(February 2008)

Despite narrowing margins, community banks have done a good job of managing steady returns in recent years. Ironically, it is that success that has attracted the attention and competition of institutions as diverse as internet banks, Wal-Mart, insurance companies, brokerage houses and payday loan outfits in addition to the more traditional challengers found at mega-banks, credit unions and savings and loans. 

It is clear that expenses associated with labor and technology constitute the two biggest single costs of any community bank. To stay ahead of competitors and keep turnover costs down requires a comprehensive and well-executed plan. That plan must address how to attract and retain the right executives and staff along with how to understand and choose from the many available technological advances for your specific financial institution. 

You should also implement ongoing training for your people that touches on all of the bank’s products, services and technologies. That training will enable you to keep employee satisfaction high and replacement expenses low while increasing customer satisfaction and maximizing your bottom line.

GETTING THE RIGHT PEOPLE

How Changing Demographics Will Affect Your Workforce
The next several years will see some startling changes in the workforce. The U. S. Bureau of Labor Statistics estimates that by 2010 there will be only 158 million skilled employees to fill an expected 168 million corresponding positions. This is due in large part to the “Graying of America,” and the fact that a hefty percentage of the baby boomer generation will soon be retiring. This will contribute to the loss of the highest percentage ever of top ranking executives from the work force.

One way to combat this loss of valuable employees is to begin now to implement strategies and practices to create a more flexible and appealing work environment to entice those with an interest in keeping mentally and socially engaged to stay. This will also allow employees who are considering retirement access to benefit programs that may be of continuing interest to them. You stand to gain an increased opportunity for the knowledge transfer from more experienced workers to the next generation at a time when the competition for talent will be fierce. 

You Will Benefit From a Succession Plan
Any business not strategically prepared for the heavy competition for capable people ready to step into the senior leadership positions will be in for a rude awakening. Community banks can be ready for this by having a leadership succession plan in place that identifies individuals able and ready to take responsibility for ensuring the institution’s ability to meet future marketplace challenges. These plans can be structured to take effect upon the untimely death of an employee as well as upon the more predictable retirement. A bank without a succession plan for both foreseeable and unforeseeable contingencies could find that it loses top people to its competitors in times of upheaval.

Before you can consider how to develop a succession plan, you must first identify who will be responsible for tailoring the needs of the plan to the specific position to be filled. If you are fortunate, there will be an executive in Human Resources with expertise in this area who can steer you through the process. You can’t assume that all Human Resources employees will have this level of training or skill, however. If your HR staff does not have that type of expertise, you should explore industry consultants who can assist. 

The steps to be taken in establishing your succession planning practices should take into account the position to be filled. Plans are most typically developed for high ranking executives, but must also be considered for board members, management, and any other employee whose position vacancy would have a potential negative impact on your bank’s ability to conduct business. Typically, your succession plan would cover the following steps: