders find multiple ways to communicate this value: through personal conversations, in team meetings, at official recognition ceremonies, even publicly through newsletters and press releases.

Attracting and retaining top performers is not only tied to the compensation and incentive package you jointly discuss and develop, it is also tied to recognizing and communicating the value they bring to the team.

Money can buy a fine dog, but only love will make him wag his tail

Creating character-driven performance among your top leaders requires you to be other-oriented. It pushes you to ensure that the bank’s incentive programs are specifically tailored to your culture.  It means aligning compensation to performance, and it means that performance criteria are recognized as fair and that all parties agreed on the metrics. The hope is your top performers will achieve their long-term goals and aspirations. And again, when they perform, you need to celebrate – to communicate loud and clear the value they’ve brought to the bank.  

There is an old hunter’s proverb that says, “Money can buy a fine dog, but only love will make him wag his tail.” In the same way, character-driven performance programs bring out the best in your top executives by responding to who they are as leaders and individuals while also fulfilling their financial needs.

Curtis Carpenter serves as managing director of Sheshunoff & Co. Investment Banking and principal of Affiliated Bankers Capital, and Tom Jordan is an executive compensation specialist. Carpenter can be reached at CCarpenter@smslp.com.

Unauthorized reproduction of all or part of this material without the express written consent of the author is strictly prohibited. All rights reserved.