Compensation for bank employees is increasing at a slightly faster pace than the annual inflation rate, but some areas of specialty are more in demand and command higher pay.

Experienced commercial loan officers can “pretty much demand what they want” in today’s banking world, Connecticut Bankers Association Senior Vice President Lindsey Pinkham told Banker & Tradesman, but two recent salary surveys show compensation for most other bank employees rising at more modest rates.

Auditors are also “very hot” right now, according to Cambridge Savings Bank Senior Vice President for Human Resources Marie Lodi.

“We want to make sure we are paying a competitive salary so they don’t go someplace else,” she said.

Often, auditing jobs are combined with those of internal compliance officers, who are also in demand these days as banks try to keep up with regulatory requirements of the Bank Secrecy Act and USA PATRIOT Act, noted Reading Cooperative Bank President Juliann Thurlow.

Banks rely on salary surveys to make and validate decisions about compensation.

Many local bankers cite reports by Illinois-based Clark Consulting, which has a Massachusetts office in Southborough, as invaluable to their efforts. Clark compiles state-specific surveys commissioned annually by the Massachusetts Bankers Association and Connecticut Bankers Association, among others, on behalf of their members.

The Clark surveys garner more local respondents (41 banks and credit unions from Connecticut this year and 108 from Massachusetts) than America’s Community Bankers’ Compensation and Benefits Survey, a nationwide survey of community banks conducted annually by the trade group, which had seven Connecticut and 13 Massachusetts respondents in 2006.

But banks like both, for different reasons.

“We just wanted to get more of a general basis on what all institutions are doing,” Celeste Nimblett, assistant vice president for human resources at Reading Cooperative, said of the ACB survey.

She noted that ACB participants tend to be larger financial institutions than those that complete the Clark Survey, and said many that complete ACB are based outside of New England.

In fact, $300 million was the median asset size of banks that participated in the ACB survey, while survey Publisher Debra Cope noted the median U.S. bank has assets of $120 million.

Lodi said salary.com and CareerJournal.com, part of the Wall Street Journal, are among the other sources Cambridge Savings Bank uses to help make compensation-related decisions.

“There is lots of data,” she said, adding that the Clark survey’s value, in part, is in the number of local responses included.

The Clark and ACB reports for 2006 were released last month. They identify trends in salary dollar amounts, ways of compensating employees, bank board of directors’ salaries and non-salary costs such as health care.

“I don’t think there are surprises,” said Lodi.

Salaries in southern New England are, on average, at least “competitive” with the rest of the country, if not higher, according to John Carusone, president of the Hartford, Conn.-based Bank Analysis Center, as well as data from one national survey.

The cost of living is a key determinant of compensation, as is bank asset size. Health insurance also is a major factor in bank compensation programs nationwide, with costs rising rapidly – an average increase of 11.9 percent was reported for last year, according to the ACB survey.

Banks continue to pay about 80 percent of employees’ premiums. Many are exploring higher-deductible plans or increasing the percent they ask employees to pay, but Cambridge Savings is not among them, Lodi said.

“We know that our employees value medical insurance above all other benefits. So we are very generous,” she noted. “I think that most companies are looking at [ways to cut health benefit options] very seriously. We wouldn’t.”

Reading Cooperative, a $239 million mutual bank, also struggles with health insurance costs.

“Our health insurance expenses went up 12.5 percent,” Thurlow said. Those rising costs drive down what might otherwise be larger raises for employees each year, she said.

The costs of defined benefit programs – or pensions – are the subject of intense “scrutiny” in the industry these days, Thurlow added. The banking industry is one of the few professions that still routinely provide pensions these days, and they are still considered a key means of retaining top banking professionals even as other industries veer toward 401(k) plans and other alternatives to defined benefit programs.

About 40 percent of U.S banks still have pension plans, according to Cope. She called that number “surprisingly large.”

Mutual banks are more likely than stock banks to offer pension plans, ACB found.

Similar Conclusions
Bonus or profit-sharing pay, as opposed to base pay, was reported as being on the rise in importance as a method of compensation, although actual dollar amounts distributed in bonuses has not increased dramatically.

Board of directors’ average annual pay remained constant from last year, at around $17,700. But Thurlow predicted those salaries would go up due in large part to implementation of the 2002 Sarbanes-Oxley Act, which puts more responsibility in the hands of board members of stock-controlled companies (Reading Cooperative is not stock-owned, but Thurlow said her bank and others try to adhere to “best practices” for good governance that such laws mandate).

Susan O’Donnell – managing director of Clark Consulting in Southborough, which prepared the Massachusetts and Connecticut reports – said both surveys came to similar conclusions about trends in New England bank salaries.

For example, the Massachusetts and Connecticut Clark reports and the ACB nationwide survey all find that salaries for bank jobs overall have been increasing at a rate of about 4 percent annually – slightly higher than the current rate of inflation – and likely will continue to do so for the foreseeable future.

“Salaries are going to increase at a very, very modest rate. [Banks may] put more of the pay in incentive pay,” O’Donnell said, noting that she’s seen a two-decade trend in banks’ “desire to hold down fixed costs.”

Incentive-based compensation packages, in which employees are paid according to the bank’s performance, should pay for themselves “if they’re designed well,” she added.

Pinkham said the newest Clark survey shows that one-third of Connecticut’s banks are forming long-term incentive pay programs, a trend he called “interesting” and said shows that banks are looking harder at “ways to retain good people.”

Bank and industry officials agreed.

“We have incentives for all non-senior management personnel,” said Patricia Archambault of Cape Cod Cooperative Bank. “We incent them to promote products.” The bank is researching incentive options for senior management, she added.

At Cambridge Savings Bank, there are short- and long-term incentives, according to Lodi.

“Long term is a three-year horizon. It’s generally in the form of stock options,” she said. “You want to retain your senior staff – so if you hit certain forecasted goals you will receive stock options. It’s a long-term horizon to keep people motivated.”

Bank executive salaries also tend to be higher in New England than the rest of the nation. The ACB survey puts the average base salary for CEOs nationwide at $202,500 and $233,100 in New England. Clark Consulting said CEOs earn an average of $276,000 in Massachusetts and $286,000 in the Northeast as a whole.

Bonus and incentive pay adds a significant portion to total compensation awarded to both CEOs and bank employees at all levels, the Clark report noted. The larger the bank’s pool of assets, the bigger the award.

For example, at a bank with $350 million or less in assets, incentive pay amounted to 13 percent of a CEO’s base salary. For those with more than $1 billion in assets, it jumped to 45 percent.

Even for “non-officer, non-exempt” entry-level positions, incentive pay as a percent of base salary awarded to employees doubled, from 4 percent to 8 percent, from the smallest to largest banks.

Pinkham noted that he thinks average CEO salary figures reported for the banking industry, or a region, aren’t as meaningful as those reported by bank asset size.

“You need to analyze by peer group,” he said – for example, comparing all banks that are five years old and have $150 million in assets.

Farmington (Conn.) Savings Bank Vice President of Human Resources Lee Nordstrom noted that the type of charter a bank has also influences salary, especially at the senior level.

“You’ll see big differentials between a stock and a mutual company,” he said. “We [at Farmington Savings] are not publicly traded, so Â… we have no stock options or other influences on pay,” especially at the CEO level.

As a result, “We are not going to have as much of a fluctuation in overall compensation to the CEO,” he added.

None of the salary surveys differentiated between men’s and women’s salaries at banks, and industry and bank officials interviewed said they were not aware of any such studies.

Nimblett, who noted that she works for a bank with a woman president and many female employees, said she thinks the margin of salary difference between men and women has “shrunk considerably” in recent years.

Bank analyst Kevin Timmons of Albany, N.Y.-based CL King & Assoc. said executive salary increases will probably slow in the coming years due to increased competition from other financial service providers.

“Banks are facing a difficult operating environment,” he explained. “The economy is not growing enough to support the growth objectives of every bank, and the banks aren’t just competing against themselves but against Â… anyone who provides any kind of financial service.”

Mutual fund companies, mortgage firms, stock brokerages and other financial services companies often face less of a regulatory burden than their bank counterparts, Timmons said. Increasing Internet competition also is contributing to the tougher environment.

Among the average base salaries for major banking positions in New England identified by the ACB survey: Chief Operating Officer, $134,500 (compared to $132,800 nationwide); Chief Financial Officer, $129,400 (compared to $117,700); Corporate Secretary, $48,800 (compared to $63,200); Chief Lending Officer, $129,800 (compared to $118,500); Chief Information Systems Officer, $94,700 (compared to $92,700); Chief Internal Auditor, $76,800 (compared to $73,000); Senior Mortgage Loan Officer, $75,800 (compared to $45,900); Commissioned Mortgage Loan Officer, $35,100 (compared to $33,600); Salaried Mortgage Loan Officer, $46,600 (compared to $41,000); Commercial Loan Officer II, $94,300 (compared to $78,700); and Teller, $22,000 (compared to $20,200).

The ACB survey measured responses from 361 banks, about 10 percent of the total solicited.

Massachusetts and Connecticut bank officials interviewed also said non-salary perks, including health and wellness fairs, time-off awards and flexible schedules are growing in popularity.

O’Donnell, who works closely with the compensation data, had this reminder for all those who use it: It tells you what the market’s like – but not necessarily the best thing for your company.

“You have to use it appropriately, and not always rely on it 100 percent,” she said. “It tells you what people have been doing, but it doesn’t tell you what’s right to do.”