Survey: Banks are starting to recover

OAK BROOK — Shifting priorities, modest salary increases and even rising turnover are all indicators that banks are beginning to recover from the recent economic downturn, according to Crowe Horwath’s 2011 Comprehensive Financial Institution Compensation Survey.

In 2011, the average salary increase for officers and non-officers was 2.4 percent.

The survey, which compiled data from 280 U.S. financial institutions, is conducted annually by Crowe, one of the largest public accounting and consulting firms in the U.S.

Now in its 30th year, the survey found the top human resource priorities for the year are retaining employees, developing employees and motivating better performance. Containing costs dropped in priority, falling three spots from last year’s survey.

“This year’s survey shows the positive trend of banks refocusing their efforts on current employees, through developmental programs and moderate salary increases,” said Timothy Reimink, a senior consultant in Crowe’s performance group.

Employee turnover is also returning to pre-recession levels. Non-officer turnover increased to 17 percent in 2011 compared to 12 percent in 2010. Officer turnover increased to 6.6 percent in 2011, reversing the downward trend of the past four years. “It appears employees were more confident in looking for new jobs as the outlook for banks stabilized,” said Reimink.

For 2011, heads of personal investment sales received a total compensation increase of 25.5 percent, which is nearly all from bonuses as their base pay decreased by 3.7 percent. “Investment sales bonuses are based on activity in the stock market and that can come from buying or selling. In 2010, there was a rebound in stock activity and investment sales benefitted from that,” said Reimink. “However, this year it seems stock activity has already hit a plateau, so it’s unlikely we’ll see this size of increase again next year.”

As regulations for banks have increased over the past year, so too have the responsibilities of chief compliance officers, and the survey shows they are being rewarded for their efforts. They received a 6.1 percent raise in base pay for a 7.4 percent increase in total compensation.

Additional survey findings include:

Ÿ Residential mortgage loan officers received the largest total compensation increase of 34.1 percent. Reimink noted that even though home sales were down, interest rates reached new historic lows, causing a continued uptick in mortgage refinancing activity.

Ÿ Chief lending officers and chief information officers had 11.6 percent increases in base pay but saw reductions in total compensation of 2.8 percent and 3.2 percent, respectively, as a result of decreases in bonus pay. Similarly, chief financial officers had a base pay increase of 8.3 percent but saw a decrease in total compensation of 2.4 percent. According to Reimink, this decrease in bonus pay is likely due to the performance of financial institutions and a shift away from cash bonuses toward restricted stock, which isn’t included in total cash compensation.

Ÿ Half of the financial institutions surveyed plan to maintain staffing levels at current levels with 24 percent expecting staffing growth.

Ÿ After averaging 11.35 percent of base pay for three years, aggregate incentive compensation declined to 7.4 percent of base pay in 2011. Reimink notes continued lower financial performance and slow growth appear to be impacting incentive payouts.

Ÿ While regulators expect that all incentive compensation plans are reviewed by the boards of directors, only 51.1 percent of financial institutions surveyed indicated their compensation committee reviews and approves plans. Only 35.4 percent indicated they review incentive compensation plans annually.

Ÿ While 87.7 percent of banks surveyed say they have a pay-for-performance program, their actual practices in granting merit pay increases do not appear to support this objective. Banks rated 26.9 percent of their employees as exceeding expectations in 2011, and on average gave these employees a 3.2 percent salary increase. This is not much more than the average 2.6 percent increase given to those employees meeting expectations. “Management may be missing the boat by not using pay to motivate and reward top performers,” Reimink added.

“This year’s survey showed that containing costs was reported as of lesser importance compared to last year. However, long-term projections suggest benefit costs may rise back to the top in our future surveys,” added Pat Cole, a senior manager in Crowe’s Audit and Financial Advisory practice, who specializes in human resources consulting for financial institutions. Seventy percent of institutions plan to increase deductibles, premiums and co-payments as a way to pass more costs onto their employees.