Let me tell you about a type of community bank. Well run, measured, and quietly proud. They pay somewhere between the 25th and 50th percentile on compensation — not by accident, but by philosophy. Expenses controlled, efficiency ratio humming, leadership tenured since the Clinton administration. Everything is fine. Everything is always fine.
Until it isn’t.
A CFO retires. Then another key person leaves. Then someone’s back gives out. And suddenly the board is having a very different kind of conversation — one that ends with “we need to go find someone.”
What that bank does next will set it down one of two paths. Most will do what they’ve always done: pull the comp study, review the peer group, land on a compensation number for the role that is entirely defensible, totally logical … and almost completely irrelevant to the person they’re actually trying to hire. It feels safe. It has a spreadsheet behind it.
It is also a trap. And it (kind of) has a name:
The 40th Percentile Trap.
A typical compensation study is just a very well-organized record of what other banks paid other people in other situations. That is useful information, but it’s not a recruiting strategy. Raw compensation data has no appreciation for your bank’s unique circumstances. Peer groups are formed by grouping banks of similar asset size, similar markets, similar vintage. That says nothing about whether they’re in the same talent moment your bank is in.
Did the bank down the road just lose their CRO unexpectedly? Is the asset size peer in a more urban area trying to relocate someone to a town with one decent restaurant? The use of standard peer groups flattens all that context into a tidy number, hands it to you with great confidence, and says, “here, this should help.” It is like asking your neighbor what he paid for his house in 2019 and using that to price yours today. Helpful, sort of! (Not really.)
Comp data is employer-facing by design. It tells you where your offer sits relative to the market, but it tells you nothing about how a candidate is weighing your offer against the alternatives in front of them. They are comparing it to their life. Their current trajectory and title. Maybe they’re underappreciated. Or maybe their current boss thinks they’re Aaron Rodgers to their Brett Favre. They are certainly not sitting around hoping someone calls them about a lateral move to a smaller market for roughly the same money.
At Travillian, 7 of our last 10 searches have been in smaller markets. We’ve conducted nearly 20 CFO searches over the past few years. In about 60% of them, the bank had to adjust something in the offer — perhaps base salary, bonus structure, and relocation help. Not because the bank’s offer was cheap. But because they were just close enough to feel right internally but not compelling enough to win the candidate’s commitment.
The banks we advised through this process realized that the temporary pain of adjusting their approach was worth it. Not only did the changes enable them to secure the candidate they wanted today but they also helped to slowly level up the compensation of team members over time so that the bank remains a competitive, desirable destination for talent.
Trading Temporary Pain for Long-Term Strategy
The temptation to just reach for the nearest band data and settle on a 40th percentile target impacts the bank beyond the current hire. That approach lets the entire bank slip into a comfort zone. In fact, one of the top concerns we hear from HR managers in our process is that paying more for new talent will cause disruption in the organization. It’s an issue that keeps banks mired in the 40th percentile trap. “If we pay this person more, what does that do to everyone else?”
Valid concern, and totally fair. Also — and I say this with love — a little bit of a red herring. Because the real question when you’re hiring an executive isn’t “how do we protect the structure?” It’s “do we want this person or not?”
When the new hire’s mandate is genuinely different, their compensation can be different. You just have to be able to articulate why out loud to your team and board. The temporary pain of stretching beyond your usual percentile or making a few market rate adjustments to even out the team is usually far outweighed by the long-term, strategic benefit from landing the C-suite talent you need to lead your institution into the future.
The banks that figure this out stop treating the comp study like a ceiling and start treating it like a starting point. They move faster. Their finalist pool is actually a pool. Heated. Lifeguard on duty. Someone brought a noodle. The decision becomes about who to choose, not who will tolerate the offer.
The ones who don’t? The search drags. The pool drains. And eventually they hire someone who fits the bank’s old structure. Which is another way of saying: they hired for the budget, not the moment.
Bluntly, the market doesn’t care that your offer is in the 40th percentile. The candidate you want is deciding whether this role, this team, this situation is worth turning their life upside down for. If the answer is no, it’s usually not because you were way off. It’s because you were just close enough.
