26 HќќѠіђџȱ юћјђџ ѝџіљȱ2014 Changes are taking place in the way community banks compensate their employees. Under traditional merit-based ¢ǰȱȱ ȱ¢Ȃȱ performance and longevity by increasing base salaries. Though management and employees may be comfortable with this approach, ȱȱ ȱDZȱ ȱĚȱ personnel costs, and it fails to appropriately reward employees for performance. Community banks can overcome both of these problems by adopting a compensation strategy based on incentive payments. Properly used, an incentive-based compensation program motivates employees to increase their earnings by adding to ȱȂȱĴȱǯ ȱ ȱȱ¡ȱĜȱȱ responsible for overall employee compensation. However, a change to incentive-based compensation functions best as part of a program to ȱȱȂȱęǯȱ ȱ ȱȱȱȱȂȱ overall philosophy and strategic plan may be involved, directors and the CEO should be in agreement on this issue. Ĝȱǯ Personnel costs have remained mostly stable during the past few years, ranging from 1.25 percent to 1.75 percent of assets. ȱȱȱ¡ǰȱȱęȱȱ the result of improved workforce productivity brought about by technology, mergers and acquisitions, ȱȱěǯȱ ȱ this in mind, a closer look at base salary and incentive compensation strategies is warranted. Base salaries. Banks compete with other employers for competent workers and therefore must set their base hiring salaries in line with the prevailing market. These salaries, Ěȱ¢ȱ¢ȱȱȱȱ goods and services in the market area, change constantly, and the bank needs an accurate source of ȱȱȱȱȱȱ¢ȱ scales appropriately. A review of salary surveys show that bank salaries have increased annually between 2 percent and Řǯśȱȱȱȱȱęȱ years. Surveys also indicate that ȱěȱ ȱȱ and maximum salaries for positions has declined from 40 percent to 60 percent previously to a current spread of only 30 percent to 40 percent. ȱ ȱȂȱ¢ǰȱȱ¡ǰȱ¢ȱ have ranged between $7 and $9 an ǰȱȱ ȱȱěȱ ȱ be more likely $9 to $10 hour. This means that experienced employees ȱȱĴȱȱȱ ȱǯȱ In addition, an annual raise of 2 percent to 3 percent will be almost meaningless to an employee, when starting salaries in the marketplace are going up at the same rate. The situation has encouraged many community banks to establish what is essentially a single rate for a given position based on experience and credentials, a system used more widely in government and education salary programs. Incentive compensation. Incentive programs address the need to reward employees for the quality of their work and for their contribution ȱę¢ǯȱ ȱȬȱ payments do not increase an ¢Ȃȱȱ¢ǰȱȱȱ the opportunity for an employee to ȱȱȱęȱȱȱ his or her total compensation. The strongest argument in favor of these programs is that those banks that have adopted successful incentive programs pay their employees more, ȱȱęȱȱ ȱȱȱ even faster pace. An incentive compensation program can take a number of forms, but to be successful it must ȱȱȱȱȱȂȱ strategic plan and to provide employees with meaningful levels of rewards. A bank may have several ȱȱȱěǰȱȱ ȱȱ¢ȱ¢ȱęȱȱ HUMAN RESOURCES яќѢѡȱѡѕђȱ Ѣѡѕќџ Jon A. Doukas is senior vice president at Professional Bank Services Inc., ǰȱ ¢ǯȱ ȱȱȱȱ¢ȱȱŗşŞŜǰȱȱȱȱ- ȱȱȱȱ ȱȱȱȱȱȱȱȱĜȱȱ training for a regional bank. He is a graduate of Boston College and the University of Southern Maine. The author can be reached at 800-523-4778, DZȱȓǯǯȱ ȱ ȱ ȱ ǯȱȱȱ- ate member of the Indiana Bankers Association. Compensation Strategies for Community Banks
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