IMO: How to Make Telecommuting Work in Banks

Schlepping to the office five days a week is enough to make employees, or would be employees, reconsider working for you. This is particularly true in urban areas, where 20 miles might equal an hour commute. Or in growing families, where daycare costs might eat their pay check. In comes telecommuting. 

And in an era of high competition for top-notch employees, even stick in-the-mud old schoolers have to consider telecommuting as an option for employees. Currently, there are an estimated 3.9 million telecommuters in the US. Up 115% from 2005. 

How To Manage It?

Jane has a 20 mile commute and bears a high proportion of parental duties, and works two days a week from home. Seems fair. 

John, her coworker performing in a similar job, is denied telecommuting. John doesn't have parental responsibilities. His commute is about the same as Jane. 

Mana from heaven for discrimination lawyers.

So you give in to John so he doesn't call the law offices of Duey, Cheatem, and Howe. You give him a laptop and set him up at home. 

Later, you have to reprimand John for his lack of availability while working from home. He promptly quits. And has your laptop. With your customers' information on it. Safely in John's spare bedroom, where he now uses it to play Grand Theft Auto (GFA).  

Imagine that disclosure to your customers? "Your personal information may have been compromised to a Missouri teen that achieved Level 20 on Grand Theft Auto and somehow gained access to one of our laptops in the possession of a former disgruntled employee that was playing GFA with the alleged data thief."

So what should you do? I have ideas. Most came from the ABA Banking Journal's thought provoking podcast: How to Make Telework Work in a Bank. 

Making it Work

1. Have a policy. In order to avoid discrimination and missing half of your department, develop a policy that all telecommuting decisions are made from. For example, the policy may read "after two years of continuous employment, a manager may grant permission for an employee to work from home either temporarily or on some routine schedule, depending on the circumstances." And then spell out the decision map that the manager must follow. Like exceptions to loan policy, there may be exceptions to this policy. Such as waiving the two-year requirement for competitive reasons (if the new employee had telecommuting as part of their prior employers benefits). But have as specific a policy as possible to make it clear when telecommuting is permissible to minimize gray areas, discrimination, employee envy, and dissatisfaction.

2. Use Virtual Desktops. Solutions such as Citrix or Horizon transforms static desktops into secure, digital workspaces that can be delivered on demand. Meaning a telecommuter can use a VDI app to access their at-work desktop as if they were actually at work. And since the VDI is only delivering images of  their desktop, data is not stored on the computer in their home. This solves for systems security and patching. And if the employee leaves, like our doppelganger John above, no worries. Access can be turned off from HQ.

3. Set expectations clearly. The ABA podcast suggested signing a contract with the employee. Such as ensuring they work a regular workday, instead of setting their own hours. You don't want branch staff calling a telecommuting employee for an IRA minimum required distribution amount and that person be out food shopping because the crowds are lighter at the supermarket mid afternoon. And be clear on days in the office versus working from home. Even if the telecommuting contract is short term, such as an employee recouping from a broken femur suffered while skiing. 

4. Use office chat software. Such as HipChat or Slack. You may not have the "shout over the cubicle" capability with the telecommuter, but you can almost have it with an office chat application. They are getting such wide acceptance, they are being used instead of shouting over the cubicle. So why not take advantage of technology?

5. Use video to include telecommuters in meetings. A risk of telecommuting is that this valuable employee, that you thought so valuable that you allow to work from home, would be disconnected to the workforce. Phone calls are one thing. But doubling up on the connectivity with video will improve internal camaraderie and make at-work and telecommuting employees feel more connected. If it means they have to shower and get out of their pajamas, so be it.

My millennial daughter recently asked an employer if she could telecommute a couple of days per week. The company said they were just implementing a new policy to accommodate that. So if you are a telecommuting resister, it's coming whether you like it or not.

I hope you can use the above ideas to make it work.

What other ideas do you have?

~ Jeff

Note: I am not an attorney or employment specialist. I have never passed the Bar. But I occasionally stop in :)

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Health Insurance: A Bank Problem Too

Bank health insurance premiums have escalated to the point of cutting back benefits. As a nation, our system is not working, whether it be Obamacare or pre-Obamacare. The cost continues to escalate.

An industry publication recently contacted me for some commentary on their "Best Banks to Work For" annual piece. Naturally, I had opinions. When I analyzed their list two years ago, I noted that the financial performance of those banks was similar to banks that didn't make the list. Greater investments in personnel and employee benefits did not result in inferior financial performance.

I also noted that the most cited benefit by employees of banks on the list was gym and health initiatives. And generous benefits was near the top, at fourth. Remember the days that employees would seek banks out for stability, fair pay, and employee benefits? Merger mania has nearly eliminated stability, and the rising cost of healthcare has led to many banks cutting back on generous benefits, removing another competitive advantage in the employee marketplace.

It should be noted that the data in the accompanying charts came from employers. Not premiums in the Affordable Care Act marketplaces so often cited by lawmakers. But the escalation of premiums continues to far exceed inflation and will continue to put pressure on banks' bottom line unless they prune benefits even more.

So I would like to chime in on the healthcare debate, because we can no longer rely on media outlets to provide us with the information to make informed decisions. They cover protests. And protesters are likely to be people that receive free or highly subsidized insurance. I doubt there are net payers to the health care system out there protesting that they should pony up even more for the net takers.

The media covers inflammatory political rhetoric. Like saying one proposal or another will kill people. Not fact-based debate. Too boring. As evidence, look for the oft-quoted CBO stat that one proposal will result in 20 million more uninsured people. The next sentence should say, "the vast majority of which would choose to not participate". Does the media coverage say that? There ya go.

Any health care proposal should be: 1) private, 2) widespread, 3) transparent, 4) favor freedom.

So here are my thoughts:

Health care is a group system. If someone gets sick and consumes more than they contribute, the cost is made up through a pool of people that are paying more than their consumption. That is truth no matter if it's private insurance or government paid. But single payer, or government paid insurance where it's a continual transfer from one group to another is a bad idea. Look at the VA. True competition will come when the payer of services is the consumer of services. Look at auto insurance. We're forced to buy it, and we do so privately. Bad drivers pay more than good drivers. And the Camaro owner pays more than the Camry owner.  

So the JFB health care plan would be private health insurers.

To give small business, the life-blood of our economy, negotiating leverage with private insurers, I propose we allow businesses to affiliate through trade associations, unions, etc. across the country, not state lines. This also applies to an individual market. Allow them to affiliate, through churches, trade associations, etc. 

I propose there be a required minimum basic coverage that keeps families out of bankruptcy should they fall ill and encourages preventative care. Such as a high-deductible Health Savings Account (HSA) plan that has a maximum out of pocket (MOOP) per annum per family of about $10,000, adjusted for inflation. There must be language to limit political influence in this law. One of the failings of Obamacare was putting in political wish-list stuff for social engineering. Such as birth control. To keep teenagers from making babies. Sort of like mandatory parenting. The Basic Plan should be simple and protect families from bankruptcy for extraordinary medical expenses and encourage preventative care. 

I like HSA plans because it puts individual skin in the game. You want to load the shopping cart with Oreos or smoke a pack a day. It will cost you much more than me. Skin in the game. Put behavior and cost of the behavior as close to the individual as possible so there is consequence. I'm an accountability type of guy.

States can have overlays to keep state control. Especially since the Federal mandate will be Basic. But regulation and enforcement of the national law would be national. Regulation of overlays can be state-based. So if California wants to jack up the prices of plans to include medical, recreational, and Cheech and Chong level marijuana use, it's on Californians. We're not going to charge Kentucky for it.

My apologies to the freedom lovers, but we must compel people to buy insurance. In 1985 we required hospitals to treat whoever came to the emergency room, regardless of their ability to pay. That is why you would have to wait so long to get your broken arm fixed. Someone checked in before you with a head cold. Remember those long wait lines in the emergency room? Free health care for those that chose not to buy health insurance. Free riders. No more. This also solves the adverse selection problem in health insurance. People that don't participate in a health insurance plan if they are healthy (i.e. net payers). Many wait until they are likely to be net takers.

Make insurance transparent through a pricing portal run by your insurance company. Insurance companies negotiate different rates for different services by provider, and by insurance plan. It is nearly impossible to make an economic decision. I remember my daughter being at the doctor and was diagnosed with hip dysplasia, a common problem for growing female athletes. The doc said he was 95% sure this was the issue. If we wanted him to be 100% sure, he would need an MRI. I asked how much that would cost. He was taken back by the question, but left the room and asked his admin staff, and they came back with somewhere in the $900 range. That would come out of my HSA. So I decided his 95% was enough. I balanced an economic and medical decision. If a third party paid for it all, I probably would have gotten the MRI. See the problem?

Under the JFB plan, there would be an app that prices out services and service providers so everyone knows the price of their decision, including the prices of local doctors.

Medicaid should be transitory. We are creating a lifelong needy class in our society. It's moving closer towards indentured servitude to the government. Which is dangerous. Check history. However, keeping with the theme of pushing things more local, states can keep ponying up for people that aren't employed, lack the basic plan, and have lots of protest time. Their choice.

Companies can compete for talent based, in part, on their additions to basic coverage. They have the option to make HSA contributions and premium contributions to the basic plan, add benefits, or all of the above. Making it easier for would-be employees to determine which insurance offering is better, and tilt the scales towards those that are more generous, and creating transparent competition for talent. 

That's it. Simple. Transparent.

What do you think?


~ Jeff

Are You a Bank With Benefits?

The American Bankers Association (ABA) recently announced a new benefit to assist its employees with repaying student debt. Beginning next month, ABA will provide each eligible employee up to $1,200 per year toward the payment of student debt, in addition to their current compensation. According to the Society for Human Resource Management, only four percent of employers nationwide offer this benefit. 

Is this an altruistic statement regarding the $1.4 trillion of student debt in America, or a prudent employee benefit targeting recent college graduates that each average $30,000 in student debt?

I recently proposed this topic for my firm's podcast, This Month In Banking, which is released on the last Wednesday of every month. Shot down. Too boring. But hey, I have a blog too! And I think it is an extremely important topic in talent acquisition and retention.

According to the Bureau of Labor Statistics June 2016 report, salaries, commissions and bonus accounted for 68.6% of total compensation, and benefits accounted for the remaining 31.4%. This is an increase from 29.9% in 2013. So benefits is a large, and increasing proportion of total compensation.

What makes the ABA announcement interesting is: 1) it is a benefit specific for those that carry student debt, meaning mostly millennials, and 2) that they felt they should announce it.

I don't think it is a mystery that bank employees seem to be getting older. And that succession planning in our industry is an issue. Since the financial crisis our industry's brand as a go-to employer has been hurt. And hurt badly. 

How do we attract quality, younger people and then retain them to be the future leaders of our industry? 

What employees value is in the eye of the beholder. Younger workers, for example, value cash on the barrel-head. Less important would be insurance (health or life), and retirement benefits. Not that it is unimportant. According to the Willis Towers Watson Global Benefit Attitudes Survey (What a mouthful! Some marketing person should revisit that title.), only 42% of US respondents said they would opt for more pay/bonus as opposed to other benefits if they had the choice (see chart). So other employees have different priorities.

For younger employees, there are some startups that focus on benefits important to them, such as Gradifi, that focuses on student loan paydown. Imagine the recruitment and retention with this benefit!

But as this benefit becomes less important to employees, perhaps a migration to something more meaningful, such as a greater 401k match, a more robust health plan, or life insurance benefits. Is it practical to earmark certain benefits dollars per full-time employee, and let them select, in menu fashion, what is important to them? For example, the recent college graduate may opt for a student loan paydown benefit, and take a high-deductible HSA health insurance option, rather than the traditional plan.

I think what is clear is that benefits that are important to your employees differ over different times in their life cycle.

Can bankers devise a cost-effective benefits program that recognizes this, would help them attract the best talent, and keep them?

~ Jeff

A Solution for Closely Held Banks

If you are a family bank and want to sell your shares without selling the bank, what do you do? So was the question that my colleague, Sharon Lorman, put to me in my firm's very first podcast edition of This Month In Banking (follow link to listen!).

The question is not for family banks alone. But all banks that are privately held or have one or a few very large shareholders. How do those shareholders exit if they need liquidity for whatever reason?

This month, Old Fort Banking Company in Tiffin, Ohio gave us an answer... form an Employee Stock Ownership Plan (ESOP). Old Fort, founded in 1916, was run for generations by the Gillmor family. Dianne Gillmor Krumsee is the current Chairman. Looking to divest a portion of her stake, the bank's CEO, Mike Spragg, proposed establishing an ESOP to buy $15 million of her shares and therefore preserve its independence and the Gillmor family legacy.

An ESOP is a trust that is a qualified retirement plan designed to provide employees with an ownership interest in their company by investing primarily in stock of the employer. The ESOP is funded with tax-deductible contributions by the employer in the form of company stock, or in the case of the Old Fort ESOP, with cash that was used to purchase company stock. In this case from its Chairman. The bank's press release did not specify if the ESOP was leveraged, meaning it borrowed to fund the purchase. My guess is that it was leveraged with a loan from a financial institution or Ms. Krumsee herself. Either way, Old Fort would have likely secured the loan.

The bank can then make tax-deductible contributions to the ESOP to service the loan. As the loan is repaid, shares held by the ESOP are released and allocated to employee accounts.

Their may be tax benefits to the selling shareholder. According to Internal Revenue Code Section 1042, an owner of a closely held C corporation can defer, and potentially eliminate, all state and federal capital gains taxes on their sale of stock to an ESOP. This is done by reinvesting the sale proceeds in a Qualified Replacement Property (QRP) within 12 months of the sale. Don't take my word for it. Check with your tax adviser. That's another test I didn't take.

Chase has an excellent ESOP primer that I checked out for this post. Check it out for more information.

The benefits of an ESOP go beyond tax benefits for the seller and independence for the bank, in my opinion. Studies show that employees with ownership stakes in their companies tend to run the companies better... i.e. they perform better. A recent FDIC analysis concluded this. 

Indeed, I checked all the Sub S banks in the US, which are mostly closely held banks with significant employee and family ownership, for their financial performance. The table represents my findings.

For its part, Old Fort had a 2015 ROA of 0.96% and ROE of 10.90%. Not too bad for a $475 million in asset bank. By comparison, FirstMerit, also of Ohio, had a 0.91% ROA and a 7.90% ROE for the same period. Oh, and FirstMerit is $25 billion in assets. And just threw in the towel by selling to Huntington Bancshares (ROA: 1.01%, ROE: 10.60%, Total Assets $71B).

The twist for Old Fort, is the $15 million share purchase represented a 45% stake in the bank, which required the ESOP to apply to be a bank holding company. Which it did. And apparently succeeded, because the transaction closed last month.

Well done to Ms. Krumsee, Mr. Spragg, and all the employee-owners at Old Fort Banking Company for executing on an idea to perpetuate the family involvement, provide liquidity, and keep their well-run bank independent.

~ Jeff

A Labor Day Analysis of American Banker's Best Banks To Work For

American Banker recently published their annual Top 50 Banks to Work For compendium. I am proud to say that a few of the winners are clients. Why the pride? My firm does not specialize in happiness. We specialize in strategy and profitability. So why would I care if clients were lauded for bringing job satisfaction to their employees?

It's all about perspective. During strategy sessions I am sometimes dismayed at some banks that make shareholder returns the fulcrum of their strategy. Shouldn't the very existence of our bank be nobler? We are all working our way through life. And most of us want our neighbors, coworkers, family and friends that navigate life beside us to do so with peace and happiness. We have far more customers than shareholders. And how we run our bank has a much more direct impact on employees' lives than shareholders' lives.

On this Labor Day, I put to you that a strategy focused on customers and employees satisfaction is a better undertaking than solely focusing on shareholders. Shareholder returns is the scorecard that shows us how we are doing in serving customers and employees, and whether we deserve to remain independent to execute our strategy.

I often invoke the term "right to remain independent". Put simply, a bank should deliver financial performance and total return equal to or better than would-be acquirers, so it is presumably better for shareholders to hold your bank's stock. 

The banks in American Banker's list ranged in asset size from $220 million to $19 billion and the number of full-time equivalent employees ranged from 51 to over 2,200. To say the least, the banks were wide and varied in size, charter, strategy, and geography. So comparing them to an index peer group is difficult. 

But I did it anyway. Below are some financial condition and performance metrics of the Top 50 compared to SNL's Bank & Thrift index banks.

It appears that a focus on employee satisfaction has not adversely impacted financial performance. In fact, we have found that there is generally a positive correlation between bank size and financial performance, and the SNL Bank & Thrift index banks are undoubtedly bigger than the average sized bank in the Top 50, which was $2.2 billion in assets. The SNL Index includes all major exchange (NYSE, NYSE MKT, NASDAQ) banks and thrifts. No limited trading markets or private companies, where smaller banks tend to be. So the relatively smaller Top 50 delivered very similar financial performance than the larger index banks.

The American Banker list highlighted what was perceived as the major benefits of working for the Top 50. I carefully sifted through their list to identify common themes that were valued by employees. The results of my analysis are below.

I was not surprised by some, such as free employee meals. Feed someone to make them happy. Makes sense. It did surprise me that gym and/or health initiatives topped the list. Perhaps, with continued digitization of bank processes and transactions, banks need less real estate than they have and it makes sense to put that space to good use for a healthy lifestyle employee perk. 

Some of the most mentioned benefits cost little to nothing, such as executives communicating with employees and vice versa, and flexible scheduling. Others do cost money, such as generous benefits, incentive compensation, and career development. But these hard costs did not result in lower financial performance, according to the first table. Perhaps one can conclude that a great place to work attracts more capable employees that can more effectively and efficiently serve customers even though the cost structure of the bank may be higher.

Would you rather build a bank with a slightly higher cost structure and very satisfied employees that delivers a similar return to banks with leaner cost structures and a greater proportion of curmudgeons? 

What do you think?

~ Jeff

Link to American Banker Top 50 Banks to Work For
http://www.americanbanker.com/gallery/the-best-banks-to-work-for-2015-1076233-1.html