How to Motivate Lenders

Motivating Lenders

Larger banks are paying their lending staff higher compensation than smaller competitors are paying their teams.  The difference in the same market, similar seniority and position can be as much as 100% when factoring salary, bonus, profit sharing and stock incentives.  It can be difficult for a community bank to attract the lending talent it needs, but we point out that many community banks are succeeding by investing in their culture and building an environment that goes beyond traditional compensation.

 

Case Study

 

Let us noodle on the following: It is the mid 1990’s, and two entities embark to create and launch the most comprehensive online encyclopedia ever created.  Entity A is one of the largest companies in the world measured by revenue and market value.  This company employs thousands of engineers, writers and marketing professionals.  It has proven itself to be an innovator in its field and holds the number one market share in almost every category in which it competes.  Entity A also pays its employees some of the top dollars in the industry and has created more employee millionaires than any other company at that time.  In fact, in some markets where this company competes, it has almost complete pricing power and control of the market.

 

Entity B is not a company but a concept created by a small group of non-for-profit originators.  This is a band of hobbyists that create a collective.  The collective will consist of participants that have special qualifications and knowledge.  These participants will not be compensated one penny, but will contribute to the project because they are interested in its cause.  Participants will be requested to contribute their labor (up to 20 to 30 hours per week).  All of this without any pay!

 

We certainly have our bet on entity A to create the better product and succeed.  However, the question above is not a hypothetical.  It is a real life example of Microsoft and Wikipedia in head-to-head competition.  In 1996, Microsoft, and its thousands of well-compensated employees, launched a CD-ROM, and later online, encyclopedia called Encarta.   In 2008, the complete English version of Encarta Premium, consisted of more than 62,000 articles, numerous photos and illustrations, music clips, videos, interactive contents, timelines, maps, atlases and homework tools.  However, in 2009 the Encarta site was closed.

 

Entity B is the ragtag band called Wikipedia.  Here is how the site defines itself “Wikipedia is a free encyclopedia, written collaboratively by the people who use it.  It is a special type of website designed to make collaboration easy, called a wiki.  Many people are constantly improving Wikipedia, making thousands of changes per hour.  All of these changes are recorded in article histories and recent changes.”  Wikipedia is the largest and most popular encyclopedia in the world.  It has more than 18 million articles in 270 languages. 

 

But what motivates Wikipedia contributors to devote some so much of their labor without any compensation? 

 

Intrinsic Motivation

 

People are definitely motivated by carrots and sticks.  But they are also highly motivated by a higher and more complex set of algorithms and drives.  These higher drives explain why Wikipedia succeed when patently this outcome seemed so remote. This higher form of drive is called intrinsic motivation and is separate from bonus plans, stock options, incentive plans and promotions.  This intrinsic motivation represents the most powerful business model of our century.  People will give away their labor if you motivate them correctly.  Examples abound: for example, Firefox is one of the most popular browsers in the market and it is developed by volunteers working on the system in their spare time.  Same is true of the Linux operating system, church groups or thousands of other volunteer efforts.

 

This intrinsic motivational system allows employees to feel good about their work, their work environment and their contribution to people they care about (their customers, colleagues, shareholders and their families).  Intrinsic motivation is fueled by autonomy, mastery and purpose.  By autonomy, we mean that lenders must be given latitude to perform their work in a way that is best suited to their personality and ability.  Each lender will have his/her own way of interacting with customers and colleagues.  Managers must allow lenders flexibility in achieving goals and not micromanage individual tasks.  Some lenders are more sales oriented than others, some are more quantitatively driven than others.  Each personality can be successful at a community bank.  Larger banks have a very strict and hierarchal model.  Small banks must avoid this pitfall.

 

In mastery, we mean that lenders must be given the ability to improve their skill set.  They must have the ability to grow and learn and not be pigeonholed into a task that they do best.  For example, allowing CRE lenders to develop cash-flow based C&I business can be a great motivator and awakening moment for some lenders.  Everyone thirsts to learn more, giving lenders the ability to learn on, and off, the job is a great intrinsic motivator.  Small banks must invest in ongoing education and on-the-job learning.

 

By purpose, we mean that lenders must see the connection between their day-to-day tasks and the betterment of their environment.  Making a loan or advising a customer on financing needs must be directly connected to the improvement of the human condition.  Lenders do not save lives nor are they searching for the cure for cancer.  But every employee wants to believe that their contribution helps someone else.  Lenders must be directly connected to helping a customer, colleague or shareholder succeed.  That success cannot be measured by the size of the loan or quality of the advice only.  The success must be framed, as an example, of how the business owner was able to save money and hire two more workers that were then able to better provide for their family.  Another example is connecting the success of gaining a customer that then adds to the bank’s prowess in the market, which in turn improves the quality and security of employment of the bank team.

 

While intrinsic motivation is not a substitute for a salary that allows every employee to afford to live (cover the cost of human needs), it is a strong way to motivate employees to achieve their best.  As small and nimble institutions, community banks may not be the highest paying in the market, but they can be the most rewarding places for lenders to work if management can instill a culture of intrinsic motivation tied to autonomy, mastery and purpose.