How to Retain Your Best People

September 2017 | The Arkansas Banker 17 You have invested heavily in recruiting and developing key and emerging leaders within your bank. We hear regularly from CEOs about the difficulty and cost of hiring or replacing positions such as lenders, compliance officers, BSA officers, private bankers, trust officers, wealth managers and financial executives in IT and treasury management. Your best people are being actively recruited by other organizations. Retention of these key employees is improved by having the right culture and by having the right compensation plans in place. While base salary and a bonus plan are a given, there are several other compensation strategies that should be considered. Equias Alliance and Johanson Group can help you find the right solution for your bank. A normal approach to Executive Compensation is one of a long-range strategy that seeks to recruit, reward, retain and retire key personnel. When working with executive management positions, we determine each base salary’s last five year average amount before retirement at 65 and then use 70% to 80% of these amounts as a basis for retirement planning. We take these projected figures and subtract out any existing retirement plan funds (at retirement) such as 401(k), social security, etc. and the remaining balance is the amount that to be used to create various types of retirement offerings to close the gap. The following items are common to supplement an executive’s basic retirement plan: ƒ Employee Stock Option Program (ESOP) ƒ Bank Stock Granting ƒ Stock Appreciation Rights or Performance Share Plan ƒ Phantom Stock ƒ Bank-Owned Life Insurance ƒ Variable Life Insurance ƒ Salary Continuation Plan (Pays a flat amount annually at retirement for “X” number of years) The recruit portion includes a competitive base salary, health insurance, car allowance, club membership, paid time off for vacations, basic life insurance and other common benefits which most all other employees enjoy. The reward component typically involves a formalized incentive compensation plan where three to five stretching goals or metrics are established and bonus dollars are paid one to two months after the performance period. The incentive compensation program that we prefer includes four payout levels; threshold, target, target plus and target maximum. The payout range of the CEO is roughly 30% to 50% of base salary, 25% to 40% of base salary for the CFO, COO and CLO, and 20% to 35% for the next layer of management. The retain and retire aspect typically includes a combination of the items above to close the gap between the 70% to 80% of final average pay and the current projected plan balances an executive would have through their 401(k) and social security. Many banks have implemented supplemental executive retirement plans (SERP) and/or Deferred Compensation Plans (DCP) to provide supplemental retirement benefits. Nonqualified plans, whether SERPs or bankfunded DCPs, typically provide for forfeiture of benefits if the executive leaves and competes with the bank. If properly structured and presented, the plan can also restrict the executive’s ability to compete for a specified period after separation from service. Forfeiture and/or non-compete provisions can be powerful tools in retaining your key officers over the long term and in enhancing growth and profitability. The goal of any institution is to keep the core team together and to supplement that team through hiring, training and recruiting. Nonqualified plans can and should be tailored to the person and the circumstances rather than using a cookie-cutter approach. Such plans are typically financed with bank-owned life insurance (BOLI), which can help offset and recover a portion or all of the expense. Even if the bank is not able to purchase enough BOLI to accomplish that objective, the incremental cost should be weighed against the lost revenue or cost that may result if one or more of the key team members leaves. Hear more from Trey & Bruce during the ABA Mega Conference Bank Execs track! by Trey Deupree, Equias Alliance & Bruce Johanson, The Johanson Group Equias Alliance offers securities through ProEquities, Inc., member FINRA & SIPC.Equias Alliance is independent of ProEquities,Inc. September 2017 | The Arkansas Banker 17