INNOVATION IN EMPLOYEE BENEIFTS

The CEO cleared his voice in the front of the conference room and began to detail 2Q performance. The employees gave the CEO a thunderous applause, but nothing close to what was about to come. At the end of the 30-minute meeting about performance, the CEO told his employees that they were all about to be "Chiefs." The CHIEF plan was the acronym for the "Customer Holdings Investment Equity Fund" and was the latest innovation regarding employee benefits. Since this bank was privately held, by almost a single shareholder, management needed some way to further motivate and retain employees. After reading about a similar plan from a marketing firm in Ohio, the CEO put together an investment fund composed of the publicly traded equity of some of the bank's best clients. Management purchased 1 to 5 shares of a select group of clients for a total of approximately $1,800 for each of their 300 employees. Vesting was set at a short 1 year. The bank then gave each employee a salary increase for the initial year to offset potential income tax impact. The end result was a semi-diversified portfolio (some regional geographical exposure) that is much more liquid than holding bank stock. Better yet, employees are further motivated to get to know their clients, chart their performance, better understand their lines of business and see what potential impact a banking relationship has on actual success. Now, when a lending officer suggests a floating rate loan, they are better able to evaluate if the structure is the best for that client given that client's revenue structure. The CHIEF plan sends an unprecedented message to customers that the bank supports them and is willing to tie their future to their performance. That positioning goes far beyond the mere purchasing of client goods, as some banks have done in the past. To employees, the CHIEF plan says a tremendous amount about a bank's values, its ability to innovate and commitment to their customers. While the plan is not without its complications, such as tax, accounting, the possibility of insider information and potential for conflict of interest, several firms in the market have shown that this can be overcome. To date, the plan has exceeded the S&P by more than 8%, has boosted morale and has created a buzz in the community. Just as many banks only think price when it comes to deposits, too many banks just think salary when it comes to hiring. The CHIEF plan is a glaring example of what can be gained by banks that are not afraid to innovate. Many banks say that their employees and their customers are their most important assets, here is an instance that makes good on that promise.