Banking executives in New England have nothing to grouse about when it comes to pay. Even if bonuses are reduced this Christmas due to the sluggish economy, local bank chiefs are secure in their ranking as the highest-salaried group within the nation’s banking industry.

According to the America’s Community Bankers 2001 Annual Compensation Survey, presidents and chief executive officers in New England – a region that includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont – earned an average of $241,947 per year, with an additional $74,264 earned in bonuses and profit-sharing plans.

The study split the country into nine geographic regions and further subdivided results into 52 metropolitan statistical areas.

The Pacific region was second in salary earnings for top banking executives at $221,506 but ranked first overall when adding in the average $98,143 received in bonus/profit sharing. The lowest paid CEOs were in the Mountain region at $137,230, but they still fared better than the East South Central region (which included Alabama, Kentucky, Mississippi and Tennessee) when bonuses were added to compensation totals.

Although the survey looked at relatively few New England banks – 30 for presidential pay rates – it correctly identified what has emerged as a 15-year trend of the region’s lead in top salaries, said one expert.

Wilfred M. Sheehan, president of Clark/Bardes Consulting in Duxbury, has studied compensation rates extensively and examined some 187 banks in the New England area.

The compensation in the country is highest on the coasts and tends to dip toward the middle [of the nation], said Sheehan.

New England, except for a short period in 1991 and 1992, has led the nation in terms of bank executive pay levels since 1983, he said.

Compensation tends to be highest in the Boston to Washington corridor. The reason for that, very simply, is the competition is greater in that market, he said.

Sheehan described the business environment of the Northeast corridor, which stretches from Nashua, N.H., to Washington, D.C., as very intense. The competition for top-quality bank personnel, right down to the lower-level, non-management employees, is very high. He attributed the high competition level for employees, in part, to the incredibly low unemployment rates the area was experiencing until very recently.

Bonus Plan
Other than New York, the financial heart of the country, New England has historically had the highest levels of compensation. The survey found that Mid-Atlantic region presidents and CEOs earned an average of $187,985 in salary plus $44,387 in bonuses and profit sharing. One factor that may have drawn salaries down in the Mid-Atlantic region results is the large expanse of rural areas in New York and Pennsylvania. Ninety-five banks in the Mid-Atlantic region responded to the survey.

In the West, Sheehan said the results would be similar to New England, with salaries peaking around the San Francisco area. Salaries in Seattle have been on the rise as well.

As soon as you leave the sea breeze, the salaries start to drop. For instance, once you leave New England and get into upstate New York, the salaries are less. Once you get into Pennsylvania and Ohio, the salaries can be as much as 15 to 20 percent below what they are on the coast, said Sheehan.

Bank consultant Arnold Danielson, chairman of Danielson Assoc. in Rockville, Md., said the difference in pay scale is reflected in the urban/rural geographic layout.

I see no difference when we do something in New England or we do something in Washington or Philadelphia or the Boston area. We don’t see any sign of any higher pay up in Boston, he said. In the more rural areas of Pennsylvania, he said, he’s seen one bank with $200 million in assets where the only employee making more than $100,000 was the president.

There are a number of factors which contribute to New England bankers receiving higher salaries. While not the driving force, cost of living certainly feeds the fire, say experts.

Even the large urban areas as you go farther south probably don’t have the same cost of living, he said. Charlotte, N.C., or Tampa, Fla., don’t have the same cost of living that Washington or Boston have, said Danielson.

What drives salaries in the Northeast is the high level of competition, which produces complexity in the marketplace. That, in turn, increases the competition for people, said Sheehan.

Sheehan defined complexity as the scope of products and services offered by banks, the technology that banks have incorporated into the mix and the sheer number of banks.

Another reason for the high salaries locally is the recent spate of mergers and acquisitions, according to Fred Foulkes, professor at the Boston University School of Management.

A lot of talented people lost their jobs at BankBoston or FleetBoston Financial as the mergers occurred, he said. Those people were very high-profile and became very attractive candidates to fill positions at community banks, said Foulkes. Then you have these other people who say, ‘Well, so and so at XYZ community bank is making $350,000; my $200,000 looks a little shabby,’ so it will probably move people up [on the pay scale] a little bit, said Foulkes.

Sheehan disagrees. In fact, the availability of the talent created by mergers has been kind of a godsend because, if it weren’t for that, salaries in this area would be even higher, said Sheehan.

But salaries are just part of the overall earnings picture. Most executives receive bonuses and their total earnings are heavily affected by stock options and, consequently, market performance, said Foulkes. A compensation committee usually sets bonuses based on a formula, which may measure factors such as return on assets, market share growth and number of new products introduced.

Danielson said banks have been increasingly relying on bonuses as a compensation device. In the long term, it’s easier to cut bonuses than salaries if the economy goes south, he said.

The sluggish economy will make it difficult to get a raise but, for the most part, banks will do well. The people at the bank are going to have a bad year but their idea of a bad year is they’re not going to show an earnings gain. Everybody else is plummeting, said Danielson.

Foulkes anticipates total compensation to decrease due to the reduction of bonuses or poor stock performance, but cash compensation will generally remain about the same, increasing perhaps 5 percent to 7 percent year over year.

But Sheehan sees the rates of increase for salaries slowing. The slowdown began in 2000 and will continue to decrease into 2002 by about two-tenths to three-tenths of a percent, which he said is fairly significant when raises may only be 4.5 to 5 percent.

Sheehan said he’s also noticed another phenomenon unique to New England. Although the compensation rates of publicly owned companies rely heavily on stocks, the mutuals in New England pay about the same rates, said Sheehan.

New England has a much greater proportion of mutual banks than stock banks vs. the rest of the country … Our surveys indicated there is very little to no difference between the compensation of the two types of banks, he said.

Once you get over $1 billion [in assets] in the shareholder-owned banks, then they do pay more, but under $1 billion, there’s very, very little difference between the two. In some instances, you find the mutuals paying more than shareholder-owned banks, said Sheehan.