Mike Burnett: Hello, I’m Mike Burnett, principal and co-leader of the Alexander Group’s Business Services and Financial Services practice. Today, I’m joined by my colleague Dave Eddleman with a preview of our recent incentive compensation survey for the U.S. Banks.
Dave, very timely study. Obviously, a lot has been going on in the banking industry over the last 24 months. Can you provide what’s your take on the current environment and how does really connect to this incentive compensation study?
Dave Eddleman: Yeah. Thanks, Mike. Yeah, it’s been a really crazy couple of years. As everybody knows, the Federal Reserve has been fairly aggressive with over ten rate hikes in the past 24 months. All of this has been very good for banks, good for their valuations, especially the larger banks. Good for their stock prices. However, I think as we move in 2024 and into 2025, there’s a defensive posture and some cautious optimism about loan volumes. All of this together is really put a focus on the go-to-market modeling. We don’t always do a banking compensation survey, but we have done other surveys and they have shown there’s a new level of investment in revenue operations and in sales operations and professionalization of customer-facing roles.
Mike Burnett: Great. So, Dave, I know the survey covered a lot of ground, everything ranging from who’s eligible for plans, pay levels, pay mix, job design, plan mechanics. Can you tell us more about the survey and then just a preview or an example of a few of the key findings that came from the study?
Dave Eddleman: Yeah, sure. I’ll just talk a little bit about the survey demographics and then just show a couple of examples. First of all, just looking at the demographics of the survey, we have over 50 U.S. Banks. A really nice cross-section of executives and responses to the survey, as well as a good cross-section of asset profiles, small banks, medium banks, large banks. So, we’re pretty happy with the sample and how robust it is. Let me give you a couple of examples from our survey. The first one is around eligibility. Whenever we have an engagement with a bank in terms of incentive compensation, we look at the eligibility of the plans. In banking, this is kind of in two camps. One is formulaic and more of this at-risk plan. And the other one is discretionary, more of a pooled plan where there’s sometimes stack ranking involved as well. What we’d like to see is to drive more towards the pay-at-risk plan. Not in all cases, for sure, but for example, a relationship manager might have a hybrid between a formulaic plan and a discretionary plan. So this is very important and in general, as I was saying before about the competitive environment and the more commercially-centric aspirations of banks, if you will, we’re driving more towards these at-risk or more formulaic plans. So this is an important balance between these two. And the more formulaic you are, the more motivational the general rule and the more commercially centric you are. Now, we can’t make all of bank pay plans into high-tech pay plans. I mean, there are factors involved. There are compliance and regulatory factors that are very important. But this one cut of eligibility is important and it’s something we survey. And this is what the survey results show.
The second one I’d like to show you is around pay mix and leverage. As we think about banks and we think about these aspirations for being more commercially centric, the pay mix is actually fairly in line, and we didn’t see a lot of surprises in the survey data. The leverage we did, and we weren’t surprised with this either. In general, pay leverage is a bit flatter, a bit more lethargic. So, when we think about leverage, we’re really thinking about the slope of the payout curve. So, if you think about the top 10% or 90th percentile of incumbents, do they earn close to three x their portion of incentive pay. That’s typically what we will see maybe two and a half to three. In banking, we’re seeing this down at 1.8 to 2 to 2.2, which again it’s just more of a lethargic and less motivational payout curves. We’re not paying the high performance a lot more than the low performers. And I think in general across all industries we’re seeing a steepening of that payout curve, a steepening or an enhancement of the pay for performance in comp plans. And so the point here is that banks have a long way to go in terms of increasing the slope of the curve and increasing motivation. Again, just a couple of data points from the survey, but hopefully this was helpful this will pique your interest to see the rest of the results.
Mike Burnett: Thank you. We’re currently in the process of scheduling and conducting readouts with our clients as well as prospective clients. If you’d like to schedule a personalized briefing of this study, please visit our website at www.AlexanderGroup.com. Thanks again.
