SUSAN O’DONNELL
Bankers ‘demanding more’

Top bank executives no longer simply command top dollar.

In a fiercely competitive industry, bank consultants say the way to retain top executives at banks is through a compensation plan that focuses on long-term care and disability insurance.

“Long-term care is going to be an emerging benefit just given the aging demographics of the baby boomer generation, and those are a majority of the top executives at banks,” said Susan O’Donnell, senior vice president of the Banking Practice at Clark/Bardes Consulting in Duxbury.

The vast majority of high-ranking bank executives today come from the baby boomer population and, O’Donnell said, “in terms of benefits, the older population is going to look at long-term care as an important benefit.”

Competitive salaries and year-end bonuses are reflective of days gone by. Now, employees at banks are demanding more security for their future through better health benefits, according to some industry watchers.

While banks have always provided employee benefits that include health and medical insurance, industry analysts see the trend of health care concerns among banking professionals as a reflection of a down economy and an aging population in some bank’s top executives.

“From an executive’s perspective, [long-term care] is going to be an important decision because [older employees] are entering that stage of their lives … It’s not only a demographic pattern, but it’s going to be on the minds of employees, so banks will want to provide a benefit plan that is competitive and incentive-based,” said O’Donnell. “Banks should be proactive about this.”

O’Donnell said that given the demographic shifts toward an aging population, along with the need to attract and retain top talent, long-term care and disability issues are going to be a key issue for her bank clients.

“One of the biggest things happening is that people who are in the decision-making seat currently in banks have been subject to [providing] care for ailing parents or grandparents, and they are forced to deal with the cost of nursing homes and long-term care,” said Charles Lanigan, a specialist in supplemental employee benefits and vice president of Clark/Bardes Consulting firm’s banking practice in East Longmeadow. “All it takes is one personal experience, and those executives realize they have to plan for their own life down the road.”

While benefits experts note that the trend toward offering long-term health care benefits is most prevalent where senior bank employees are concerned, more banks are beginning to offer long-term programs to all employees, albeit at a cost.

In the Human Resources and Benefits Department at Rhode Island-based Citizens Bank, long-term care is being added as a voluntary benefit offered to all employees, said Wallace R. Demary Jr., senior vice president and director of benefits at the bank.

Because the cost of nursing homes and health care has risen dramatically, Demary said adding long-term care to an employee’s list of available benefits is a necessity for any bank.

“An employee has the voluntary right to purchase this plan and banks use this to show they can offer a competitive benefits program,” said Demary. “The population is getting older and with the rising cost in health care in general, it can be difficult to maintain [the costs]. If you’re very rich, it’s probably not a concern, but if you’re [at the] middle income [level] it could take all of your assets.”

Lanigan said Clark/Bardes will present more compensation plan alternatives to banks because “there is a growing awareness of the needs of long-term care, as bank executives begin to see their parents, and oftentimes their parents’ parents, struggling with health care, nursing homes and medical bills.”

‘Health-Conscious’ Crowd

According to Lanigan, the banking industry is acutely dependent upon senior executives, and banks need to offer better compensation packages to retain those employees.

Lanigan said the perfect compensation plan should take into consideration both the bank’s long-term goals as well as the achievement of the top performer’s goals, and that can be offered through long-term care and disability insurance incentives.

Analysts and bank officials say the lagging economy has not diminished steep competition among banks for top employees. For more budget-conscious banks, however, health benefits may provide a way to remain competitive in the compensation area without offering ever-increasing cash bonuses. Ultimately, he said, such plans may prove necessary to keep top bank executives not only at a particular bank, but in the banking field.

“Banks are more immune to swings in the economy and provide more white-collar jobs maintained by people who are very health conscious,” said Lanigan.

“It’s worrisome because everyone is laying and waiting until the economy turns around. There is a shortage of talent in the [United States], and there is not the population coming through the funnel as there were in previous years. This down economy is temperamental and high performers always have alternatives [at other banks and in other professions],” said O’Donnell

With stock options dwindling and pension plans looking thin, O’Donnell said top executives are demanding more in terms of compensation, and banks cannot afford to be stingy.

“Banks are not suffering in the economy like everyone else … They have higher deposit rates and they offer more lending services. Overall, banks are doing well, but the stock options are not as attractive anymore,” said O’Donnell. “Top executives are therefore demanding more … [and long-term] benefits are the key drivers.”

O’Donnell said instead that banks are looking more at supplemental plans that fill in the compensation gaps, such as long-term care options and disability insurance.

According to Lanigan, disability insurance also presents a similar situation to that of long-term health care in that “people are largely ignorant as to what their protection is.”

“Banks of all sizes encounter an employee whose disability isn’t a sudden event and that can cause a gradual decline in work productivity, and the bank has to manage those types of situations,” said Lanigan, referring to long-term diseases including cancer and multiple sclerosis. “The top performers will be wanted back to work but sometimes may not be able to function back at the same job with the same responsibilities. There are disability plans that can be structured to support those people coming back to the bank.”

While a cash bonus might please an employee, long-term health programs may bring benefits to employees and employers alike, helping return a valued employee to productivity, Lanigan said.

Hal Sizer, general sales manager at MassMutual’s disability income division, said that smaller and mid-sized banks devote more attention to these benefits than do their larger counterparts. According to Sizer, banks of moderate size are somewhat unique as employers because employees, on average, stay longer with the bank. Sizer said banks need to be very careful with how they invest corporate dollars and aim for “the most bang for their buck.”

“Often in smaller or medium-sized banks, there is more of an assumption of lifetime employment and because of that banks are giving some perks to those who have stayed longer in terms of benefits, including disability income,” said Sizer. “Banks believe it’s an important thing and by enhancing a benefit program, you can make it more difficult for the competition to steal an employer.”

According to Sizer, the demand for greater health insurance benefits is coming from top executives at banks in the urban areas of Massachusetts and Connecticut.

“We are seeing [the demand] a great deal in Boston, and to a lesser extent in rural areas,” said Sizer. “Generally, top executives’ needs are different and a general group policy will only cover the mass employees.”

Lanigan said the banking industry is dependent on its top executives for decision-making abilities and need to retain those executives with better health care coverage.

“It is an industry with a rising intellectual capital and fierce competition,” said Lanigan. “Bank’s need to provide their top performers with a compensation package that takes into consideration the employee’s performance. The top performers at the bank should be retained for their ability and offered a compensation package with long-term care and disability plans.”

According to Lanigan, it has become increasingly important for banks to devise “the perfect compensation plan” in order to attract and retain top performers because the challenge of an competitive compensation package is “equal to any challenge a bank may face.”

“This is a means for a bank to really solidify their relations with top executives,” said Lanigan. “Top performers have long-term relationships with the bank and the bank will make those arrangements with the top executives.”

While long-term care is an likely to become a more pressing and even daunting issue as the baby boomers – and by extension top bank executives – age, there is a positive side for banks, O’Donnell said. Those employees are most likely to succeed in cornering market share among their peers, a large and affluent segment of the population.

“From a marketing perspective, the power and the wealth lies within this [baby boomer] population segment,” said O’Donnell. “Who wants to cater to the baby boomers and those over 50 years old? The banks do, because all the wealth is in that segment of the population.”

O’Donnell said she is advising her bank clients to identify, reward and aim to retain top executives with health care incentives.

“Banks cannot afford to lose their top performers,” said O’Donnell. “The costs of replacing these people are huge and the cost to replace employees goes up the higher up you are in an organization.”

Melanie Nayer may be reached at mnayer@thewarrengroup.com.