Industry-rattling news continues to break this week as we hear of more financial institutions across the country taking advantage of their pending tax savings.
In response, Wells Fargo and Fifth Third Bank announced they would increase minimum hourly pay rates to $15. Additionally, Fifth Third will offer one-time bonuses of $1000 to its employees. These two aren’t alone. More than 40 banks have made similar announcements for wage hikes and/or bonuses.
It has, of course, put HR managers at banks, and credit unions alike, on high alert! Should they follow suit? If so, for all positions or just those that are highly recruitable?
Our advice to our clients, and those we aren’t yet working with: WAIT.
We strongly caution against a knee-jerk reaction. In time, if a (unexpected) mass exodus by your front-line employees does occur, then we can reassess. In that instance, we may consider a more aggressive compensation strategy that increases midpoints to the 55th or 60th percentile.
The FLSA Emergency That Wasn’t
Let’s not forget what happened last year when news of the “anticipated” FLSA mandate came down, the law that would have required a $47,476 minimum salary. Employers across industries, including financial institutions, jumped ahead of the deadline to implement costly raises. Ultimately, FLSA never became law, and it was never the emergency everyone envisioned. Rescinding that money would have caused big employee morale issues.
Remember, the larger banks implementing these new hourly wages don’t have unlimited job openings. These $15/hour raises are extended to current employees; no one said anything about a wage hike + numerous job openings. There’s definitely room to take a beat here.
Don’t sweat the bonuses, either. These are one-time bonuses ranging from $500 to $1500 that no one can count on annually. This is not enough to turn the head of a boomerang employee.
How you SHOULD handle this news
Now, we said wait, but that doesn’t mean kick back and do nothing. This is a good time to take stock and get your proverbial salary administration house in order. You’ll be better prepared to respond to this type of situation in the future.
Your firm has to live up to its own salary administration goals and competitive market pay standards before you can even think about “competing” head-to-head, as an impulsive reaction, with the biggest firms in the business.
Start by setting starting pay at 85% of the midpoint for your green-eared hires new to the industry. This will help avoid those people just taking the job until something better comes along, and it establishes a sustainable, competitive tract for performance-based increases for new employees. Then you should move these individuals based on a 5% increase annually during the next 2-3 years. This ensures the pay level reaches the midpoint during that time period or you can be sure to have a higher than necessary turnover rate.
Honestly, you cannot begin to respond to this wage hike unless you can guarantee that your current pay grades are at 85% of the midpoint, and that your performance reviews are accurately graded. If you’re still playing a guessing game on what salary ranges should be for any given job, throwing arrows at a compensation board, it is not to your benefit to test hot, trending waters.
After following these steps with discipline, wait to see the impact of the higher salaries at regional and national banks. Perhaps you may want to raise the midpoints by 5% or 10% for your non-exempt positions if recruiting certain positions becomes difficult. If you do add a premium to the midpoints, you will want to further adjust employees with less than one year of experience to set pay levels that are 85% of the new midpoint and those with three years in their roles to be close to the midpoint.
You also need to examine for internal equity issues where the employees in grades slightly higher than these entry level positions have salary levels higher than those you just raised. If you raise the operational expense at your company based on this administration's policy advantages and the next administration marginalizes those advantages, how will that impact your bottom line. Lowering those salaries will not be a likely option.
We’ll keep a close eye on this, and continue to update on our best advice should we see a significant shift. Until then, if you need help updating your salary ranges so you can be sure of how your pay levels compete in your market, give us a call.
How does your firm compare to institutions in your market? Download our 2018 Salary & Incentive Survey for Banks and Credit Unions.