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Should Loan Officers Have More Skin in the Game?

If you haven’t already, go read my colleague Alan Kline’s profile of First Republic CEO James Herbert, American Banker’s 2014 Banker of the Year. It’s a great story. My favorite part describes how the bank aligns incentives:

The bank has also taken the concept of skin in the game to a whole new level. It has a clawback policy in place that says if a loan goes bad within the first three or four years, loan officers will be the first to absorb the loss — even though loans themselves are approved by the credit department.

“If a loan goes bad in first three or four years, you take the first hit,” Herbert said. “And if you made X on that loan, we will claw back between four and six times that.”

via Discussion: Should Loan Officers Have More Skin in the Game? – Bank Think Article – American Banker.

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