5 Steps Financial Institutions Must Take in Response to $15/Hour Wages

By James Truhlar

5 Steps Financial Institutions Must Take in Response to $15/Hour Wages

Don’t get left behind in the war for talent as banks increase pay, bonuses, and benefits.

Since the announcement of the reduction of the U.S. corporate tax from 35% to 21%, 64 banks nationwide have raised their minimum salaries to $15 per hour and/or given up to $1500 bonuses. The participation has increased by 50% since January 1.

Some banks have increased their 401K matching, while others have made significant donations to non-profit work in their communities. This trend impacts the market at large at companies that banks may compete against for talent. For example:

  • Target announced it will raise salaries to $15 per hour by the year 2020.
  • Apple announced it will reinvest $350 billion in the U.S. and add an additional 20,000 jobs during the next five years.
  • Disney announced $1,000 bonuses for 125,000 employees and a $50 million investment in new employee education programs.

Corporations with freed up capital are investing in the war for talent and in their communities, all of which has caused concern for community banks and credit unions wrestling with their compensation strategies. Should they follow suit and raise pay to $15 an hour, or stick with a plan they know and trust?

To answer that, they must first have their comp plan in fighting shape.

Know the market rate

This requires examining external data and internal equity by a professional who is not bound to internal politics and long-term relationships between incumbents. You may need to authorize a midpoint that is 10% above the market as a competitive advantage.

Establish a compensation philosophy and salary administration guidelines

Audit against those standards for consistency. If the next administration reduces the tax advantage, you wouldn’t need a knee-jerk reaction to adjust.

Establish competitive midpoints

We strongly recommend new employees with little or no experience receive a starting pay around 85% of the midpoint for most jobs, and 90% of the midpoint for “hot jobs,” like IT and commercial lending.

Develop a salary increase plan

This process ensures that pay levels arrive at the midpoint in a reasonable period of time. Non-exempt employees with three years of experience in their position would be paid at 100% of the midpoint. Exempt employees with five years of experience in their job would arrive at the midpoint in five years. (This is where most salary adminstration programs collapse.)

Pay for performance

The average salary increase differential by performance is 2.0%. If the difference between a high performer and an average performer is only 1.0%, then you are not differentiating the salary increase significantly enough to “pay for adminstration.”

Of those clients who have contacted us about an appropriate response to the market, when I reviewed their pay levels I saw they were inconsistently applying their own salary administration guidelines. This should have been addressed before or regardless of the tax cut. If your institution’s competitive advantage is its people, then the war for talent is quickly growing more heated.

Before you can compete in this market, you must:

  • Have a compensation plan.
  • Get out of the guessing game.
  • Live up to your plan consistently.
  • Re-evaluate your plan regularly.

How does your firm compare to institutions in your market? Download our 2018 Salary & Incentive Survey for Banks and Credit Unions.

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