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.”