Seventy-three percent of respondents are conducting a greater review of risk and controls associated with their retail incentive programs
NEW YORK—April 18, 2017—Executive compensation consultancy Pearl Meyer has released details of its recent Quick Poll on changes to retail banking incentive plans in the wake of the Wells Fargo scandal. The firm asked senior bank executives and board members to share their reactions, including how their retail incentive programs are structured and what plans they have or will develop to mitigate risk in their own organizations.
In addition to the majority (73 percent) conducting a review of their risk and controls, 28 percent are also planning changes in their documentation and administrative processes.
“Both leading proxy advisory firms are now opposing the reelection of most Wells Fargo directors, citing deficiencies in the board’s ability to monitor risk,” said Laura Hay, managing director and leader of the national banking industry team at Pearl Meyer. “It’s not enough to simply look at the incentive plan’s structure and metrics. Risk can also be found in the process, controls, and administration of the plan. To properly assess risk, the board needs information on these aspects in addition to plan design.”
Are stakeholders asking about incentive programs?
- Seventy-two percent report questions from executive management, 51 percent have had questions from the board, and 32 percent of survey participants have had inquiries from employees.
What incentive metrics are most common in current plans?
- About half of respondents (55%) are using volume metrics and/or cross-selling metrics (47%), which have been criticized in the context of the Wells Fargo situation.
- Seventy percent are using growth metrics and 34 percent are using profitability or revenue measures, which are typically more difficult to manipulate than volume or cross-selling.
How are banks reacting?
- The survey indicates banks are also looking beyond their incentive programs to reduce risk. More than 60 percent are enhancing employee communication and retail staff training,
- Forty-two percent are proactively reporting up to senior management and the board, and a quarter of respondents are developing or enhancing customer complaint processes.
- Thirty-two percent are taking no direct action with respect to their retail incentive plans.
“Given the recent developments at Wells Fargo and the independent directors’ investigation report, which indicated wide-scale problems, boards must challenge non-action and ask their management teams to develop the case of why the status quo is the best course of action—the stakes are too high,” said Hay. “There are five questions that banks should ask themselves about their incentive program: what does our plan reward; how is it monitored; are the expectations reasonable; what is the customer experience; and are we staying true to our values?”
About the Survey
The online survey, conducted in November 2016 queried senior bank executives and directors. Survey results are based on data obtained from the 57 respondents and the asset size of these reporting banks ranged from $100 million to more than $30 billion.
About Pearl Meyer and its Banking Compensation Consulting Services
Pearl Meyer is the leading advisor to boards and senior management on the alignment of executive compensation with business and leadership strategy, making pay programs a powerful catalyst for value creation and competitive advantage. Through knowledgeable consultants focused exclusively on the financial sector, our banking industry group has helped hundreds of financial institutions achieve their objectives. The firm has offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, London, Los Angeles, and San Francisco. More information is available at www.pearlmeyer.com/banking.