Banks have some serious work to do in melding their culture with that of Wall Street, and executive pay is looming as one of the thorniest issues.
Properly, federal lawmakers are heavily emphasizing safety and soundness in deliberations about repealing the 62-year-old Glass-Steagall Act, which severely restricts banks' brokerage and equity underwriting activities.
From a managerial perspective, however, a key challenge for bankers is melding the radically different compensation practices of the converging industries.
In contrast to bankers, who get most of their remuneration in the form of a fixed salary, brokers and investment bankers look mainly to lush bonus structures hinging on deal and transaction volume.
In good years, top investment bankers can pull down fortunes - and that is bound to rankle officers of banks that are expanding Wall Street operations.
"It is really hard for a commercial bank having a 10-to-100-year tradition of how people get paid to accept that a whole cadre of investment bankers and traders will get higher total compensation than the seniormost people in the institution," said Michael Capatides, a capital markets specialist and partner in the New York office of Mayer, Brown & Platt.
How wide is the salary disparity?
According to the Securities Industry Association, the average retail broker earned $128,553 in 1993, the most recent year for which there are comparable data. Institutional brokers on average earned $304,716. And almost certainly, experts say, the figures are equally, if not more, compelling for investment bankers.
By contrast, according to the Bank Administration Institute, average banking pay ranged from $131,861 for chief executive officers, to $81,395 for chief financial officers, to $91,200 for senior lending officers.
Small wonder, then, that several key investment bankers deserted First of Michigan Capital Corp. after it agreed to be acquired by Comerica Inc. in 1993. The talent drain ultimately prompted Detroit-based Comerica to cancel the transaction.
That is not to say all such unions are imperiled.
Some commercial banking companies, including J.P. Morgan & Co., already have won market recognition for skillfully melding financial cultures and capabilities. And to many bankers, the promise of expanded powers seems well worth the management stress.
John E. Gilchrist, chairman of First Chicago Capital Markets, said he striking compromises on both sides of the aisle.
In recruiting investment bankers, "managing expectations is one of the key challenges," Mr. Gilchrist said.
The executive concedes that he may miss out on a superstar or two by making clear that First Chicago's pay structure, though competitive, is geared more toward the well-being of the team rather than a few individuals.
Mr. Gilchrist hastens to add, however, that he has been quite successful in attracting bright investment bankers to the institution. Those investment bankers who do come aboard signal their acceptance of the salary structure in the act of joining.
End result: "You may not get all of the top people, but you have a more stable environment that's more conducive to serving the client."
First Chicago's commercial bankers, on the other hand, are not necessarily mired in smaller salary brackets.
"Traditional compensation packages differ from our view," said Mr. Gilchrist.
"The market tells you the investment banker should receive more, the commercial banker less," the executive said. "However, some of our bankers perform at levels warranting compensation consistent with traditional investment banking practices."
Despite the appeal of Mr. Gilchrist's careful compromises, some bankers say the industry is simply going to have to resign itself to higher compensation structures in talent-intensive lines of business.
"If a bank is going to attract and retain top talent, it will need compensation programs in the ballpark of what's available in the marketplace," said Frederick E. Wolfert, chairman of Keycorp Leasing, Ltd.
The executive said the entrepreneurial, transaction-driven leasing culture is similar to that of investment banking - right down to the salary structure.
Bonuses typically account for 15% of a bank officer's total salary, Mr. Wolfert said. By contrast, bonuses contribute 40% to 45% of an independent leasing executive's salary.
Banks that demolish incentive schemes at entrepreneurial business units risk demoralizing top producers. And, by extension, they risk lowering the competitiveness and value of those units.
Independent lease executives, for example, are "looking to bag the elephant," said Geoff Cuneo, a vice president and senior account officer at Keycorp Leasing.
If such people are to perform in a commercial banking environment, Mr. Cuneo said, the rewards for top performance must approximate those offered by independent firms.
But there is more to the story than incentives.
Comparatively speaking, investment banking is more transaction driven than commercial banking. That means Wall Street's rainmakers have a more visible impact on the bottom line, compared with commercial bankers.
In a Wall Street environment, where there is more risk and fewer rules, clients emphasize the abilities of individuals at investment banks. By contrast, clients tend to look for institutional prowess in commercial banking providers.
The consequences are twofold. Wall Street's entrepreneurs have a comparatively greater positive impact when they are performing well, and they can do more damage when they slow down or leave.
In that light, perhaps banks simply will have to justify the higher brokerage and investment banking salary structures as investments in client relationships.
"When a bank buys a thrift, it expects to retain 80% to 90% of the customer relationships," regardless of whether it retains the thrift's staff, said Thomas J. Maier, an equity analyst at Kemper Securities Inc.
"If it buys an investment bank (and loses many employees), a much greater percentage of the customer base will leave."