Squeezed by low interest, constrained by competition from raising prices and facing shareholder pressure to improve returns, the banking industry is struggling to control costs while labor shortages and public sentiment is pushing for higher wages.
American Banker says the $56.7 billion banks spent on salary and benefits in Q3 last year was 18.4% higher than in 2014.
Those expenses are expected to rise even more this year, as industry leaders prepare to hike their minimum pay. The Bank of America is raising its minimum $17 an hour wage to $20 by the end of this quarter. JPMorgan Chase is raising starting pay about 10% to at least $15 an hour and up to $18 depending on the market. Bank of New York Mellon already raised starting pay to $15 an hour.
Wealth management firm Janney Montgomery Scott estimated that non-interest expenses for some 100 of the nation’s public banks would rise 3.64% this year, much of the increase due to compensation costs.
Christopher Marinac, director of research at the investment firm, told American Banker, “Can you also attribute [the rise] to salary increases? I think you can.
“Banks have to be thoughtful about what they’re paying employees. … It’s easier to pay workers slightly more — give them an increase or a rate change or change salaries — because it’s expensive to replace them.”
Like most industries, financial institutions have found it tough to recruit workers. A report last fall from the accounting and consulting firm Crowe Global said recruiting and retaining workers, especially younger workers, was a challenge for most banks. The cause, said Crowe Global, was pay, which, according to the firm’s survey, averaged $30,000 for entry-level positions.
With almost half of all bank employees over 45, the industry has been forced to raise starting pay to attract entry-level workers.
That’s made reining in costs difficult, given that wages and benefits accounted for 59% of banks’ total non-interest expenses last year.
As James Chessen, chief economist at the American Bankers Association, told American Banker, “This is a tough situation for banks and all businesses, managing expenses when it’s hard to raise the prices of the goods you sell.”
Photo by Dmitry Demidko on Unsplash
