For the last several years, despite the booming American economy, heads of bank investment sales departments have not seen the good times reflected in their paychecks. On average, they did not receive an increase in base pay in three years. Last year, however, that finally changed.
After a long drought, the base compensation for the heads of bank investment sales units increased 10 percent in 1999, to $119,450, according to a survey released last week.
The hike in base pay may be linked to an increase in defections from the banks, according to the study, which was conducted by Ken Kehrer Associates, of Princeton, N.J. and sponsored by Glenbrook Life & Annuity, of Northbrook, Ill., and MDS Bankmark of Morris Hills, N.J.
"The high turnover among executives who run bank retail services might be related to relatively low, stagnant compensation," the survey said. "The lure of higher paying jobs at non-bank securities firms was underscored recently by the departure of some senior bank investment executives for non-bank securities firms."
One of the challenges facing bank investment departments is that they are viewed on a par with other bank departments.
"That's good news and bad news," said Ken Kehrer, principal of Ken Kehrer Associates. "It's good news because it shows that the business is becoming integrated into the bank, as opposed to some foreign thing stuck on to the bank with baling wire. On the other hand, it's bad news for the people who run it, and perhaps for the long run health of it, if the kind of compensation paid to the heads of these organizations is not commensurate with what they can get outside."
"People who run these departments aren't that well paid compared to non-bank equivalent jobs," he said. "Because of that banks are struggling to attract and keep talent."
The survey found that base compensation increases by the size of the bank and the size of the investment services program.
For example, the average base compensation of the president of broker/dealers in banks with more that $25 billion in retail deposits averages $155,450, forty-two percent more than the heads of investment sales in banks with $2 billion to $7 billion in consumer deposits, said Rob Shore, senior vice president of Glenbrook. Executives who direct a sales staff of more than 100 brokers earn an average base compensation of $148,800, forty-seven percent above the heads of programs with 27 to 50 brokers.
The link is not as strong between the size of a bank or the size of its investment services program, although the bonus opportunity for executives is generally higher for executives in larger programs, the survey said.
"Incentive compensation depends on the performance of each bank program," said Jon Gabriel, president of MDS Bankmark. "Many programs also factor in the performance of the overall bank in establishing bonuses for bank broker/dealer presidents."
Base compensation was generally higher in Northeast banks, followed by financial institutions in the South, the survey found. But more important than location in determining base compensation was the size of the bank and the size of the investment services program.
Tenure also plays a role in determining base compensation, the survey said. The longer executives head up a sales department, the higher their base compensation, but not uniformly so. Neither does base pay increase consistently with the age of the investment program of the bank.
"A significant component of the change in base compensation last year was the increase in compensation to the executives who run programs that combine full-time brokers and licensed platform bankers," Shore said. "In 1998, there was no difference to the base compensation of broker/dealer presidents who ran traditional broker-only programs and those that ran the newer hybrid programs. But in 1999, the directors of hybrid investment programs had somewhat higher base pay, reflecting the difficulty of managing the banking sales force indirectly and integrating the two sales forces."
It will be noteworthy whether the increases in base compensation carries over to the incentives area, which has also been flat averaging $61,000 for the last three years, said Kehrer. Those numbers are expected to be compiled later this year.
"It might be going up because of the pressures that I see from the opportunities for executives to move to non-banking securities firms," he said.