Employee Retention: A Community Bank Imperative

By Joseph Lowe

Today, the financial industry’s talent crisis is a hot topic. Community financial institutions around the world struggle to retain and attain employees, pushing them to ask, “How long are our tenured employees sticking around?”

While employee turnover is a normal part of any functioning business, a Deloitte study suggests that banks should keep a closer eye on it. According to the study, banking-oriented students plan to stay at their first job for just three years or less. For community banks that employ a limited number of staff members compared to their big-bank or alternative lender counterparts, this problem can easily become magnified and the effects can be felt across the institution.

Jared Morris, senior credit officer at Peoples State Bank, not only oversees all aspects of credit administration of a financial institution with $900 million in assets—but he also plays an integral role in its employee recruitment and retention efforts. Peoples State Bank has had no turnover in the credit administration department in five years and tripled the size of the team with both young and tenured credit talent. Clearly they are doing something right.

Why do employees leave?

There are many reasons that employees decide to switch employers. ADP Research Institute summarized staffing trends and the most common reasons people leave their jobs. ADP looked at reasons among those aged 55 and up as well as 25 or younger—the latter being a key demographic for community banks hoping to recruit top talent from local universities and high schools.

Their findings show that most individuals—regardless of age—leave for personal reasons that affect their employee satisfaction. The study defines personal reasons as a catch-all category for numerous circumstances, from making a career change or going back to school to wanting more money or moving in with a partner. In fact, ADP has found that 60 to 70 percent of all employee turnover is voluntary, and that transfers and low-performance are among the least common reasons for an employee leaving a role. The common thread among most of these voluntary reasons is they’re out of the employers’ control.

However, there are also many employees who choose to leave based on factors that are within the bank’s control. High turnover rates often point to underlying factors that lead to an employee’s departure, such as bonuses, work-life balance and promotion opportunities. It’s important for your community bank to gather the necessary data to determine trends, reduce turnover and boost employee satisfaction. A common way to gather this data is by performing exit interviews. To truly understand why employees are leaving your financial institution, it is critical not only to conduct an exit interview, but to analyze the data, share the data and act on it. While many conduct exit interviews, many fail to act on the data. The underlying issues then persist, resulting in a number of consequences.

Lost employees = lost funds.

The far-reaching effects of employees transitioning out of a bank can be felt across an organization, especially as it relates to its financial health. The Center for American Progress estimates that the median cost of losing and replacing an employee is 20 percent of the employee’s annual salary.

While the financial loss may seem minor in scope for entry-level roles, numerous banks must shift focus on retaining tenured employees as the talent pool of young candidates continues to shrink. Today’s top graduates are turning toward technology-based careers and turning away from finance-based professions altogether. MBA graduates from the world’s top business schools—Columbia, Harvard, Stanford, Wharton, MIT and London Business School—have all seen decreases in their numbers of graduates who pick financial employment after graduation. From 2011-2015 alone, each school saw decreases of up to 13 percent of graduates pursuing finance careers.

A side effect of a shrinking talent market is that competition for tenured employees with years of valuable experience will inevitably become even more tough due to a limited supply of new candidates. Demands to increase salaries of experienced bankers could intensify, and smaller community banks without the funds to offer higher salaries might be overlooked for financial institutions that do.

Lost employees = lost relationships.

Community banks in general have built their reputations on relationship banking, developing strong ties with local residents and small businesses—and often servicing rural areas where there is no other physical banking presence. Perhaps the most important aspect of relationship banking is building and developing the relationship itself. It takes time to build rapport with a client. A survey by SDL, a customer engagement company, found that it can take two years on average for customers to trust in a brand. In other words, it takes “two years for a customer to simply view your brand as one it can rely on.”

When employees with longstanding relationships leave to pursue other ventures—or worse, join a competitor—they take those relationships with them. The new relationship manager might have to rebuild those relationships from scratch, which can deter future partnerships and deals.

Lost employees hurt company cultures.

According to the ADP study, the second most commonly cited reason for turnover by those aged 25 or younger is termination, and the most cited reason for those aged 55 or older is layoffs. Firings or downsizings can undermine the culture of an organization and decrease trust in the company by employees. Company culture can play a pivotal role in a community bank’s employee retention strategy, due to its overwhelming importance to employees across all industries. A Hays report states that not only are 43 percent of people actively looking for positions due to a poor company culture, but 71 percent of people are willing to take a pay cut for the right fit.

High turnover rates can be costly, not only financially, but also from a time and productivity standpoint. In a tight labor market, it becomes increasingly important for community banks to focus on the root of employee satisfaction in order to retain employees, as well as recruit top talent.

Joseph Lowe is the commercial lending marketing manager at Abrigo, a leading technology provider of compliance, credit risk and lending solutions that community financial institutions use to manage risk and drive growth.