Look Closely at Compensation Plans or Risk Losing Talent, Consultants Say; Deregulation Makes It Harder to Retain People, Memphis Session Told

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MEMPHIS -- Banks and thrifts must reevaluate, and perhaps overhaul, their compensation plans to attract and retain the top-notch executives they need in today's highly competitive industry, attorneys and financial planners said at a recent seminar on executive compensation and employee benefits.

The seminar was sponsored by Borod & Huggins, a law firm based in Memphis and Washington, D.C., which specializes in representing financial institutions.

The "additional complexity in the financial industry" brought on by deregulation "brings about additional responsibilities," said Stanley M. Huggins, a partner in Borod & Huggins. "A higher caliber of people will be needed, and those people will be looking at what an institution can provide them in the way of security and benefits."

Salary increases alone won't work in today's competititve atmosphere, where qualified executives are constantly wooed from one institution to another, Mr. Huggins said. "Getting into a bidding contest on cash compensation means you're either going to lose or you're going to have to double the executive's salary."

Acquisition and takeovers in the banking industry are making top executives seek more security, "and there are ways to address that in compensation plans," Mr. Huggins said.

The greater competition also is making banks more cost-conscious, he added. "You want a compensation program that gives you the biggest bang for the buck." More Demanding Employees

But deregulation and the greater competition it has caused is not the only reason to review employee benefit plans, Mr. Huggins said. Employees themselves are becoming more sophisticated and demanding.

"Today's employee is demanding some feeling of ownership and being part of a business," he said. "Fewer people today are satisfied with being hired as tellers and staying tellers for 40 years."

Labor unions are aware of these changes in bank employees, Mr. Huggins said. "Smokestack America is gone. Labor unions are setting their sights on banks. This is a reality you have to consider, and it should encourage you to look at not only executives' benefits, but all workers' [benefits]."

Most banks will find after evaulating their current executive compensation packages that they are expensive to maintain and still not as good as they appear on paper, said George E. Geerdes, vice president and director of the employee benefits division of Banking Consultants of America, a consulting firm based in Memphis.

"If you don't don something significant in the way of benefits for executives," Mr. Geerdes said, "you're going to find they tend to be like everyone else, spending what money they make and saving little. Having a bank's retire executives working nights as ticket-takers at a local movie theater to make ends meet is not going to enhance a bank's financial image in the community."

More banks, large and small, are turning to supplemental benefit plans for executives, Mr. Geerdes said. Supplemental plans are not qualified as tax-exempt under Internal Revenue Service guidelines and therefore are not subject to IRS control. This gives the financial institution much more flexibility in using them, he said.

These nonqualified plans bring executives' retirement income up to more realistic levels, Mr. Geerdes said. In most cases, qualified plans like pension programs, profit-sharing, and employee stock ownership plans alone won't do that.

"Banks' nonexecutive employees typically receive 75% of their final average pay upon retirement. Executives ought to be at that level, too," Mr. Geerdes said.

"You'll still want to use qualified plans to a certain extent, but all the money doesn't have to go there," he said. …