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Staff Pick: New CEOs at Rural Banks Have Become Younger

Tuesday, September 17, 2019
rural bank CEOs

The On the Economy blog will periodically rerun blog posts that were of particular interest. The following is a post from September 2018 covering rural bank CEOs.

Many rural communities worry that younger residents are moving to urban areas for better job opportunities. Is this keeping rural banks from attracting younger talent?

Economist Drew Dahl and Supervisory Officer Mike Milchanowski explored the rural-urban divide by looking at the average age of newly appointed CEOs at banks.

“Banking is a prominent example of an industry with perceived problems in attracting workers to jobs outside cities,” they wrote.

The authors recognized that new CEOs tend to be older than the workforce they are brought in to manage.

“But are they older or younger in rural areas than in cities?” the authors posed. “And, perhaps more importantly, have they been growing even older, or younger, over time?”

The Age Gap

Using data from S&P Global Market Intelligence’s banking database, the authors identified the ages of 981 incoming CEOs from 1997 to 2016 and the location of their banks (rural versus urban). They compared the change in age between the periods 1997-2008 and 2009-16.

In the earlier period, the average age of incoming CEOs at rural banks was 62.9, older than their counterparts at urban banks who had an average age of 61.4. (See table below.)

Ages of Incoming Bank CEOs
Rural Urban
Through 2008
Mean Age in Years 62.9 61.4
Number of Banks 94 313
After 2008
Mean Age in Years 54.4 58.1
Number of Banks 55 519
SOURCES: S&P Global Market Intelligence and author's calculations

Their analysis “suggests that age-related hiring outcomes in the replacement of rural and urban CEOs were not radically at odds in this earlier era,” the authors wrote.

Getting Younger

While the average age for new CEOs at both rural and urban banks dropped after 2008, the authors found that the decline for rural banks—from 62.9 years to 54.4 years, representing a change of 8.5 years—was larger than for urban banks—from 61.4 years to 58.1 years, representing a change of 3.3 years.

“We concluded that the age-related hiring of all banks changed over time: Incoming CEOs got younger, and they were even younger at rural banks relative to urban banks,” they wrote. “The average age of incoming CEOs at rural banks was higher than the average age of incoming CEOs at urban banks through 2008, but was lower afterward.”

They acknowledged that this trend is inconsistent with a belief that rural employers, in general, are increasingly unable to hire relatively younger workers.

The relatively younger rural CEOs may provide advantages in energy, risk-taking, creativity and familiarity with new technologies, the authors noted.

“It also may serve as a harbinger of progress made in overcoming a long-discussed resistance to the adoption of new ideas in rural areas,” they wrote.

However, they noted that their statistical analysis of the data could not provide reasons for the change in age.

Compensation Limitations?

Dahl and Milchanowski addressed one factor that could be leading to younger CEOs at rural banks. Rural banks may actually prefer more-experienced (older) managers but may be unable to provide competitive salaries offered by larger banks in cities.

To test whether this might be an issue, the authors looked at new CEOs going to smaller and larger banks.

The table below looks at the average age of incoming bank CEOs by both location (rural versus urban) and bank size (smaller than $500 million in assets versus larger than $500 million).

Ages of Incoming Bank CEOs, by Bank Size
Assets under $500 million Assets over $500 million
Rural Urban Rural Urban
Through 2008
Mean Age in Years 62.7 61.3 63.9 61.2
Median Assets $201 $160 $808 $1,743
Number of Banks 78 181 16 132
After 2008
Mean Age in Years 54.4 58.7 54.4 57.5
Median Assets $245 $231 $1,224 $1,345
Number of Banks 32 248 23 271
NOTE: Assets are in millions
SOURCES:S&P Global Market Intelligence and authors' calculations.

“Regardless of size category, the average age of incoming CEOs at rural banks is lower than at urban banks in the period after, but not before, 2008,” they wrote. “This appears to suggest that the increasing reliance on younger CEOs at rural banks is not predicated solely on compensation limitations.”

There is evidence of a generational shift over the past 20 years, from older to younger in the replacement of bank CEOs, one that is amplified among rural banks, according to the authors.

“It suggests that it may be possible to keep relatively younger people down on the farm—at least if you make them CEOs,” they concluded.

Additional Resources

Posted In Banking  |  Tagged drew dahlmike milchanowskistaff pickbankingdemographicsworkforcelabor