Cash incentives are taking on greater significance in the banking industry.
Throughout the country, the hefty cash bonuses that once were reserved for high-ranking executives are filtering down through the ranks, helping companies keep a tight rein on salaries as they prod employees to improve performance.
By offering lucrative incentive plans tied to performance, banking companies can not only strengthen their balance sheets but also help attract top talent in an increasingly competitive industry, according to compensation experts.
"Banks are expanding incentive pay throughout the ranks," said Rose Marie Orens, a partner at KPMG Peat Marwick LLP. "Even the most conservative ones who didn't think incentives made sense are trying them."
Wachovia Corp. is a prime example. After embracing bonuses for a broad cross-section of employees, the Winston-Salem, N.C., company paid out 27% more in incentives during the first nine months of this year than in the year before. Even so, incentives amount to just 6% of total staff expense. By comparison, the growth in salaries was 4% to 5% when adjusted for hirings, said Robert McCoy, Wachovia's chief financial officer, and their share of total staff expense is 69%.
Incentive compensation is "not a gigantic number, but it is a number that has been growing," he said. "It is a much larger number than it ever has been before."
More than 50% of Wachovia's 16,800 employees receive some form of incentive pay. "It's kind of a way of life now," said Mr. McCoy.
Atlanta-based SunTrust Banks Inc. is also a big believer in motivating employees with bonuses. While total salaries in the most recent quarter grew about 8%, incentive pay was up more than 19% from the third quarter of last year.
"It's what's happening in the industry," said SunTrust spokesman James Armstrong. "More and more of compensation is being tied to performance."
R. Dave Simmons, a principal of Towers Perrin Cos., said a banking company's ability to offer strong compensation packages up and down the organization is critical to attracting the right talent. And that doesn't mean just those in fee-oriented investment banking or traditional sales jobs.
Everyone from mortgage lenders and leasing executives to customer service representatives and tellers can be motivated to hit higher goals with cash incentives, he said.
"Incentive pay is a very, very viable approach. It is the very best way to link reward and performance," said Mr. Simmons.
Charlotte, N.C.-based First Union Corp. has more than 200 incentive programs; they cover tellers to top managers. Even people working in some of the lowest-paid jobs in the company can earn thousands of dollars a year in bonuses if they hit productivity, profit, service, or other targets, said Brian E. Dillon, vice president and head of direct compensation at First Union.
"What is happening in our organization and the industry at large is a move away from base pay only and more toward having a portion and in some cases a significant portion" of compensation "based on key business outcomes," Mr. Dillon said.