The Pitfalls of Poor Compensation Strategy

By Rachel Prine

The Pitfalls of Poor Compensation Strategy

A good compensation strategy is essential to any financial institution. More than a “nice to have” or “best practice,” a solid compensation strategy ensures that your bank or credit union pays for performance and demonstrates equitable pay values from top to bottom. If you are reading this, I am confident that you agree with this, and in most cases, your organization is practicing a sound compensation strategy. 

But what if you are unsure? What if you don’t know if you are practicing a suitable compensation strategy? What would happen if you didn’t have a solid compensation strategy for your organization? That is what this blog will address—the pitfalls of poor compensation strategy and the outcomes of those poor decisions. I will go through some of the probable consequences of a company that lacks a solid compensation strategy. If you are experiencing any of the following pain points in your workforce, an anemic compensation plan may be the culprit. 

You Are Open to Litigation

The chief reason for demonstrating equitable pay distribution across the board is simple: to avoid being accused of mistreatment or discrimination. You might think this cannot happen to you, but you would be surprised. 

As late as March of 2021, First Metropolitan Financial Services, a consumer loan and finance company in the southern U.S., paid a female branch manager less than males in the same position. The case was brought to the federal level, and the employer was found to have breached “Title VII of the Civil Rights Act of 1964, (Title VII) which prohibits pay discrimination on the basis of sex,” according to the Equal Employment Opportunity Commission (EEOC). 

There are numerous other cases of companies across all major sectors of private industry who thought they had a fair compensation strategy in place until contested in court. Not all companies sued for discrimination are liable, but the threat of being accused by an employee should be taken seriously.

Top talent may soon be looking elsewhere for opportunities if they do not feel like they are being adequately rewarded

We Have the Best Benefits (In Lieu of Competitive Pay)

An often-touted claim by many banks and credit unions is, “but our benefits package is so good” when confronted with lagging pay for critical positions. A benefits package of benefits, including health insurance, generous paid time off, and corporate bonuses, are great perks for retaining talent. “Sixty percent of employees rated benefits as a very important contributor to job satisfaction,” according to a recent SHRM report. Good benefits are significant to your employees, but solid base pay is even more critical.

“Top talent may soon be looking elsewhere for opportunities if they do not feel like they are being adequately rewarded,” noted Christina Lee, SHRM’s researcher for total rewards strategies and project leader of the report.” All companies are amid “The Great Realignment,” wherein millions of workers have looked for work opportunities with a better pay structure. You don’t want to be an organization known for not endorsing competitive pay. 

One-Dimensional Pay

Another way that financial institutions can cut themselves short is by focusing too much on base pay. Critical job roles at banks and credit unions are almost always occupied by highly-educated, seasoned professionals, meaning they are likely in “high demand.” Like Commercial Loan Officers, candidates in high demand in the financial industry may be spirited away from competitors without the addition of “variable pay.” 

It is our experience at BalancedComp that more than being competitive on base pay is needed, particularly for quality talent. You need to assess your variable pay model to ensure that you can attract and retain top talent for your company. One way to achieve a healthy variable pay strategy is by setting corporate or department goals in advance. Individuals who perform above expectations can earn a pre-set financial reward that reflects their efforts. 

Compensation Matters

More than ever before, compensation matters to all of your employees, regardless of title or time in position. “Employers continued hiking wages to attract workers and hold on to existing staff during the third quarter. But the raises did not keep up with inflation,” according to CNN. Everyone is feeling the pinch of record-high inflation right now. We all benefit from a sense of financial relief that comes with competitive pay and safety in the knowledge that we are all being compensated objectively, not based on personal relationships or a force of personality.

More than ever before, compensation matters to all of your employees, regardless of title or time in position

We advise our clients to internally review their compensation models annually to ensure that their compensation philosophy and strategy are in keeping with their markets at a geographic/regional level. Schedule a demo now if you are interested in learning more about how BalancedComp works with our clients to deliver expert compensation data management.

Additionally, if you are looking for competitive salary data, check out our BalancedComp 2022-2023 Salary & Incentive Salary. I hope that you have found this information helpful and that you can build a better compensation model for your institution starting now. 

Back to Blog