Equipment Finance Industry Compensation Increases for Second Consecutive Year

Sustained economic growth resulted in an increase in compensation among originators in the equipment finance industry in 2011, according to the 2012 Equipment Leasing & Finance Compensation Survey from the Equipment Leasing and Finance Association (“ELFA”) and the performance reward consulting and benchmarking firm for the financial services sector, McLagan. Compensation growth can be attributed to significant increases in year-over-year new business volume and the lowest levels of delinquencies in five years. The result was sizable increases in total compensation across the industry, particularly at the senior levels.

The 2012 Equipment Leasing & Finance Compensation Survey measures compensation rates for the 2011 fiscal year as reported by more than 60 equipment finance companies representing a cross-section of the equipment finance sector, including independent, bank and captive leasing and finance companies. Firms provide data for more than 90 executive, front-office and support positions, including a breakdown of salary, incentives (including cash bonuses and commissions), long-term awards and total compensation by company type.

Economic Trends Drive Increase

From 2008 to 2009, new business volume across the equipment finance industry fell 30% and total compensation also declined. From 2009 to 2010, however, new business volume improved by 9%, which translated to relatively modest total compensation growth across the industry. In 2011, the industry continued its recovery with a 16.5% increase in new business volume, which generally translated into higher compensation levels compared with 2010. (Volume data provided by the ELFA Survey of Equipment Finance Activity.)

Highlights from the 2012 Survey include:

• Direct equipment finance originators experienced the most significant total compensation growth in FY 2011, with increases of 15% to 20%. The most significant increases were at the group head and manager levels, with a majority of this population receiving increases greater than 20%. There continued to be bifurcation in the market, with a quarter of the direct-origination population flat on a year-over-year basis and a quarter of the population receiving total increases of greater than 40%.
• Performance was mixed in the vendor origination space, but overall total compensation rose approximately 5%. Relative to other channels, vendor finance received the smallest year-over-year increase.
• Across the support areas, total compensation was flat to up 15% for the vast majority of the population. When comparing a consistent group of incumbents year after year, the underwriting function experienced the largest increases.
• Salaries increased slightly. While many firms continued to push salaries upward in the banking/capital markets space in 2011, the majority of the salary increases in equipment leasing and finance remained within the standard salary budget range of 2% to 5%. Salaries for independent and captive organizations rose more significantly relative to bank-owned groups.
• The weighting of different compensation vehicles ( i.e., salary, bonus and long-term awards) varied by the different equipment leasing and finance organizations. Bank groups tended to offer a higher amount of long-term awards as a percentage of total compensation. At captive organizations, salaries were a more heavily weighted portion of the total compensation package relative to independent and bank-owned groups.

Incentive plans continued to change. Equipment finance firms continued to make modifications to their incentive plans for originators, shifting away from pure volume-based plans to ones that incorporate profitability, credit-risk metrics and an element of discretion or platform performance.

Sustained economic growth resulted in an increase in compensation among originators in the equipment finance industry in 2011, according to the 2012 Equipment Leasing & Finance Compensation Survey from the Equipment Leasing and Finance Association (“ELFA”) and the performance reward consulting and benchmarking firm for the financial services sector, McLagan. Compensation growth can be attributed to significant increases in year-over-year new business volume and the lowest levels of delinquencies in five years. The result was sizable increases in total compensation across the industry, particularly at the senior levels.

The 2012 Equipment Leasing & Finance Compensation Survey measures compensation rates for the 2011 fiscal year as reported by more than 60 equipment finance companies representing a cross-section of the equipment finance sector, including independent, bank and captive leasing and finance companies. Firms provide data for more than 90 executive, front-office and support positions, including a breakdown of salary, incentives (including cash bonuses and commissions), long-term awards and total compensation by company type.

Economic Trends Drive Increase

From 2008 to 2009, new business volume across the equipment finance industry fell 30% and total compensation also declined. From 2009 to 2010, however, new business volume improved by 9%, which translated to relatively modest total compensation growth across the industry. In 2011, the industry continued its recovery with a 16.5% increase in new business volume, which generally translated into higher compensation levels compared with 2010. (Volume data provided by the ELFA Survey of Equipment Finance Activity.)

Highlights from the 2012 Survey include:

• Direct equipment finance originators experienced the most significant total compensation growth in FY 2011, with increases of 15% to 20%. The most significant increases were at the group head and manager levels, with a majority of this population receiving increases greater than 20%. There continued to be bifurcation in the market, with a quarter of the direct-origination population flat on a year-over-year basis and a quarter of the population receiving total increases of greater than 40%.
• Performance was mixed in the vendor origination space, but overall total compensation rose approximately 5%. Relative to other channels, vendor finance received the smallest year-over-year increase.
• Across the support areas, total compensation was flat to up 15% for the vast majority of the population. When comparing a consistent group of incumbents year after year, the underwriting function experienced the largest increases.
• Salaries increased slightly. While many firms continued to push salaries upward in the banking/capital markets space in 2011, the majority of the salary increases in equipment leasing and finance remained within the standard salary budget range of 2% to 5%. Salaries for independent and captive organizations rose more significantly relative to bank-owned groups.
• The weighting of different compensation vehicles ( i.e., salary, bonus and long-term awards) varied by the different equipment leasing and finance organizations. Bank groups tended to offer a higher amount of long-term awards as a percentage of total compensation. At captive organizations, salaries were a more heavily weighted portion of the total compensation package relative to independent and bank-owned groups.

Incentive plans continued to change. Equipment finance firms continued to make modifications to their incentive plans for originators, shifting away from pure volume-based plans to ones that incorporate profitability, credit-risk metrics and an element of discretion or platform performance.