U.S. Commercial Banking: Midwest Middle Market
White Papers | April, 2012
Commercial bankers represent an important segment of a bank’s business capability in the Midwest region. As a representative of the bank to clients, relationship managers act as a crucial lynch-pin connecting a bank’s services and products to the needs of customers. Compensation for relationship managers represent the continuous need to increase market share through new client acquisition as well as retention of client business through appropriate client servicing.
As part of our ongoing commitment to providing a comprehensive overview of developments in the commercial banking sector, DHR International collected data on commercial relationship managers during the course of multiple executive searches in the Midwest region during 2011-12. Key information documented and analyzed in the past 12 months is represented in this compensation study.
DHR has focused on presenting findings based upon:
1. Lowest/Highest Values and Lower/Upper Quartile Compensation by Title
2. Total Compensation & Breakdown by Title
3. Total Compensation by Portfolio Size
In the past 12 months DHR has reached out to over 900 relationship managers across the Midwest region, conducting interviews for the purpose of placement within a client company. The firm has placed its research emphasis on individuals at Vice President, Senior Vice President and Managing Director – or equivalent – levels. Detailed information was ascertained from 80 individuals across Middle Market and Mid-Corporate Banking segments. Our primary geographic market focused on Illinois (55), with the remaining candidates coming from Wisconsin (9), Missouri (8), Kansas (3), Ohio (2), Michigan (2) and Indiana (1).
The relationship managers interviewed for the purpose of the study typically focused on middle market clients with annual revenues of $25m to $500m. DHR spoke with specialist and generalist relationship managers covering: Agriculture, Auto Dealers, Commercial Real Estate, Education, Engineering & Construction, Government, Healthcare, Industrials & Not-For-Profit sectors. The type of credits these relationship managers could utilize were up to $75m.
Compensation Range by Title
In order to represent a gradual progression in career, DHR analyzed the data by title and presented figures on compensation based upon the highest and lowest values within a particular title segment, and also lower and upper quartile values which provide a range of compensation data for individuals based upon their experience.
Vice President: These individuals typically have 7-15 years of experience as commercial relationship managers. The lowest total compensation DHR found at the Vice President level was $97,000 for very junior level RMs. Mid-level Vice Presidents will typically make between $140,000 and $170,000 per annum. A top performing Vice President will make upward of $170,000 per annum. The highest paid Vice President that DHR has come across was paid $230,000 in 2011. In total, DHR contacted 34 Vice Presidents for the purpose of this study.
Senior Vice President: These individuals typically have 12-20 years of experience as commercial relationship managers. The lowest total compensation DHR found at the Senior Vice President level was $140,000 for less experienced executives. Mid-level Senior Vice Presidents will typically make between $200,000 and $235,000 per annum. A top performing Senior Vice President will make upward of $235,000 per annum depending on portfolio size and their bank. The highest paid Senior Vice President that DHR has come across was paid $280,000 in 2011. In total, DHR contacted 30 Senior Vice President’s for the purpose of this study.
Managing Director: These individuals typically have 15-25 years of experience as commercial relationship managers. The lowest total compensation DHR found at the Managing Director level was $180,000 for less experienced team leaders. Mid-level Managing Directors will typically make between $230,000 and $280,000 per annum. Top performing Managing Directors will make upward of $280,000 depending on team responsibility, portfolio size and their bank. The highest paid Managing Director that DHR has come across was paid $380,000 in 2011. In total, DHR contacted 16 Managing Director level executives for the purpose of this study.
Compensation Breakdown by Title
DHR analyzed compensation by title and structure. The total compensation figures represent the mean for each title category. DHR did not include additional corporate benefits such as medical/life insurance, corporate car allowance, pension and 401k plans or annual paid holiday.
Vice President: The average total compensation for Vice President level relationship managers was $157,458 per annum. The average base salary was $128,490, and an annual cash bonus of $28,968 (representing 22.5% of their base salary). At Vice President level, relationship managers are not typically awarded stock as part of their compensation.
Senior Vice President: The average total compensation for Senior Vice President level relationship managers was $223,199 per annum. The average base salary was $169,470, and an annual cash bonus of $42,329 (representing 25% of their base salary). A Senior Vice President is also typically awarded stock – particularly if the employer is a publicly traded company – which averages $11,400 (representing 6.7% of their base salary).
Managing Director: The average total compensation for Managing Director level relationship managers was $270,864 per annum. The average base salary was $193,566, and an annual cash bonus of $53,698 (representing 27.7% of their base salary). A Managing Director is also typically awarded stock – particularly if the employer is a publicly traded company – which averages $23,600 (representing 12.2% of their base salary).
Compensation by Portfolio Size
DHR analyzed total compensation against the size of a relationship manager’s portfolio in order to understand if there is a correlation trend between these two categories. Typically, relationship managers will gradually increase the size of their loan portfolio as the number of relationships they originate increase. Experienced relationship managers also have a captive client base which they can rely on for revenue year on year, and will concomitantly develop new relationships in order to increase their loan base. Most commercial bankers have multiple products and services to offer to clients, but for the purpose of this study DHR focused on loan portfolio size as a key determinant in compensation.
DHR’s findings show a correlation between compensation and portfolio size that suggest a directly proportional relationship. Given that the number of relationships a commercial banker has increases over time generally, it is logical to presume that the loan volumes would also increase proportionally, and hence revenues would also increase over time. Given the relationship between revenue generation and employee compensation, it came as no surprise that individuals with larger portfolios were typically paid higher than those with lesser portfolio sizes.
The average Vice President level relationship manager had a portfolio of $60m in loans; Senior Vice President level relationship managers had a portfolio of $125m in loans; Managing Director level relationship managers had a portfolio of $175m in loans.