Executive Succession Planning Plays Vital Role in Long-Term Bank Health

With Baby Boomers retiring at an accelerating pace over the next 10 years, there is a critical need for financial institutions to focus on executive succession planning.

The 2020 Crowe Compensation and Benefits Survey revealed that 50 percent of FI executives are 56 or older, and 28 percent of managers are in this cohort. With that in mind, Mark Walztoni, a human resources consulting managing director at Crowe, says it is surprising that only 58 percent of organizations reported that they have a documented, board-approved succession plan.

A management succession plan that addresses both the CEO’s succession and other key management roles is critical in ensuring the long-term health of the bank. That succession plan should not only be developed conversationally, but it should also be documented in writing. The CEO oversees executive management succession planning; the board oversees the CEO’s and board members’ succession plans.

CEOs report directly to the Board of Directors and must gather feedback from their boards if they want to change FI strategy or direction. While a governance committee typically performs a CEO performance evaluation annually, the responsibility is sometimes allowed to lapse.

“The annual CEO evaluation and assessment has great significance and can play a critical role in effective succession planning,” said Ty Glenham, Senior Consultant of Profit Resources, Inc. “Ensure that it is done intentionally and on a regular basis.”

Action steps bank directors and incumbent CEOs can take to address and develop talent and succession:

1. Make discussion of the bank’s talent and leadership development a regular agenda item at board meetings—not just annually, but at least quarterly.

2. Hold the current CEO and other executive leaders accountable for grooming their successors. Linking a meaningful portion of executive incentive compensation pay to the achievement of these goals will provide the appropriate motivation.

3. Don’t be afraid to selectively use outside experts, such as an executive coach or organizational development professional, to assist.

4. Developmental opportunities should involve more than traditional up-the-org-chart advancement. Much learning can be accomplished via lateral moves, special project assignments and add-on responsibilities to help prepare managers for higher roles.

5. Let your up-and-comers know that they matter. Your handful of rising stars want to hear it and letting them know they have a bright future ahead may do more to retain high potentials than anything else you may offer.

6. Shift your compensation programs to a pay-for-performance model and reward your best performers appropriately. Giving everyone the same raise regardless of performance creates a disincentive for high-impact players.

7. Don’t ignore succession at the board level. Director succession may be the most sensitive topic in your boardroom, but that doesn’t mean that it shouldn’t be put on the table. Make director development and board repopulation regular agenda items as well. Board skills need refreshing and updating too.

“Banks that survive and thrive benefit from the successful execution of strategy which flows from a continuity of leadership,” Glenham said. “CEOs and boards of directors must recognize this and prioritize talent at the top of their agendas.”

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to propel growth and improve profitability.