New England’s bankers are big on camaraderie and handshake deals. But when it comes to recruiting commercial lenders, some are starting to fight dirty.
Arthur Warren, of Walpole-based bank consultancy Arthur Warren Assoc., consults with approximately 100 banks – mostly mutual institutions – on their compensation structures. Recently, he said he’s seen more banks in the field include special “conversion” bonuses for lending officers newly recruited from other banks. For every borrower these new officers coax away from their former banks, they get a bonus.
“That’s very aggressive,” Warren said. “That’s something that’s generally not seen in the New England market.”
Those kinds of creative compensation incentives are just one part of the increasingly heated competition for the best commercial lenders. A recent survey from Maine-based Executive Search Group (ESG) found lender compensation on the rise almost across the board – indicative of the measures taken to recruit and retain top talent.
Market Normalization
After a rough 2009, compensation went up last year, the survey concluded. In 2010 a total of 84 percent of respondents saw their pay go up – compared to just 60 percent who got raises in 2009.
According to the survey, in 2010, a lender with 25 or more years’ experience earned total compensation of $178,000. In 2009, that number was $160,000. For lenders with five to 10 years, total compensation was $127,000 in 2010; it was $118,000 in 2009.
“It represents a normalization in the market; 2009 was an exceptionally bad year,” said Carll Wilkinson, managing director for ESG. As the economic outlook improved in 2010, more bankers responded by turning to commercial lending to grow their institutions. In doing so, they entered an already crowded market vying to get a piece of a dwindling talent pool.
Wilkinson also noted a graying population of loan professionals, coinciding with cuts to banks’ in-house training programs. According to the survey, while the amount of lenders with 25-plus years’ experience remained flat, the number with 10 years or less decreased by 31 percent.
“There is no viable feeder system to bring young banking talent into the market,” Wilkinson said. “This is a systemic problem within commercial banking.”
But while ESG’s survey indicates a warm-up in compensation, Warren says he’s seen a far tougher fight. Most of that, he said, is because of current market conditions.
“I’ve been to probably 30 board meetings, and most of my community banks are learning to manage what I call ‘sideways,’ … so where do you grow?” he asked. “You go and steal your customers [from other banks].”
Standing Out
John Merrill, president and chief lending officer at Leominster-based Fidelity Co-Operative Bank, said commercial lending is widely seen as the best way for banks to grow their loan portfolio. More banks are entering the field, and because they lack extensive track records and infrastructure to help them stand out from competitors, they instead rely on high compensation packages.
But they don’t lure away good lenders easily.
“The more established commercial banks, whether they’re large or small, will want to retain these folks,” Merrill said.
Warren cited a number of creative incentives currently in vogue. They include a front-end hiring bonus, or retention bonuses in which the bank puts money aside in an investment vehicle, and awards lenders if and when they stick around long enough to get it.
Some of the talent fights can get tense, he said. Regarding the occasional banks that give bonuses for poaching borrowers, some institutions have started to ask lenders to sign non-compete contracts barring them from working in a certain region or with certain entities for a set amount of time after they terminate their employment.
Fidelity Bank is one of those banks on the hunt, Merrill said.
“We’re aggressively and actively expanding our commercial banking capabilities, so we’re out there competing for more talent just like everybody else is right now,” he said.
