Our new reality: the coronavirus. Never before have decisions been so critical and difficult to make. The effect of COVID-19 forces a large number of our HR banking partners to work remotely or with reduced staff, leading us to create a space where these key decision makers could share their experiences. Over the past two weeks, Pearl Meyer conducted virtual peer exchanges to hear the most pressing HR concerns firsthand. Participants shared ideas and emerging best practices. Three primary areas of concern are compensation, staffing, and communications. Summarized below are some of the issues identified as most urgent during our peer exchange meetings. Additionally, we have added some of our own internal research and experience.
Compensation Themes
Supplementary Compensation for Customer-Facing Employees
Branch employees are the primary recipients. Supplementary compensation is delivered through a variety of methods including paid time-and-a-half, per diems in the form of fixed dollar amounts per day, weekly bonuses and one-time spot bonuses after the crisis. There were clear distinctions between small and larger banks, each with different approaches based on available resources. Regardless of bank size, all are deeply aware of the impact their decisions have on employees. Some banks told us that they have rebranded “hazard pay” to call it “thank you pay” as a nice way to recognize employees during these challenging times.
The practices reported through 8-K filings by larger banks are similar to what we heard in our peer exchanges. For example, Capital One reported $10 per hour pay increase for branch ambassadors working in open locations and an additional $5 per hour for other US-based associates in roles instrumental to maintaining essential customer support, such as call center agents. At US Bancorp, front-line employees will receive a temporary 20% hourly wage increase. Fifth Third will provide its customer service and other employees who work onsite a special payment of up to $1,000, which will be paid in $500 installments in April and May.
Merit Increases
It is possible that increases may be more conservative than in previous years. Banks are likely to see reduced profits in 2020; however, if we use the financial crisis as a reference, banks typically gave increases except during the most extreme periods of the crisis. Some banks may use bonuses rather than fixed cost salary increases. Several of our meeting participants reported that merit increases are proceeding, at a time when industries affected the most by COVID-19 are halting merit increases and implementing executive pay cuts. Although it is a mixed bag, many banks have already implemented increases and others said it is too soon to decide as we are still in the early stages of the crisis.
Annual Incentive Plans
Incentive plan goals that were approved just a few weeks ago may now seem like stretch goals or unrealistic levels to achieve. We are advising companies to consider the following:
- Wait to make any modifications until the effect of COVID-19 and the interest rate environment are better known. The evaluation may include changes in profit levels, credit risk, and other factors. Discussions into the summer months is prudent. In the meantime, some management teams are estimating the COVID-19 impact in areas that can already be approximated and reporting summaries at monthly or quarterly board meetings.
- Ensure your plan has discretion and consider disclosing in SEC filings that the compensation committee may re-evaluate, or adjust incentive plan goals for the effects of COVID-19. These disclosures are becoming more commonplace as more 2020 proxies are filed.
- Before simply changing the incentive plan goals, evaluate the performance metrics. Make sure that the metrics still reflect business priorities for 2020.
Long-term Incentives
Equity programs may have the dual issue of a declined stock price and goals that are no longer achievable. While discretion can be used in annual incentives, it is problematic for equity programs.
- For scheduled equity awards yet to be granted in 2020, pay attention to the number of shares awarded and share plan limits. In a recent discussion, a bank had significant reductions in their share price and used a specified dollar value for executive awards. At the current price, approximately four times the shares would be used when compared to the prior year, significantly eating into their share reserve. There are a number of alternatives that could be used such as paying a portion in cash and limiting the share number. In this case, the bank is considering paying performance-vesting awards in cash and awarding time-vesting awards in shares. The result is about the same number of shares granted to executives as the prior year that may have significant upside. The cash payout provides downside protection from further stock price declines while limiting upside potential to ensure plan expenses are capped. Furthermore, the reduction in the bank’s share reserve would be near prior year levels.
- For banks that have experienced a significant decline in stock price, this is a time to wait. If depressed prices continue for an extended period, banks may need to revisit whether the awards continue to be retentive. Some banks are considering monthly or quarterly equity grants to “average in” the awards in this radically fluctuating stock market.
- For performance-vesting awards, policies adjusting the effects of COVID-19 may also be implemented. Compensation committees may need to evaluate and discuss whether existing goals remain relevant and achievable. There also is the issue of which awards should be considered for reevaluation—prior periods that include 2020 or just the 2020 grant itself?
Staffing
Reduced Staffing at Branches and Remote Workforce
Most of the banks have closed lobbies except by appointment and are encouraging customers to use drive-through only. Some have eliminated or reduced Saturday hours. Many employees are working from home, with some working remotely for the first time. To reduce exposure, a number of banks have moved to A and B teams working on shifts, while others are dividing employees working in large communal spaces into small groups spread apart onsite. Several banks reported having the capability to have all call center employees work from home.
Forced to Think Outside of the Box for PTO
Banks are building flexibility into PTO programs to address the crisis. Some have provided extra hours of COVID-19 sick leave for childcare, taking care of a family member, or virus-related illness. Employees at some banks that decline to work on location for safety reasons are allowed to use their PTO bank. Some banks indicated 100% pay up to 12 weeks and PTO donation programs. All banks with fewer than 500 employees are digesting the new requirements of the Families First Coronavirus Response Act. There is clearly a lot going on in the paid time-off space and banks will need to stay on top of this for both regulatory and employee engagement reasons.
Communication
Regular Communication Most Often Led by HR
Based on the polling done during our peer exchanges, the majority of the communication responsibility falls to the HR department and the CEO. Members of the executive team are also key players. Daily communication with remote employees is common, most frequently through email and intranet but also via all-employee video conferencing, CEO videos to staff, and manager calls. Communication with employees becomes even more critical as we enter this new realm of remote working.
Through this difficult time, many banks have become quite creative in their support for employees: providing employees with special loan payment programs, assistance with handling the pressure of homeschooling, creating a non-profit matching donations to support COVID-19 causes, and employee assistance emergency funds and employment assurance.
This pandemic has temporarily changed the model of traditional banking and as it progresses and then we emerge from the crisis, it will be interesting to see if these changes impact the future operating models for banks. We predict it will.
