An important area of focus for bank boards of directors is that of compensation strategies for attracting, retaining, and motivating millennials, in particular, writes Ken Derks for BankDirector.com. Millennials are “the bank leaders of the future,” he explains, and boards should put into place both short- and long-term strategies in this area. Derks offers the following advice:
Effective compensation plans and performance management programs can help attract, retain, and motivate millennials. With a longer time horizon to retirement, millennials are more focused upon immediate financial planning decisions, such as retiring student debt, purchasing a home, and saving for their children’s education. This group also bears a strong impact from the recession, which is another reason they are more focused on shorter term financial needs. Derks recommends that their priority might lie in being rewarded for performance over a highly-competitive base salary.
Nonqualified benefit plans including deferred compensation plans can be an effective tool for attracting and retaining most key bank performers. This is due to their design flexibility. Derks recommends that boards consider plans that allow for in-service distributions timed to coincide with important life events, such as a child entering college. These plans can be used in lieu of stock plans.
Plans with provisions linking plan benefits to the long-term success of the bank can help increase bank performance and shareholder value. Bank contributions to the employee’s account, in the form of either a specific dollar amount or percentage of salary, that are dependent upon meeting certain budget goals or other performance metrics are good motivators. Boards can also consider including a provision for forfeiture of a portion of the balance if a key employee goes to a competitor.
Many banks have implemented defined benefit type supplemental retirement plans. These plans are a good way to retain and reward key executives, and can be structured as performance-based plans.
For greater detail, read the article in full at BankDirector.com.