Bankers’ pay lags that of brokers, planners

On the pay-for-performance continuum, bankers have traditionally found themselves at the rigid yet stable end, while brokers and mutual fund salespeople have played the tough but potentially rewarding “eat what you kill” game. Typically, bankers are treated more like administrative staff than a robust entrepreneurial profit centre, and to be fair that’s how they’ve contributed to their firms. However, increasingly, bankers, brokers and planners are attracting the same sort of business to their firms and doing the same jobs — a little preparatory financial planning deployed through copious product sales.

Brokers and planners may complain that management is forever chiselling away at their grids, but at least they have grids to chisel. Bankers say they are doing the work of full-fledged financial advisors yet they are being paid like back-office staff. At the banks, the reward system continues to lag the entrepreneurial strategy.

The apparent disparity doesn’t sit well with employees. Bankers continue to report lower satisfaction with their pay than do their rivals at the brokerage and planning firms. This year the average rating for the “fairness of compensation” at the banks slipped almost imperceptibly from last year’s survey. But significant slides were registered at each of Royal Bank of Canada, Toronto-Dominion Bank and Canada Trust. Even though their scores have slipped, they still rate ahead of Canadian Imperial Bank of Commerce, which continues to garner the lowest scores on the compensation front.

Only one of the banks in our survey, Bank of Nova Scotia, saw its advisors reporting noticeably improved satisfaction with their compensation. However, even Scotiabank rates below the national average. One Scotiabank employee complains that despite the banks’ booming profits, the spoils aren’t trickling down to the troops. “The changes to staff salaries average 1% a year. They feel they are not being paid enough,” he reports. “I hear the staff saying the tellers at Bank of Montreal are making more money than them.”

Advisors at BMO would beg to differ; they believe they are getting shortchanged, too. BMO’s bankers echo the complaints heard across the industry: that the pay is too low, and the banks should incorporate more pay for performance.

These bankers know they are doing the jobs of advisors and they want to be paid like it. They aren’t afraid of a little volatility to their pay, either, but they want to be rewarded for performance. “I think [our compensation] is extremely unfair,” says one CT banker. “Others who had been working at CT for fewer years than me, and who were producing less and who don’t have an accreditation, were making more than me.” That banker had to push through the bank’s vast bureaucracy to get a fair deal.

Another CT banker makes much the same complaint: “I have some problems with [the fairness of our pay]. I do meet and exceed my objectives, but there are employees who don’t and they still get the same compensation.”

The culture clash that was predictable when the banks bought brokers is happening from within the banks as they try to move out of deposit-taking and cheque-cashing and into full-scale branch-based wealth management. But knowing about a problem and doing something about it are two different things. The fundamental problem with introducing a service that demands a sales culture into a large, bureaucratic organization remains: the demands of a sales culture require a “survival of the fittest” approach to pay that a big bureaucracy naturally finds difficult to accommodate.

In the meantime, the banks are faced with plenty of turmoil within the ranks. “There is a collective schizophrenia,” says one CIBC banker. Those who aren’t getting a fair shake are hitting the bricks. All across the industry, bankers describe upheaval and turnover within the ranks, much of it boiling down to compensation issues. A disgruntled Scotia banker predicts that although the banks are holding down compensation to keep expenses under control, ultimately they’ll have to start increasing it to combat the costs of staff turnover.

Cost-cutting hurts

The hope for pay raises to stem staff turnover may be wishful thinking, but the perceived pressure to keep compensation under control is no figment of bankers’ imaginations. Ever since the bank mergers were squashed by the federal finance minister in December 1998, all the banks have been focusing on cutting the fat within their ranks.

CIBC, at the hands of newly installed chief executive officer John Hunkin and other former investment bankers from its World Markets subsidiary, has been most vocal about its cost-cutting intentions. Hunkin has pledged to cut $500 million in annual costs at the bank. Analysts say senior manager compensation at CIBC now is linked to these goals and, as a result, the bank has been pretty aggressive in meeting its targets. Analysts expect to see more of these cost-cutting programs in successive years.

This tough line on costs may be pleasing to CIBC’s executives, analysts and, eventually, its shareholders, but employees are less than thrilled. When asked to rate the fairness of compensation at CIBC, one banker says: “I would say zero out of 10, but I’ll give them the benefit of the doubt and give them [a] one.”

Another reports that he left CIBC because the pay was bad and not performance-oriented enough. Still another who is sticking it out at CIBC says that the method for calculating referral compensation was recently changed and applied retroactively. “So we were doing our jobs thinking we’d be paid. If this was a brokerage, everyone would have quit.”

While it’s the bankers who are complaining, they claim it’s the client who’s the ultimate loser. The banks may not want to pay their retail sales forces for working like brokers, but they also don’t want them acting like brokers and taking some control of clients.

Instead, the banks are pushing client segmentation on their customer bases and keeping true relationships from developing.

“There are an awful lot of hands in the pot; clients get lost in the shuffle,” says a CIBC banker. “They were moved to different areas, often not out of choice. It’s just perform, perform, produce.”