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Banking Incentive Compensation

Align Pay to Profitable Growth

Today, many banking incentive plans reward volume-based or other activity-based metrics, rather than deposit and loan quality that truly drives net interest income. This misalignment can be rectified by providing incentive plans that drive basis point spreads at group and incumbent levels. 

Alexander Group’s latest research and benchmarks show where prevalent comp plan misalignment comes from, plus what leading banks are doing about it.

The Banking Reality

Many banking organizations struggle to make significant changes to incentive compensation plans. Yet, the data continues to point to the same culprit: improper alignment of incentive plans across a multitude of banking groups and distinct customer-facing motions. 

The Compensation Conundrum

In many cases, banking incentive plans are quietly overpaying for the wrong behaviors with poor line-of-sight to plan measures and payout curves. This rewards the wrong activities instead of a bank’s core income measures: quality deposits, quality loans, cross-selling and fees. 

Leading banks are responding effectively by:

Simplifying incentive plans and reducing competing measures

Aligning pay to net interest income, fees and growth

Reinforcing revenue quality and pay- for-performance discipline

Alexander Group’s new briefing will demonstrate how banks that pair focused incentive design with diversified revenue streams, as well as strong cost control, are winning on both profitability and valuation. 

Inside This Briefing

By connecting with us, senior leaders will learn where the misalignment sits in their own plans and how leading banks are fixing it.

Key insights include:

Most plans still weigh the same four or five measures (revenue, new revenue, cross-sell, fee income and compliance) without differentiating by role, segment or coverage model.

Depending on the size and coverage model of the bank, relationship managers have an average pay mix of 75/25 and a payout leverage of 2.35X. Production expectations range from $7M to 10M in revenue/year.

Customer-facing roles typically carry four to eight qualitative management-by-objective (MBO) goals. However, this is often more than producers can meaningfully focus on and instead dilutes the incentive signal.

There’s a significant move to drive a more focused pay-for-performance environment, consisting of fewer measures, more simplified incentive plans and renewed focus on deposit and loan quality.

Schedule Your Complimentary Briefing

Request a complimentary 30-minute briefing call with an Alexander Group principal. You will receive a tailored read and be able to compare how your incentive plans align with peer banks on measures, pay mix, leverage and producer productivity. 

Schedule a Briefing

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