The survival of community banks in not threatened by onerous regulation, compliance hassles, poor asset quality, or monolithic superregional holding companies.

To a much larger extent, the success or failure of community banks will depend on their capacity and willingness to attract and retain resourceful executives.

Merger Motives

Surprisingly, most community banks seeking an affiliation or merger are not prompted by unsolicited offers or the prospect of receiving two times book. Generally the motive is one of these:

* Management has failed to keep up with current banking techniques and strategies and can't catch up.

* New banking competition, regulations, and laws overwhelm the bank's executives, who concede that a larger institution could manage its future better.

* The board of directors has neglected to prepare a management succession plan. Unable to find a competent successor within the bank and unwilling to retain an "outsider" with no social or cultural ties to the bank or its community, the directors fall back on the sale-or-merger option. In each of these circumstances, sale or merger should be the last resort.

Hard to Catch

You might think that community banks searching for a chief executive would have a buyer's market. Not so.

Why should it be hard to attract the right candidate from an overflowing talent pool? The reasons are as much cultural as procedural.

When attempting to hire a CEO, boards find it difficult to depart from traditional guidelines and restrictions in their employment practices.

Too often their attitudes are characterized by the "if it was good enough for the predecessor, it should be good enough for the successor" syndrome.

Such notions fail to acknowledge the new realities of executive recruitment and compensation, as well as the special skills so vital to the modern-day community bank.

Various Lures

Prospective CEOs for the 1990s and the 21st century are lured by community banking for a variety of reasons.

One is that community banks give top executives a chance to maintain direct customer contact. This is a refreshing alternative long since abandoned by big-bank competitors.

Another reason is the massive consolidation and restructuring in the banking industry. This upheaval has sent many talented and well-trained professionals searching for employment, in or out of the financial services sector. For many, community banks offer the only chance of remaining in their chosen profession.

A New Breed

Finding 21st century CEOs is not difficult. Persuading them to join your community bank is a bit more challenging, despite the glut of candidates and the paucity of openings.

Community bank CEOs who served their institutions with distinction for decades were often motivated by the prestige and stature of their positions.

The new generation of executives views CEO employment opportunities from a far different perspective.

In analyzing executive searches conducted since 1985, we have found that the new breed of community bank CEO is motivated by five principal factors:

* Quality of life.

* A challenging work environment.

* Job security.

* Salary and benefits.

* Recognition and reward.

Prospective employers can control four of these five factors.

Quality of Life

CEO candidates often give more attention to the nebulous quality of life issue than to any other. Executives and their families who have lived in larger communities may not find a smaller-town atmosphere attractive.

Unfortunately, the board of directors can do little to allay this type of concern. Either the community's quality of life fits the candidate's needs and expectations or it doesn't.

If it doesn't, enhancing the pay package to compensate is not advisable. An unhappy family life reflecting dissatisfaction with the community's social attributes or educational or cultural opportunities usually overwhelms compensatory perks, impairing the CEO's productivity.

Directors open to geographic and product expansion, aggressive marketing, and proactive selling strategies are likely to attract the most capable and qualified candidates.

For many executives who cut their teeth in a holding-company environment, community banks are a welcome antithesis to big-bank bureaucracies and management by committee.

Boards that tend to micro-manage bank activities are unlikely to attract candidates who place a high value on streamlined decision-making.

Prospective candidates will also scrutinize the decision-making structure of the bank, with a particular eye on the scope of authority entrusted to the CEO.

Security Insurance

Employment contracts are important in attracting the best candidates. Boards fear that such contracts will make these people prohibitively expensive -- or hard to dismiss if they don't pan out. Contracts are also thought to diminish the bank's value in the event of a sale or merger.

From the candidate's perspective, however, an employment contract is evidence of the board's commitment and support.

More than anything else, a bank CEO wants time to demonstrate the ability to achieve results.

In light of a modern-day merger mania, change-of-control contract provisions are among the most legitimate of employment benefits -- especially if the prospective CEO would be uprooting a family or dramatically altering a career path.

Properly structured employment contracts can protect the financial interests of the bank as well as the employment interests of the candidate.

Most CEO candidates recognize that community banks generally pay less than regional or superregional holding companies.

Community banks have relied too much on "peer averages" and industry surveys to establish base salaries. Analyses of a CEO's value to the bank, board, and community are rarely used.

Many promising deals are shipwrecked on $3,000 or $4,000 differences over base salary. Additional compensation basics should also include fully paid health-care coverage, pension or 401(k) retirement plan (or both), and life and disability insurance.

Recognition and Reward

The most qualified CEO candidates generally wish to attach their personal, professional, and financial success directly to the success of their organization.

Bonuses and stock awards tied to predetermined goals and objectives are the preferred forms of recognition and reward. Yearend bonuses, with their short-term focus, can be effectively balanced by stock-option programs, which are usually exercisable after several years of service.

This type of package, while providing incentives for executives to achieve short-term and long-range goals, protects the bank from shortsighted management decisions designed to maximize a yearend bonus award.

In order to compete, community banks will need the brightest and most capable executives. There is no a shortage of these people. But attracting them to a community bank requires special effort.

It requires revamping traditional compensation packages with competitive base salaries, structured bonus plans, and incentive stock options.

It also requires fulfilling work environments exemplified by strategic diversity, streamlined decision-making, and substantive authority.

Banks that tap into the considerable talent pool presently available will thrive in the increasingly competitive and complex financial services industry of the 21st century.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.