Case 62 highlights various compensation-related problems at State Bank, one of the four major banks in a large southwestern town. The bank is currently grappling with issues surrounding overpaid bank tellers and challenges related to compensation. Russell Duncan, the President of State Bank, holds responsibility for introducing measures such as the results-pay system, cost of living raises, and other progressive resource practices. While these policies have yielded positive outcomes, they have also given rise to problematic situations that could potentially affect both the future standing of the bank and employee morale.
The main problem facing the bank is the excessive salaries received by bank tellers. Another bank in town conducted a study which revealed that 23 tellers at State Bank are being paid an average of $22 more per week compared to tellers at other banks in town. Although this statistic is not alarming, it contradicts the salaries of other positions within State Bank when compared to the competition. The study demonstrated that employees in other positions such as loan officers, file clerks, and branch managers are earning wages similar to those offered by other banks.
Releasing this statistic within the organization may result in additional issues for management and HR. Decreased employee morale and performance problems could ensue, potentially leading to the bank losing employees in certain departments. Before taking any action, the bank must first investigate the source and reliability of these statistics.
Whether the statistics are trustworthy or not, the bank must be ready to address the issue with its employees if the information were to leak. In a recent meeting, the HR committee acknowledged that the bank was incurring an additional expense of $26,000 annually due to bank teller salaries. As a result, they aim to reduce the raises given to teller employees. As stated in the case, the tellers have not been informed of the specific amounts of their raises but are anticipating both merit-based and cost-of-living increases.
In light of this, the bank might attempt to deceive its employees and reduce their raises under the pretext of “poor performance.” Nonetheless, it would be highly unethical for the bank to surreptitiously trim the raises of well-performing employees. Additionally, another potential problem is the potential loss of employees. If State Bank openly withdraws raises from its tellers, they run the risk of losing highly skilled employees or compromising the future work performance of their tellers.
The bank must find a solution to meet the employees’ needs or inform the tellers about reducing their raise without causing dissatisfaction. Another concern is the performance compensation plan, which allows employees to receive raises ranging from 0 to 12% based on their job performance. Such raises are beneficial for the company and can improve employee performance. However, evaluations of job performance must be tailored to each employee and agreed upon before granting raises.
In the case, it is stated that normally in February, the HR Committee decides on raises and gives them to employees on March 1st every year. This method of determining raises presents a major problem for State Bank. Because they lack information about each employee’s actual performance, the HR Committee may not give fair compensation to everyone. Furthermore, without a standardized system, there’s a possibility that HR could show favoritism towards certain employees, resulting in unequal treatment regarding raises. Additionally, this approach to evaluating performance brings up concerns about cost-of-living raises.
Companies should ensure that they provide accurate and fair cost-of-living raises for all employees to avoid any problems. These raises must be in line with inflation and the specific area’s cost of living. The HR department should have a clear policy on how to distribute these raises to each employee. Issuing these raises is advantageous as employees may face difficulties in supporting themselves and their families if the cost of living rises while their salary stays the same.
After examining the case, I have devised a compensation plan for the bank that will address the issue of inconsistent performance raises given by HR. To gain insight into how other institutions handle compensation for their tellers and other employees in their financial centers, I interviewed my brother, Joe, who works as a Personal Banker at Fifth Third Bank. He informed me that the bank has a hierarchical structure based on pay scale.
At this bank, the hierarchical structure starts with bank Tellers, followed by Personal Bankers, Licensed Personal Bankers, Customer Service Manager, and the Financial Center Manager. All of these positions are also responsible for working with an Investment specialist and a Mortgage Loan Originator. The compensation plan is agreed upon by all employees at contract signing, or whenever the bank decides to make changes. The tellers are highly valuable to the bank and handle most of the deposits and withdrawals in the financial center and drive thru.
At Fifth Third Bank, the tellers establish personal relationships with customers, who they often recognize by name. This interaction is crucial as it helps build trust and credibility between the tellers and the customers. Consequently, the customers become more receptive to any suggestions or recommendations made by the tellers. Additionally, everyone at the bank, including tellers, operates on a point-based compensation plan. Given that tellers interact with a large number of individuals daily, they play a significant role in generating sales opportunities for the bank. On the other hand, managers and personal bankers mainly work in office settings, attending meetings or making phone calls.
The objective for a full-time teller is to achieve 1000 points per month, which equals 100% of their target. It is essential for them to maintain a minimum of 500 points each month. Earning points as a teller can be accomplished in two ways. One method is based on their performance, while the other relies on generating new business by engaging in conversations. When a teller refers a customer to a personal banker, they receive points corresponding to the specific product: 40 points for a Checking Account, 20 points for a Savings Account, 20 points for a Credit Card, 15 points for Identity Alert, and varying between 85-105 points for Home Refinance (depending on the amount). Additionally, if the teller assists a customer with activating the Early Access account feature, they earn $10.00 per customer. Notably, Early Access generates approximately $18 million in revenue annually for the Bank. Early Access functions as a cash advance on direct deposits and imposes a fee of 10% of the advanced amount. This sum together with the fee is subtracted from the account upon receipt of the direct deposit. Another way that tellers can accumulate points is by arranging qualified investment appointments.
The Teller will receive a fixed payment of $25.00, regardless of the business’s operating status. On the other hand, the Personal Banker must attain a monthly point goal of 3100 to meet their objective and generate at least 1200 points each month. The incentives for the Personal Banker are determined by the number of products they open for customers. If they open three or more products, they will be awarded an additional 50 points. Opening four or more products will result in receiving a bonus of 100 points, while opening five or more products will lead to earning a bonus worth 150 points. For example, if the Personal Banker opens a checking account, savings account, and credit card for one customer, their total points earned would be 130 instead of just 80.
The idea is that having more products strengthens the customer-institution relationship and reduces the likelihood of customers leaving the bank. Although Personal Bankers do not get paid for opening early access or scheduling investment appointments, they do earn points for these products. To be eligible for a quarterly bonus, Personal Bankers must reach 85% of their goal. Once this target is met, they will receive $0.22 per point earned. If they achieve 95% or higher, they will earn $0.33 per point, and surpassing 105% will result in earning $0.40 per point.
Licensed Personal Bankers have the same objectives as their counterparts, but they are authorized to both conclude and discuss investment transactions. They will receive commissions and residual income for these investment activities, which prove to be profitable ventures for the bank. In contrast, Customer Service Managers and Financial Center Managers are rewarded based on achieving goals set for the financial center as a whole. This hierarchical structure ensures optimal utilization of each customer relationship. By employing a point system, the entire bank collaborates to ensure that all employees are duly compensated.
The purpose of this system is to motivate tellers to sell products and increase their earnings. Additionally, it enables personal bankers and managers to generate more business from current customers while making calls to attract new customers. State Bank can adopt this system and customize the point system according to their budget and requirements. By implementing a consistent structure like this, all employees in every department will be satisfied, and the bank will be able to avoid future issues.
