A heated labor market is causing some big banks to raise their minimum wages, a trend that will force many smaller competitors to pay for employees.
The latest bank to raise the bottom end of its pay scale is Truist Financial, which announced on Wednesday that it will raise the minimum hourly wage for US workers to between $15 and $18 from October. Truist announces after Bank of America recently enacted $22 minimum hourly wage that the bank plans to increase to $25 by 2025.
JPMorgan Chase, the country’s largest bank by assets, began notifying its employees last month that the minimum wage will increase by between $20 and $25 an hour, depending on the employee’s location. A spokesman said the range is between $18 and $22 an hour and is part of a steady increase in salaries at the bank.
Truist Financial is raising its minimum hourly wage to $22, while JPMorgan Chase is raising the lower part of its hourly range to $20 to $25, depending on the employee’s location.
The pay rise comes as a tight US job market — and high inflation — forces employers into hands.
The pressure to retain employees “won’t go away anytime soon,” as does the need to offer competitive salaries and benefits, particularly opportunities for greater flexibility and career growth for frontline employees. , said Casey Schaefer, a consultant at Capco.
“Being able to turn that attraction into attraction will be incredibly valuable,” said Schaefer, the company’s head of talent and culture change.
Banks have described the pay rise as a significant investment in their employees, who, as employers, can seek talent for higher-paying jobs in various industries.
Lynn David, CEO of Community Bank Consulting Services, said better pay reduces employee turnover and increases customer satisfaction by providing consumers with “a superior experience.”
“When you have a business, you don’t have educated people,” David said.
But higher payroll spending could also have at least some impact on bank earnings this year. Christopher Marinack, director of research at Jenny Montgomery Scott, said compensation will be a “wild card” when the industry starts reporting its quarterly earnings next week.
Wage increases can drive up costs, but other factors can ease that pressure. For example, Marinac pointed to a seasonal decline in bonuses beginning in the first quarter, staff cuts due to branch closures, fewer employees in branches, and layoffs in struggling mortgage departments.
Marinack said that banks that have outperformed the competition in paying will eventually have to catch up.
“A handful of banks are trying to take the lead on this issue,” he said. “Everyone else has to follow. You have to stay competitive.”
Among the banks to raise the low end of their pay scales last year is $1.9 trillion Wells Fargo, where the minimum wage ranged from $18 to $22 earlier this year. Citigroup raised its minimum hourly wage to $18-$20.
Cincinnati-based Fifth Third Bancorp and Stamford, Connecticut-based credit card company Synchrony Financial both increased their minimum hourly wages to $20. Chicago-based BMO Harris Bank and Pittsburgh-based PNC Financial Services increased their amounts to $18.
Across the industry, the median salary for cashiers at financial institutions increased 4% between May 2019 and May 2020, and increased 6% over the next 12 months, according to data from the US Bureau of Labor Statistics.
Banking adviser Dave Martin, founder of Bank Mechanics, said the pay rise will be crucial for banks’ frontline workers who are being hit by 40 years of inflation and a rapid rise in gasoline prices for their commute.
He said a minimum wage of $20 or more grabs headlines and attention, but banks need to do more to keep staff employed. “It’s the culture, it’s the other potential benefits. It’s the question, ‘What is the potential for advancement?’” they said.
Capco advisors, Schaefer said, are areas where smaller banks could benefit. He said it may be easier for such banks to give employees a stronger connection to their job and a clear mission than their larger peers.
“They know their people, they know what these values are that are going to matter from the bottom up, not just from the top down,” Schaefer said.