Tallying the costs that banks paid in a tight labor market

December 23, 2022 9:00 AM

Several U.S. banks hiked their minimum wages in 2022, a reflection of rising inflation and grueling competition for talent in what has been a persistently tight labor market.

The pay increases varied by bank and geography, with the nation's largest banks paying the highest hourly wages to recruit and retain employees on the lower end of the pay scale. Still, the turnover rate for frontline bank employees soared this year, according to one survey.

Whether the favorable conditions for workers will persist into 2023 is an open question, as many banks are preparing for a possible recession next year. Bank of America CEO Brian Moynihan said earlier this month that the Charlotte, North Carolina-based company is pulling back on some, but not all, of its hiring.

"We seek talent all the time," Moynihan told Bloomberg Television on Dec. 6. "We're just more careful about it in times like this."

What follows is a look at five stories from 2022 that explored how the unusually tight labor market affected banks.

Minimum wages rose

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BofA, which has been lifting its base hourly pay for several years, boosted its minimum wage faster than first planned. As of July, the megabank's starting pay was $22 an hour, up from $21 an hour. The increase to $22 an hour was initially scheduled to take effect in October.

The increase translates into an annualized full-time salary of more than $45,000, the Charlotte, North Carolina-based bank said. Bank of America is on a path to increase its minimum wage to $25 per hour by 2025. Just five years ago, its starting pay was $15 an hour.

How BofA proceeds in 2023 may depend on the course of the economy. But even after the bank slowed its hiring late this year, it was still hiring relationship managers in business and commercial banking, plus private bankers, financial advisors and other branch employees, according to Moynihan.

Big banks led the way

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Other large banks also hiked their minimum wages in 2022.

JPMorgan Chase, the largest U.S. bank by assets, told employees over the summer that its minimum wage would increase to between $20 and $25 an hour, depending on the worker's location.

Similarly, Truist Financial in Charlotte, North Carolina, said it would raise its minimum hourly wage for U.S. employees to $22 starting in October, up from a prior range of $15 to $18.

Some analysts said they thought the minimum wage increases at bigger banks would force smaller banks to make adjustments to stay competitive.

"There are a handful of banks trying to lead on this issue," Christopher Marinac, an analyst at Janney Montgomery Scott, said. "Everyone else has to follow. You have to stay competitive."

One bank hiked its lowest hourly wage twice

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U.S. Bancorp boosted bottom-line hourly pay not once, but twice, this year in response to inflationary and competitive pressures.

The Minneapolis company increased its minimum wage from $15 an hour to $18 an hour in June, and then said it would lift it again in November to $20 an hour for all U.S. and Canadian workers.

The bank was also poised to give a 3% raise to about half of its total workforce — about 35,000 hourly and salaried employees. Employees who receive the 3% raise will still be eligible for merit increases in the first quarter of 2023 as part of an annual compensation review process, the company noted.

The higher wages cut into profits

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Higher salaries were expected to take a bite out of banks' profits this year.

Across the industry, employee compensation and benefits rose to $198 billion through the third quarter of 2022, up 4.1% from the first nine months of 2021, according to data from the Federal Deposit Insurance Corp. The comparable increase during the first nine months of last year was even larger — 6.7%.

Some banks pointed at wage inflation in 2022 as a reason for higher-than-expected yearly expenses. For example, Truist projected in July that its full-year expenses would rise higher than initially thought, in part because of the company's planned minimum wage increase.

Despite pay increases, turnover was still high

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One of the oft-repeated reasons for hiking minimum wage is to better hold onto employees. But the recent wage increases generally haven't been large enough to offset the effects of the tight labor market.

A survey this year found that the turnover rate for frontline bank workers spiked to 23.4% from 16.2% in 2021. The survey by Crowe LLP also found that 54% of respondents said holding onto young talent is "somewhat challenging," compared with 19% who said the same last year.

"The industry cannot compete for talent based on compensation and benefits packages alone, so organizations must work to improve their training programs and culture," Thomas Grottke, a managing director specializing in financial services consulting at Crowe, said in the report.