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Washington Bankers Association

April 21, 2017

Forehand Strategy Group, LLC 1

Geri R. Forehand, CPCMPresident

Forehand Strategy Group, LLCA Strategic Partner with The Pacific Institute

987 Kingwood DriveClayton, Ga. 30525

[email protected]

1

Managing Human Capital: Integrating Succession Planning with Attraction and

Retention of High Performance Employees

mailto:[email protected]

This is the most substantial transition period in banking since

the difference between thrifts and commercial banks was

eliminated

Forehand Strategy Group, LLC

What is High Performance?


High Performance Group Top 20% Based on 3 Year ROA (2014-2016)

December 31, 2016 High Performance Numbers - MedianS $50-$500 (311) C $50-$500 (425) S $500-$1b (32) C $500-$1b (96)

ROAE (%) 16.94% 10.16% 18.59% 11.17%

ROAA (%) 1.99% 1.23% 2.07% 1.27%

Efficiency Ratio (FTE) (%) 52.65% 56.95% 51.55% 56.12%

Net Interest Margin (%) 4.24% 3.90% 4.24% 3.92%

Yield on Loans (%) 5.48% 5.30% 5.35% 5.22%

Cost of Funds (%) 0.47% 0.49% 0.43% 0.44%

Net Interest Income/ Avg. Assets (%) 3.97% 3.65% 3.93% 3.66%

Noninterest Income/ Avg. Assets (%) 0.57% 0.52% 0.79% 0.78%

Noninterest Expense/ Avg. Assets (%) 2.51% 2.60% 2.63% 2.58%

Core Revenue/FTE ($000) $229,950 $213,480 $252,690 $231,610

Pre-tax pre-provision/ FTE ($000) $104,590 $88,050 $128,170 $98,910

NPLs/ Loans (%) 0.72% 0.90% 0.95% 0.93%

High Performance Group Top 20% Based on 3 Year ROA (2014-2016)

December 31, 2016 High Performance Numbers - MedianS $1b - $10b (13) C $1b - $10b (98) >$10b (22)

ROAE (%) 19.24% 11.28% 11.33%

ROAA (%) 1.91% 1.26% 1.30%

Efficiency Ratio (FTE) (%) 50.46% 55.09% 46.98%

Net Interest Margin (%) 4.00% 3.63% 3.46%

Yield on Loans (%) 5.05% 4.69% 4.46%

Cost of Funds (%) 0.38% 0.39% 0.34%

Net Interest Income/ Avg Assets (%) 3.88% 3.38% 3.30%

Noninterest Income/ Avg Assets (%) 0.86% 0.95% 0.67%

Non-interest expense/ Avg Assets (%) 2.27%% 2.52% 2.00%

Core Revenue /FTE (000) $241,940 $240,170 $312,190

Pre-Tax Pre-Provision/ FTE ($000) $114,340 $103,510 $182,560

NPLs/ Loans (%) 1.18% 0.67% 0.85%

What is the population in Washington?

Broken down by demographics



Total population 7,183,700 100.0%Gen Z (iGen, Centennials)

Born 1996 and later (0-20)1,904,744 26.5%

Millennials (Gen Y)

Born 1977-1995 (21-39)1,862,841 25.9%

Gen XBorn 1965-1976 (40-51)

1,108,016 15.5%

Baby BoomersBorn 1946-1964 52-70)

1,675,984 23.3%

Traditionalists (silent

generation)Born 1945 or before (71+)

632,115 8.8%

Washington Population/ Age Breakdown(As of 2016)

Source: Population data – Office of Financial Management; Generations – The Center for Generational Kinetics

8

Do we face a crisis?

• Human Capital

– Harder and harder to attract and retain

• Age stratification (Have you done this at your bank? – what can we learn?)

– Improving our overall culture

• Risk focus (Regulatory emphasis)

• Performance focus

– The Universal Banker – Changing the dynamics

– Succession Planning – A regulatory focus

Succession Planning


Succession Planning: Ready or Not

3%

22%

61%

14%

0% 10% 20% 30% 40% 50% 60% 70%

Don't know

Not at all prepared

Somewhat prepared

Well prepared

Source: American Management Association, reprinted in Wall Street Journal

Is your organization prepared to deal with a sudden loss of key senior managers?

Note: Survey of 1,098 North American senior managers i


3%

39%

47%

10%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Don't know

Inadequate

Adequate

Robust

Source: American Management Association, reprinted in Wall Street Journal

How would you describe the leadership pipeline at your organization?



1%

27%

71%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Less important

About the same

More critical

Source: American Management Association,

How important is planning for a smooth management succession as compared to

previous years?


13

Our Objectives Today

People are the real competitive advantage we have.

1. Can we “really” define/describe our strategic direction and has it been communicated throughout the organization?

2. Do we “really” know/understand the primary culture of our organization?

3. Are we recruiting, hiring and retaining employees that fit into #2 above in order to “drive #1”?!

Top attraction driversemployer view versus employee view

Employer View Employee View

1 Career advancement opportunities Base pay/salary

2 Base pay/salary Job security

3 Challenging work Career advancement opportunities

4 Organization’s reputation as a good employer

Learning and development opportunities

5 Organization’s mission/vision/values Challenging work

6 Learning and development opportunities

Organization’s reputation as a good employer

7 Job security Vacation/paid time off


Source: Willis Towers Watson 2014 Global Workforce Study and Global Talent Management and Rewards Study

Top retention driversemployer view versus employee view

Employer View Employee View

1 Base pay/salary Base pay/salary

2 Career advancement opportunities Career advancement opportunities

3 Relationship with supervisor/manager

Trust/confidence in senior leadership

4 Manage/limit work related stress Job security

5 Learning and development opportunities

Length of commute

6 Short term incentives Relationship with supervisor/manager

7 Challenging work Manage/limit work related stress


Source: Willis Towers Watson 2014 Global Workforce Study and Global Talent Management and Rewards Study

Culture

Culture is the shared beliefs and values guiding the thinking and behavior styles of your employee base.

• What is normal • How decisions are made when you can’t be

there• The way we do things around here• The glue that holds us together

Source: The Pacific Institute

Two General Types of Culture

Defensive Cultures - Inactive/Reactive• Resist Change• Assigns blame when something goes wrong • Uses Chain of Command to control and direct

Constructive Cultures - Proactive• Communicates open and freely• Takes responsibility and accountability• Is innovative and takes risks

Source: The Pacific Institute

682%166%Revenue

901%74%Stock Prices

756%1%Net Income

Non-AdaptiveNon-PerformanceEnhancing Culture

AdaptivePerformance

Enhancing Culture

Quantifying the Impact of CultureKotter & Heskett: Study of 207 firms over an eleven year periodas reported in their book, Corporate Culture and Performance

Building a Foundation for Change

PerformanceStrategic

PlanBehavior

Individual

Thinking

(Mindset )

“It’s impossible to get

qualified leaders in our

market”

“We don’t have the

resources to implement

new systems”

“This is the way we have

always done it”

“It’s impossible for us to be

profitable with all of these new

regulations”

“It’s not my job to ask for

referrals – I am not in sales”

Culture

The Seven Pillars of Accountability

• Culture• Unity

• Learning

• Tracking

• Urgency

• Reputation

• Evolving


From: Accountability: The Key to Driving a High-Performance Cultureby Greg Bustin

Core Revenue per FTE

The Productivity Metric


Calculation of Core Revenue per FTE

• From FDIC data, take net interest income plus non-interest income and divide by number of FTE’s. I am using 12/31/16 data.

Two Examples

• Washington Federal, N.A.– The largest bank chartered in Washington with $14,885,224,000 in total assets

– Net interest income is $421,852,000

– Non-interest income is $49,502,000

– FTEs = 1,813

– $421,852,000 + 49,502,000 = $471,354,000

– $$471,354,000/1,813 = $259,985 core revenue per FTE


Two Examples

• South Sound Bank, one of the smaller chartered banks in Washington with $164,413,000 in total assets– Net interest income is $6,152,000

– Non-interest income is $671,000

– FTEs = 35

– $6,152,000 + $671,000 = $6,823,000

– $6,823,000/35 = $194,942 core revenue per FTE


Our high performance metric for Core revenue per FTE for

respective asset size

Washington Federal = $312,190

South Sound = $213,480


The Shareholder Value Chain


Loan Growth

Deposit Growth

Cross Sell“The Universal Banker”

Fee Income

Satisfaction Survey

Mystery Shop

Customer Retention

Referrals

Satisfaction Survey

Upward Evaluation

Career Pathing

Employee Retention

Customer Buying Behavior

Customer Satisfaction

Employee Satisfaction

Shareholder

Stock Price

Net Income

Revenue Growth

Earnings Per Share

Return on Assets

Return on Equity

Value

Bottom Line Effective People = Business Results

Appendix

Goals – Objectives – Action Plans

For

Succession Planning



Due

Date

Task Employee

Responsible

Status Comments

Determine overall needs of

organization

Create an organization

chart to properly reflect

varying functions of

management and staff

Communicate and

distribute organization

chart to appropriate

individuals

Integrate organization

chart into policies and

procedures manual

Goal: Develop a management and staff succession plan for the overall bank to

ensure attraction and retention of quality individuals.

Objective: Define the Bank’s organizational structure.


Due Date Task Employee

Responsible

Status Comments

Develop a clear

understanding of job skills

and job requirements

Cross-reference

organization chart to define

jobs

Begin writing job

descriptions

Communicate descriptions

to employees

Integrate job descriptions

into Human Resource

policies and procedures

manual

Establish job descriptions in

personnel files

Update as needed and

where appropriate

Objective: Create job descriptions.


Due Date Task Employee Responsible Status Comments

Develop competitive data for payment

structure of similar jobs in similar

organizations

Determine if Bank’s compensation position

relative to industry

Establish whether good performers receive

special incentives

Implement pay-for-performance measurement

standards

Develop evaluation program for pay-for-

performance

Communicate payment structure to

employees based on their respective job

grades

Establish program to educate employees on

why people are paid different amounts for

different jobs

Ensure personnel records support pay

decisions

Prepare annual budgets for wage and salary

expense

Determine if productivity and/or profit

increases match or exceed payroll increases

Determine if compensation is used to provide

feedback on individual contributions to goals

and on performance

Objective: Create comprehensive performance review and salary administration

program.

Washington Bankers Association

April 21, 2017

Forehand Strategy Group, LLC 34

Geri R. Forehand, CPCMPresident

Forehand Strategy Group, LLCA Strategic Partner with The Pacific Institute

987 Kingwood DriveClayton, Ga. 30525

[email protected]

34

Managing Human Capital: Integrating Succession Planning with Attraction and

Retention of High Performance Employees

mailto:[email protected]

managing human capital: integrating succession planning .... geri forehand breakout p… · top...

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