Rhetoric or Reality?

By Bill Stoneman

Banks talk about upgrading the status and capabilities of their branch managers, but actual improvement appears limited.

Bankers have rediscovered the branch, after a brief flirtation with Internet banking, but have they also rediscovered the branch manager? The success of relationship-based strategies partially hinges on the answer to that question. Yet it is not clear that all institutions are even attuned to the issue, much less addressing it.

Not so long ago, bankers wondered if the increased use of electronic channels, such as the personal computer, automated teller machine and telephone, was going to render brick-and-mortar outlets obsolete. That view has been discarded in the wake of the fizzled Internet-only model. Much of the industry, in fact, has embraced a new era of branch redesign, with offices that focus less on transactions and more on consultative sales, particularly of investment and insurance products.

As a result, "The required skill set for a branch manager is considerably broader than it was 10 years ago," says Michael J. Aust, executive vice president in charge of National City Corp.'s community banking division. "Our folks have to be sophisticated enough to profile customers, determine their needs and then deliver the service in a way that's best suited for them."

Some institutions, such as Cleveland-based National City, are indeed trying to elevate the role and stature of their branch managers. Others apparently only pay lip service to the concept, and some consultants and headhunters contend there's a noticeable gap between rhetoric and reality.

"The typical branch manager rises from the teller ranks to become assistant operations manager; then operations manager; then branch manager. And that's as far as that person typically will advance," says Al Ponaman, an executive recruiter based in Chatsworth, Calif. who specializes in filling bank positions in the southern part of the state. "His or her career is limited."

Truly transforming the branch manager's position, experts say, will require a combination of higher base pay, more incentive compensation and improved career opportunities. It also will require providing the managers with more authority and, less tangibly, higher status within the organization.

All of these requirements clash with hard realities. In the current straitened economic environment, institutions understandably are disinclined to elevate pay rates for branch managers — certainly not across the board. And higher status, ultimately, is tied to those pay rates. Elevating authority, meanwhile, conflicts with the drive for increased operational standardization. Nor is it desirable to offer career paths elsewhere in the organization when the corporate goal is to keep good people focused on the retail operation.

So by and large, institutions are left tweaking the system around the edges: providing better training and some pay incentives; shifting additional responsibility to the branch level where possible, particularly in the area of small business; and talking up the changes that have been made. Whether this will suffice to provide the sales performance banks are now seeking from their branches remains to be seen.

"To succeed with today's wide product set, you need insurance licensing and Series 7 brokerage licensing, and you must be a certified financial planner to boot," says Mary J. Mallett, president of Search Pro Inc., an executive recruiting firm in Charlotte, N.C., that specializes in banks. "But if you can do all that, you're not going to be working for a $60,000-a-year branch manager's salary."

Status Problem

The branch manager's job was never considered glamorous, and that largely remains the case today. Although prospective managers usually have toiled a couple of years at subordinate positions within a branch, little else is required for the job at many banks.

And though talented people have indeed risen through the ranks from the branch manager position, it hasn't generally been seen as a launching pad for a high-powered career, at least not at large institutions. "The commercial side of the house has pretty much had the status," says Gregory A. Paule, executive vice president and head of financial services for the Memphis region of First Tennessee National Corp., Memphis.

Paule ticks off the reasons why. For one thing, commercial bankers "handle the big-ticket items; they're dealing in $1 million-plus loans." Branch managers, by contrast, handle smaller consumer and small business loans — and don't even do the latter in organizations that operate specialized small business units.

Additionally, compared with the branch manager who often passively waits for traffic to come in the door, commercial bankers have always had to go out and hustle for the business. They also need specialized training to deal with complex credit arrangements. All of these factors translate into higher stature within the organization.

The role of the branch manager is beginning to improve at many institutions, however, driven in part by competitive pressure and in part by bank migration into new businesses, such as investments and insurance. Sales skills are supplanting the former emphasis on service. Today's thinking stresses building relationships and competing for customer share-of-wallet, rather than passively accepting that accounts will come and go. Credit skills are also less important since most consumer loan decisions are made by automated systems and small business loans decisions have been either automated or moved to centralized units.

Charles Begley, head of Sovereign Bancorp's 260-branch network in New England, says branch managers have always enjoyed some measure of respect in predominantly retail banks, but were not especially appreciated until quite recently in banks with more of a commercial orientation. In either type of bank, however, managers are beginning to play a distinctly different role than they did a few years ago, says Begley, who moved to Philadelphia-based Sovereign in June 2000 from FleetBoston Financial Corp.

"The key elements of that role are acquiring and retaining small business customers; leading efforts in the sale of non-federally insured investment products; and developing a team within the branch that has proactive sales skills, rather than simply reactive service-and-fulfillment skills," Begley says.

Career Ladder

The small business link is also important to SouthTrust Corp., which two years ago told its branch managers to spend more of their time developing and managing relationships with small business owners, even as they continue with responsibilities for all retail sales and service functions in their offices.

Managing these relationships gives the branch managers a somewhat higher status in the organization and helps them progress into higher-profile commercial positions, says Robert M. Negri, executive vice president for general bank administration at Birmingham, Ala.-based SouthTrust. Though that might be a loss for the branch system, it's also a gain if it motivates greater numbers of talented people to give branch service a try early in their careers.

Equally important is an ongoing effort to convince bankers throughout SouthTrust that they have a vested interest in the success of branch managers. "I can't guarantee that every commercial lender is now treating branch managers well," Negri says. "But I can tell you that every manager at the corporate level shows respect for branch managers."

National City is trying to provide branch managers with more respect by raising their base pay; redesigning incentive pay to reward for customer satisfaction and retention; and giving managers more authority to override centralized loan and deposit pricing. Support units within the company "need to know that when a branch manager calls them with a problem, it is important," Aust says. "They need to give it the proper attention and sense of urgency."

National City recently provided all branch employees with written descriptions of requirements for various positions and how to fulfill them. By reminding people that there is a career path within the branch network, says Marylu Giver, vice president and retail talent development manager, the company hopes to spark the aspirations of more managers and keep talented people in the branches.

For example, National City branch managers can advance to market and area management positions, with responsibility for groups of offices. And they can do so without leaving their current posting, since they continue to manage their "home" branch and retain customer contacts at that office.

PNC Financial Services Group has taken a similar approach. In 1998, the Pittsburgh-based company divvied up sales and service activities in its 750 branches and created what it calls "sales sector manager" and "service sector manager" positions, whose occupants oversee their respective functions in three to seven branches apiece. Below this level, each branch also has an onsite "service manager."

The result is a smaller number of branch management-level positions to fill and an additional rung on the career ladder, says Neil F. Hall, deputy manager of PNC's retail group, known as the regional community bank. The base pay for these sector managers ranges from 15% to 25% higher than for traditional branch managers, Halls adds.

Slow Upgrade

Despite the efforts of institutions such as Sovereign, SouthTrust, National City and PNC, observers say banks generally have been slow to upgrade their branch manager positions. While the industry has been putting more emphasis on building a sales culture in branches, hiring and compensation practices for branch managers overall haven't really kept pace.

"I'm not sure most management teams fully comprehend how much more complex a branch manager's job is than it was even three or four years ago," says consultant Douglas Smith, a partner with Bank Earnings International in Glenview, Ill.

Pay scales remain a big sticking point. Headhunter Ponaman says branch managers in the Los Angeles area typically earn from $60,000 to $80,000 annually. By contrast, commercial lenders with their own client portfolio, but no general management responsibilities, make from $90,000 to $130,000.

"It's absurd," says New York-based consultant Charles B. Wendel, "that those branch managers who make an awful lot of money for the company in their branches don't have the same prestige as middle-market bankers. They don't make as much money, don't have a similar expense account, and don't get to play golf with clients like the middle-market bankers."

There are a number of practical obstacles. The sheer number of offices operated by large, multi-state banks will complicate efforts to transform the branch manager corps into an elite force. Moreover, though banks are ramping up their training programs for branch managers, in many cases they're working with relatively inexperienced people who don't have the personality for the job as it's defined today.

"The branch manager who is interested in life-long learning is handling today's situation well," says Michael J. Tierney, senior vice president for personal financial services with Comerica Inc. in Detroit. "The person who is not willing to accept the changes in our customers and their needs hasn't made the transition."

Despite the industry's emphasis on investment sales, few incumbent branch managers today hold licenses to sell annuities, mutual funds and insurance. Banks know they need to boost pay for people who possess those credentials. But raising salaries for large numbers of branch managers could be prohibitively expensive at a time when corporate budgets are tight. Mallett, the North Carolina recruiter, doubts banks will ever compensate licensed representatives at the same level as those working for a stock brokerage firm or an insurance agency.

And status may be the toughest issue of all to deal with. Institutions like to say their branch managers have achieved more importance and responsibility. But when the rubber hits the road in the course of day-to-day business, old attitudes quickly resurface.

Wendel, president of Financial Institutions Consulting Inc. in New York City, recounts the experience of a former branch manager at a top 10 bank, whose senior management had decided to remodel the manager's branch without his input. "In a branch where customers often stood in line waiting to use an ATM," Wendel says, "the new branch layout actually called for reducing the number of machines."

Sometimes there are simply conflicting values at stake. Branch managers at Huntington National Corp. in Columbus, Ohio, have considerable authority to reverse fees and to deviate from centralized pricing decisions on loans and deposits, according to David J. Renke, executive vice president for sales and service support. But consultant Anat Bird points out that local authority of just about any sort threatens the operational economies of scale sought by large banks.

"Efficiency requires standardization," says Bird, whose firm is called Supercommunity Bank Forums, based in Granite Bay, Calif. "That means no exceptions, the same for everybody." Managers will want to override loan-underwriting decisions from time to time, for example, based on their knowledge of particular circumstances. But just taking time out to talk with branch managers on the phone disrupts the efficiency of the underwriting process, says Bird, a former executive with Wells Fargo & Co.

It's on the horns of such dilemmas that attempts to upgrade the branch manager tend to falter. But given the need to improve sales performance at the branch level, the effort still needs to be made. It's one more example of how tending to the critical links in the execution chain can make all the difference in performance.

Mr. Stoneman is a freelance writer based in Albany, N.Y.

Copyright © 2003 by Banking Strategies, published by BAI.

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