Pub. 7 2017-2018 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S November • December 2017 17 that is reviewed annually and is adjusted as necessary to support business strategy changes. Strategic Salary Planning Banks that are strategic with com- pensation will frequently have a clearly defined salary grade structure, accurate and up-to-date job descriptions, utilize external market data for position bench- marking, and a salary increase matrix for annual salary adjustments. The sal- ary structure will have enough grades to encompass all levels of positions, and will often be used as a motivational tool to show top performers how they can progress within their current range, and where promotions couldplace themin the future for career growthanddevelopment. The salary structure should be tested against both internal and external bench- marking to ensure it’s competitive. The entire structure should also be reviewed annually and adjusted for cost of labor and market trend increases. Ultimately, salary structures do not have to be overly complex to be effective. Additionally, the annual salary in- crease process should be strategic, based on the performance of the individual, in- ternal equitywithothers in the sameposi- tion, his or her current positioning in their salary grade, and fit within the overall budget of the organization. Many banks utilize a salary increase matrix to assist managers in determining annual raises. The matrix generally focuses on provid- ing the largest increases to employees who are exceeding job expectations and are positioned low in their salary grade. Employeeswhoare simplymeetingexpec- tations and are high in their salary grade will often have very minimal increases, and employees who are not performing will generally receive no increase. Those above the maximum of their salary grade typically receive their increase in the form of a one-time lump sum payment. These matrices help managers be strategic with their salary increase budgets and put the dollars in the right place. The days of giving everyone the samepercent of salary raise are gone. Performance-Based Incentives Once you have the salary compo- nent figured out, the next step is in- centive-based pay. This can take the form of annual cash incentives and/or equity-based incentives. What type/s of incentive a bank utilizes will often vary depending on the company structure (public, private, etc.). Incentivesmay also vary depending on level of position. As an example, executives may be eligible for a cash and equity incentive plan, but staff may only be eligible for cash incentives. The key to using strategic compensation is to make sure your incentive plans are basedonperformance andare sufficiently motivating and rewarding key positions. The strategic goals of the organization should be incorporated into the incen- tive-based compensation plans. The concept is to clearly state what you want your employees to do and encourage and reward these behaviors through your in- centive compensation programs. Getting everyone aligned and on the same page as to what the goals are is important for success. This takes time, communication, regular check-ins on performance, and “buy in” from the entire organization. In today’s banking world, there is a lot of talk about incentive plans being “risky” and maybe even “evil” (example: WellsFargo retail incentives). We strongly disagree with this sentiment. Banks are still in the business of beingprofitable and incentive plans have their place to help drive behaviors and rewardperformance. The key is to have a balanced approach between profitability goals, quality goals, and strategic goals. Some of the incentive plan “horror stories” actually prove that incentive plans work. They do drive be- Kristen Kostner is a Senior Compensation Consultant at Blanchard Consulting Group and focuses on regional and commu- nity banks in the Mountain States Region. Kristen can be reached directly at 314-394-3374 or at kristen@blanchardc.com . Matt Brei is the President of Blanchard Consulting Group (www. blanchardc.com) . He works exclu- sively with regional and community banks providing independent com- pensation consulting services, and can be reached at 952-496-2221 or matt@blanchardc.com. The key is to have a balanced approach between profitability goals, quality goals, and strategic goals. Some of the incentive plan “horror stories” actually prove that incentive plans work. haviors and you simply need to be smart about what performance behaviors you are encouraging. From our experience, the most suc- cessful banks (not unlike other industries) are those who are able to appropriately balance their profitabilityneedswithgood culture, good communication, and strate- gic compensation programs. Banks need to be financially successful to truly help the communities they serve. Ensuring that your compensation programs are strategically supporting the overall goals of your organization and are linked to the performance you need is essential. Make sure you are getting your “bang for the buck” with your compensation dollars being spent.  Blanchard Consulting Group has been providing compensation consulting services exclusively to community and regional banks for the last seven years, and we can confidently say that one of the first things we talk about withmost new clients is the strategic use of compensation. More information on our services can be found at www.blanchardc.com.