As major banks and other employers raise their minimum hourly pay to $15 or more, a small credit union in Michigan is also getting in on the game, despite having much less revenue to work with.
Michigan Legacy Credit Union this week announced a 23% pay increase to its minimum wage, raising it from $13 per hour to $16. The updated rate applies to both current staff and new hires of the $277 million-asset institution, which has six branches.
It may be easier for a smaller institution such as Michigan Legacy to implement a pay hike because it does not do a high volume of hiring. But on the flip side, it also lacks the revenue larger institutions can tap into as they compete for a limited pool of talent.
The credit union will not raise fees or adjust interest rates in order to cover the costs because it has to stay competitive to continue to grow loans and membership. Instead, it views its new minimum wage as offsetting the costs associated with turnover, said Carma Peters, president and CEO of the Wyandotte, Michigan, institution.
“The cost of training and hiring is not only a financial burden on the credit union, but an emotional stressor on human resources and training, as well as departments running short,” Peters said. “That stress burns higher-level staff out, which is a big expense to have to replace given their intellectual assets, history and knowledge of the business.”
The move was prompted by factors including the need to attract quality candidates in a competitive job market, the ability to lower attrition and the importance of providing a livable wage to employees. Michigan Legacy is also raising its hourly rate to $18 for employees who remain with the credit union for one year.
That portion of the program is basically a retention bonus, which he said is not yet typical among financial institutions, said Flynt Gallagher, president of Newcleus Compensation Advisors. It's more customary to simply promise to pay more in the near future, he said.
“We have clients who are unable to attract new hires and are losing recent hires to higher paying opportunities,” he said. “It is common for those few respondents to job openings to never show up for an interview and never contact the bank again.”
The problem is greatly exacerbated in rapidly growing communities such as Nashville or those seeing an influx of tourists, like Florida, where the competition for talent is heated, he said.
Michigan Legacy lost nearly $27,000 in the first quarter of 2020 but rebounded with earnings of $156,000 in the first quarter of this year. The higher starting wage will mean an additional $74,000 in compensation for the remainder of this year, Peters said.
The pandemic has exacerbated the hiring problem, but the issue has been around for a while, Peters said. The credit union had already started paying a hiring bonus for entry-line employees and is also allowing remote work when it is conducive to the job function.
Smaller institutions may feel competitive pressure to offer higher pay, following news that financial behemoths are also raising their starting pay rates. JPMorgan Chase announced in January that it would raise its minimum hourly pay to between $16 and $20 based on the local cost of living.
That news was intimidating to any financial institution that operates in markets where BofA competes, Gallagher said. But in places with a high cost of living, the message was not nearly as impactful because most institutions in those areas are already paying $20 an hour or more.
Economics professors everywhere are flush with real-time examples of the law of supply and demand in the labor market today, said B.J. Berrettini, New England recruiting manager for the search firm AJ Consultants.
From a $100 million-asset credit union to a $20 billion-asset bank and beyond, many institutions have increased their minimum wage significantly in a desperate attempt to attract and retain critical branch and back office talent.
Many are offering attractive sign-on and retention bonuses as well because they believe the current talent economy demands it.
“In speaking with banking execs recently, a few expressed concerns regarding the trickle-down effect of wage inflation. However, broad economic consequences did not seem to factor into their decisions when customer service metrics suffer due to inadequate staffing. Instead, they apply triage-like solutions to stop the bleeding,” Berrettini said.
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The new rate is “significantly higher” than its local peers, said Tom Gryp, the credit union's president and CEO.The consequence is that the credit union is now able to fill positions very quickly — often from internal referrals — and attracts top-tier talent.
“Paying an above-market minimum wage is the absolutely best investment we have made,” Gryp said. “Our credit union peers need to open their eyes and take this step that is a truly win-win decision.”
Berrettini said that while asset size may affect the decision at some institutions, it seems business ethos is the primary driver at banks and credit unions that are in a position to address wage inflation proactively.
Not all banks and credit unions may be ready to raise wages across the board. One of Berrettini's bank clients is in serious need of residential lending talent, but refuses to get into a bidding war with other lenders,he said.
“Instead, they decided to gather market intelligence and employee feedback while observing operational decisions amongst other banks within their peer group before making a purposeful decision,” he said.
Ultimately, some banks and credit unions have the luxury of being proactive while others are forced to react to maintain operational efficiency, he said.
