SAN FRANCISCO - Consultants at a conference here warned banks that they need to provide better pay for trust officers and money managers if they expect to keep pace with the nonbank competition.

A slew of speakers at the Bank Marketing Association's three-day conference on trust and investment management harped on the theme of compensation.

Indeed, poor pay has long been cited as a reason why many bank money management operations lack the proper incentive to attract more assets.

William W. Roberts, director of communications research at the Center for Financial Services Research, blamed "19th-century compensation" for loss of market share, and dismissed current pay levels as "incentive for mediocrity."

That theme was echoed by another researcher, Michael P. Kostoff, managing director of the Advisory Board Co., Washington, D.C.

His firm found that, on average, the top 20% of trust business development officers generate more than half of new fee income, yet only get 15% more in added bonuses than the remaining 80% of their counterparts.

"We don't reward our best players better," Mr. Kostoff said. "But we're paying a lot of folks who are mediocre."

He pointed to a finding by the Retail Marketing Association that 84% of incentive plans place salary caps on relationship managers, leaving little motivation to generate new trust clients.

Mr. Kostoff said that incentive plans with more frequent payout schedules outperform traditional plans that may simply pay one bonus at Christmas.

"Gathering assets is critical. You pay out now to keep the business long-term," he added.

Mr. Kostoff proposed variable compensation that rewards top performers and exposes poor ones as all officers share risk of loss more dramatically along with the bank.

Such plans included accounting for such variables as referral and product sales incentives separately.

Others suggest simply deriving compensation from assets under management, the way the nonbank competition does it.

"That's what the people who are eating our lunch are doing," said one banker.

But some bankers are concerned about tampering with compensation practices.

Phillip M. Heffley, a new business trust officer at Mercantile Bank, Kansas City, Mo., said his bank's management is reluctant to tamper with the status quo.

"Our management is very fearful that high variable compensation tends to bring in less qualified customers. We take on more risk under the bank because the business development officer is pushing hard," Mr. Heffley noted.

"You don't want to jeopardize the whole banking relationship. If I'm too aggressive and irritate the customer, my referrals may dry up. A lot of my referrals are existing bank customers and we can't throw away prospects," he added.

Nevertheless, others called for new direction.

Alexander M. Anderson, who heads Bank of America's Investment Management Group in Los Angeles, broke from his prepared remarks to display a scene from the movie "Planes, Trains and Automobiles."

In the scene, Steve Martin and John Candy are peeling down a highway toward two 18-wheelers after neglecting to heed warnings of "You're going the wrong way."

Mr. Anderson argued that banks are going in the wrong direction by not stressing asset gathering efforts.

"We have to emulate the competition," he said.

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