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BeingStrategicwithYourCompensationPrograms
2016 Human Resources & Security ConferenceLouisiana Bankers Association
July 28-29, 2016 New Orleans, LA
Ken Derks, Equias AllianceMichael Blanchard, Blanchard Consulting Group
Kenneth Derks is a registered representative and securities offered through ProEquities, Inc., a Registered Broker/Dealer, and member FINRA and SIPC. Equias Alliance LLC is independent of ProEquities, Inc. Michael Blanchard is not a registered representative of ProEquities, Inc. or a representative of Equias Alliance, LLC.
Qualified Group Benefits
Employment Agreements
Change‐in‐Control
Other
Supplemental Disability
Deferred Compensation Plans
SERP/Salary Continuation Plan
Performance Driven Plan
Supplemental Life Plans – Split $ and/or DBO
Long‐Term Care
Stock Options
Restricted Stock
Phantom Stock
Stock Appreciation Rights
Book Value Appreciation Rights
Total Executive Compensation Plan Review
Qualified PlansNonqualified Benefit Plans Equity Plans Group Benefit
Plans &PerksCash
Compensation
Base Salary
Annual Bonuses
Annual Incentive Bonuses
Pension
401(k)
ESOP
Profit Sharing
Five Elements of Compensation
Highest Paid Executive Compensation Mix – Public Banks (2013 Data)
Total Compensation Mix – Blanchard Consulting Database
SalaryAdministrationIssues
SalaryBudgetIncreases– CompTrendsSurvey
• 92% of the 133 participating banks increased salaries in 2015
• The median expected increase of those banks was 3% (same as reported in our 2014 survey)
92% Plan/Implemented Increases in 2015
92%
8%
2015 Salary Increases Planned No 2015 Salary Increases
SalaryIncreases– BlanchardCompensationSurvey
• ** Remember… 3% is the salary budget number (not necessarily the % for every position)
• This table shows a sampling of positions from the Blanchard Compensation Survey and themedian increase of the position market data (all orgs cut) from 2013 to 2015.
Blanchard Survey Position*2 Year Salary Increase %
Controller 3.5%Commercial Loan Officer III 9.5%Consumer Loan Officer I 7.3%Credit Analyst I 3.7%Loan Workout Officer 6.9%Compliance Officer 11.1%HR Manager 13.8%Help Desk Specialist 0%Personal Banker 0%Teller II 2.4%Electronic Banking Rep 11.0%Trust Operations Analyst 9.3%
Closest to the two year salary budget increase of 6%
*Note: Survey participants varied from 2013 to 2015, so this table is just illustrative, it does not include like sample matching
Step 1: Evaluating the Position1. Review Job Description: duties, accountabilities, knowledge, skills,
and abilities2. Review Responsibility Level: supervision, decision making authority,
impact on policy and procedures3. Experience Level: necessary banking experience, supervisory
experience, and education level
BaseSalaryReviews&JobBenchmarking
Step 2: Review Market Compensation DataExample Resources:1. Proxy data from publicly traded companies (executives)2. Market surveys ‐ regional, national, state (all employees)3. HR department/compensation consultant’s internal database
MarketPricingExample
Market SalaryPosition/Benchmark Job Match Data Source Data Cut N 25th 50th 75th
Marketing Director
Marketing Manager ABA $700M‐$999M 13 60.7 67.3 76.9
Marketing Manager Bal Comp >$250M 11 57.0 64.6 75.2
Marketing Manager Blanchard $501M‐$1B, Med = $668M 30 63.7 75.6 85.3
Marketing Director Crowe $500M‐$1B, Med = $664M 34 57.0 74.8 93.4
Marketing Manager ERI 5 Years’ Experience ‐‐ 71.9 77.1 84.2
Survey Average 62.1 71.9 83.0
1. Asset Size: Evaluate market values based on the asset size of the Bank. Has a bigger impact on executive officer compensation.
2. Geography: Consider geographic location and impact on salaries. Cost of salary and wage levels (Economic Research Institute).
3. Production Level: Production positions may have a different market value for level of production. Examples: portfolio size or branch/region deposits may influence the market value.
4. Responsibility Level: Support positions may have a different market value based on responsibility levels, supervisory duties, or the ability to handle complex issues.
Step 3: Determine Other Influences on Market Value
BaseSalaryReviewSteps(Cont.)
Step 4: Determine an Appropriate Market Value for the Position/s – Then for the Individual/s
SalaryGradeDesigns
• Best Practices• Market benchmark salary levels for between 1/2 and 2/3 of the positions at the Bank every
two‐three years; remainder are generally “slotted” by using internal equity considerations.• Assess the grades and possibly make minor adjustments on an annual basis.• Standardize and define the levels of positions – employees should know what skills and/or
experience are required to move up a level in a given role.• Separate supervisors from the staff they supervise by at least one salary grade.• Use standard grade widths and midpoint differentials throughout the system to allow for
easy administration.• Grade widths and midpoint differentials may increase in the higher grades allowing for
more growth within a grade for “career level” positions.• Use broadband grade(s) for the senior executive team and benchmark executive salaries
and cash compensation levels to the market at least every two years.
Driven by Pay Transparency, Non Discrimination, and the Strategic Use of SalaryBudgets and Related Decisions.
VisualExample‐ SalaryGradeStructure
GRADE 1 Minimum Midpoint Maximum
Influenced by minimum wage levels in Grade 1
Equal % spread Equal % spread
GRADE 2 Midpoint
Increased by set percentage that may increase in later grades
Minimum Equal % spread MaximumEqual % spread
Spread inside a grade may increase in later grades
as well
• Structure easy to annually adjust for cost of salaries & wages (adjust 1st midpoint)• Our typical grade structure includes approximately 12‐16 grades
SalaryIncreaseMatrix
Baseline/Target Percentage Increase = 3%
Employee Salary as a Percent of Grade Midpoint
Minimum to 90% of Midpoint 90.1% to 109.9% 110% to Maximum
Low in Salary Range Middle of Range High in Range
Employee Performance Rating Salary Increase Percentages
Far Exceeds Expectations X% X% X%
Exceeds Expectations X% X% X%
Meets Expectations X% 3% X%
Does not Meet All Expectations X% X% X%
Fails to Meet Expectations X% X% X%
This table shows an example of a performance‐based salary increase matrix. Thepercentages will vary based on the bank’s budget, the employee’s performance, andthe employee’s positioning within their salary range.
** This is part of a STRATEGIC salary administration process **
PERFORMANCE
MEASUREMENT
MAJOR ACCOUNTABILITES
Achievement of end results measured
against pre‐determined standards. Emphasis on
what is achieved.
COMPETENCIES
Critical behaviors, processes, skills, and abilities measured
against expected and established standards. Emphasis on how things
are done.
PerformanceAppraisalsCritical piece is to ensure performance appraisal forms include job tasks and behaviors withmeasurable or quantifiable performance criteria. Limit the number of measures and focus on thecritical success factors of the position.
Overview• Established 1938 – minimum wages, overtime, child labor, record keeping standards
• FLSA MinimumWage ‐ $7.25/hr. (if state higher it prevails)
• Overtime – 1.5 x “regular rate of pay” for hours worked over 40 hours in a workweek
• “Regular rate of pay” – includes nondiscretionary bonuses (i.e. performance‐based)
• Requires overtime pay unless position is determined to be “exempt”
Exemption Categories (Have Specific Definitions)• Executive – manage business, direct work of employees, hiring/firing influence
• Administrative – work related to management of company, independent judgment
• Computer Professional – systems analyst, programmer, software engineer
• Learned Professional – work requires advanced knowledge, invention, imagination, artistic
• Outside Sales – making sales or obtaining orders, engaged away from business location
• Highly Compensated ‐ $100k or more and meet one duty in 1st four categories
** Exempt positions must meet the salary basis requirement + all the requirements of one of theexemption categories
** Current Salary Basis Requirement = $455/week
FairLaborStandardsAct(FLSA)
Overview• Increase in Department of Labor (DOL) audits in recent years
• FLSA not functioning as intended
• Regulatory Noise: Working Families Flexibility Act
Equal Pay Executive Actions
Right to Know Initiative
Senate push to increase minimum wage
Restoring Overtime Pay for Working Americans Act
Proposed Regulatory Change** Proposal issued in June of 2015, Finalization in May 2016
• Salary Test Change – moves from $455/wk to 40th percentile of US Census Bureau weeklyearnings of all US workers ‐ $47,476 Annually or $915/wk
• Highly Compensated Test Change – moves from $100,000/year to 90th percentile of USCensus Bureau ($134,004 for 2016)
• Indexing System – includes a mechanism to annually update the salary test levels
FLSAChanges
What Should You Be Doing• Update Job Descriptions
• Understand reporting structures in the organization
• Identify exempt employees earning less than $915/week
• Understand current hours worked for exempt employees not meeting new salary level
• Strategizing potential plans
Raise pay levels?
Re‐classify and pay OT?
Re‐classify, cut salary to adjust for expected OT cost (try to make it whole)?
Re‐classify and prohibit OT?
Take a look at highly compensated people ($100k vs $134,004)
Assess all classifications/exemptions and possibly adjust other positions if appropriate
** Remember anything done currently is likely to change slightly when final legislation is putin place, so be smart about pre‐work
FLSA– WhatToDo?
AnnualIncentivePlanTrends,RegulationsandGuidelines
AnnualIncentivePlanPayouts&Goals
95% of Banks Paid Incentives for 2014 Performance(2015 Blanchard Compensation Trends Survey)
95%
4%
1% Incentive payouts
No incentive payouts
No payouts for executives; however, will have some payout for staff
TypesofAnnualIncentivePlans
• Results from 2015 Blanchard Compensation Trends Survey
• (57%) of participants (up from 42% in our 2014 survey) have a performance‐based plan.
• Almost two‐thirds (61%) of the banks reported having a formal and central document that listsout the various incentive plan(s) and describes how each of the incentive plan(s) work.
• Almost three‐fourths (73%) of banks reported their compensation committee has reviewedtheir incentive plans for risk.
We Do Not Have an Annual Incentive Plan
Currently Designing an Annual Incentive Plan
Discretionary Incentive Plan
Pooled Approach/Profit Sharing Based on Profitsat the End of the Year
Formal Performance‐Based Plan
5%
8%
18%
12%
57%
Regulatory and Government Impact on Incentives
CANNOT TALK INCENTIVES WITHOUT ACKNOWLEDGING REGULATIONS & THEIR IMPACT
Regulators Joint Guidelines on Sound Incentive Compensation (June 2010) – All Banks
• Impacts all banks (safety and soundness exams / CAMELS ratings).
• Supports pay‐for‐performance programs, as long as they do not encourage risk.
• Recommends a combination of both profitability goals and strategic goals.
• Incorporates a Risk Review as part of the regulatory review process.
• Encourages the use of stock grants or deferred compensation.
Other Rules/Guidelines
• Dodd‐Frank – “Clawbacks”, Pay Disparity Ratio, Pay for Performance, Risk Reviews
• SEC – Recently provided proposed guidelines on a required pay‐for‐performance analysis.
• Shareholder Interest Groups – Say‐on‐Pay and Equity Plan Votes.
• Reg Z (Mortgage Lenders) – Cannot pay incentives based on profitability, interest rate, or loan terms.
HowtoReduceRiskinAnnualIncentivePlans1. Avoid “excessive” incentive payout opportunity levels and/or “uncapped” plans
Ensure award opportunities are reasonable and appropriate
2. Review Performance Measures Variety of internal and external performance measures
Ensure an appropriate number of measures (not one & not too many)
Do not focus solely on single short‐term financial metrics (i.e., ROA and ROE)
Incorporate asset and credit quality metrics
Include some level of discretionary adjustment
Ensure a link to the Bank’s strategic plan and long‐term goals
3. Ensure performance targets are not set too high or too low Use historical bank and peer group information to ensure goals are appropriate
4. Use annual or multi‐year performance payout periods Remove quarterly payments and short turnarounds on awards
5. Ensure appropriate plan approval, governance, documentation, and communication
6. Consider implementation of a “Clawback” policy
7. Consider deferring a portion of incentives in cash or stock
SeniorManagementCashIncentivePlans
• The most prevalent profitability and/or strategic incentive criteria used:
• CEO Incentive Criteria: Sr. Management Criteria:‐ Net Income (63%) ‐ Net Income (63%)‐ ROA (42%) ‐ Loan Growth (52%)‐ ROE (35%) ‐ Deposit Growth (45%)‐ Strategic Planning Goals (34%) ‐ ROA (40%)‐ Loan Growth (33%) ‐ Strategic Planning Goals (38%)‐ NPAs & Board Discretion (both 31%) ‐ NPAs & Efficiency Ratio (both 33%)
‐ ROE (32%)
SeniorManagementIncentivePlanGoals– BlanchardSurvey
AnnualIncentivePlanPayoutAmountsThe following table shows annual incentives as a percentage of salary for banks with assetsbetween $250M to $5B. The data is based on market research and Blanchard ConsultingGroup’s experience in the banking industry.
Annual Award as a % of Salary Typical Allocation of Goals & Objectives
(Assets $250M‐$1B) (Assets $1B‐$5B)Executive Target Maximum Target Maximum Company Dept./Individual
CEO 20% ‐ 30% 40% ‐ 60% 30% ‐ 50% 60% ‐ 100% 90% 10%
EVP 15% ‐ 25% 30% ‐ 50% 20% ‐ 40% 40% ‐ 80% 50%‐75% 50%‐25%
SVP 12.5% ‐ 20% 25% ‐ 40% 15% ‐ 30% 30% ‐ 60% 40%‐60% 60%‐40%
VP/Producer 10% ‐ 15% 20% ‐ 30% 12.5% ‐ 25% 25% ‐ 50% 25%‐50% 75%‐50%
Typical Annual Cash Incentive Payouts as a Percentage of Base Salary
Industry Data – Assets $250M‐$1B and $1B‐$5B
AnnualIncentivePlanCostAnalysisTable
SampleIncentivePlanWorksheet1 Sample Incentive Plan Worksheet
PERFORMANCERESULT FACTORS
Payout
$30,000 Maximum
30%
TARGET $15,000 15%
Threshold0% $0
Threshold TARGET Maximum
Factor Weight
Indiv. Weight
50.0%
50.0%
Notes:
A) Incentive predicated on satisfactory audit and regulatory review and individual performance evaluation.
B) The Bank will use a proportional approach to calculate incentive payouts for performance that falls in-between eachof the above criteria levels.
100%
Overall Bank - 1(Net Income) tbd tbd tbd
Summary of Criteria Threshold
tbd tbd tbd
Target
Department - 2(Loan Growth, Deposit Growth)
Maximum
ABC BankVP
Executive ASalary = $100,000
November 2015
AnnualIncentivePlan‐ GoalSettingEstablish Threshold, Target and Stretch Performance Goals
1. Determine if budget is threshold or target level performance2. Target level performance typically occurs 7‐8 times over a 10‐year period;
threshold or stretch goals typically are achieved 1‐3 times in a 10‐year period3. Threshold performance is typically set at 80%‐90% achievement of target
expectations; while stretch goals are typically set at 120% of target expectations
4. In addition to budget, historical performance and peer group performance is typically measured to test the reasonableness of target annual incentive plan goals
“Clawbacks”
• Example “Clawback” Provision: “The Bank may recoup incentive compensation paid to covered executives (or some otheridentified employees) in instances where: (i) the Bank issues a material restatement of its financial statements; (ii) asubsequent finding that the financial information or performance metrics used to determine the amount of the incentivecompensation are materially inaccurate, in each case regardless of individual fault; (iii) a covered executive or lendingofficer engages in intentional misconduct; or (iv) the covered executive has committed ethical or criminal violations. Inaddition, the Bank may recover any incentive compensation awarded or paid based on a covered executive’s conductwhich is not in good faith and which materially disrupts, damages, impairs or interferes with the business of the Bank andits affiliates. The purpose of this policy is to help ensure executives act in the best interest of the Bank. TheCompensation Committee will consider all relevant factors and exercise business judgment in determining appropriateamounts to recoup as well as the timing and form of recoupment.”
27%
67%
6%Clawback Policy
No Clawback Policy
We are working onimplementing one
As of 2014 only 27% of Respondents Have a “Clawback” Policy – Blanchard Survey
ProducerandSupportStaffAnnualIncentivePlans
ASamplingofTypicalBonusOpportunityLevelsThe 2015 Blanchard Consulting Compensation Survey gathered data on incentive plan award opportunity levels for various positions as a percentage of salary. This table provides a sampling of that data.
2014 AIP Median Opportunity Levels (Cash Incentive Plan as % of Salary)
Survey Position# of
Target (%) Max (%)Incumbents
Controller 85 10% 15%Accounting Clerk II 113 5% 6%Commercial Loan Officer III 472 12% 22%Commercial Loan Officer I 206 6% 15%Mortgage Lending Manager 80 10% 20%Mortgage Loan Processor/Assistant 300 3% 7%Credit Analyst II 191 7% 10%Loan Operations Manager 132 6% 10%Human Resources Manager 77 10% 15%Human Resources Generalist 90 3% 9%Administrative Assistant 318 4% 4%Information Systems Manager 50 15% 25%Help Desk Specialist 108 3% 6%Branch Manager: $25 to $50 Million 357 6% 10%Teller II 1,256 3% 5%Compliance Officer 83 5% 10%BSA Officer 60 6% 10%
Payout
$40,000 Maximum
40%
$20,000 TARGET
20%
$10,000 Threshold
10%
Threshold TARGET Maximum
Factor Weight
Indiv. Weight
25.0%
75.0%
Notes:A) Incentive predicated on satisfactory portfolio asset quality and individual performance evaluation.B) The Bank will use a proportional approach to calculate incentive payouts for performance that falls in-between levels.
Summary of Criteria Threshold Target Maximum
100%
Overall Bank Goal(ROAA) 0.80% 1.00% 1.20%
ABC BankLoan Officer
Salary = $100,000
Individual Goal(Portfolio Profitability) $400,000 $500,000 $700,000
SampleLoanOfficerIncentivePlanWorksheet
LinkingIncentivestoLongTermPerformance
StockPlansTrendsandBestPractices
RealStockvs.PhantomStock
Performance‐BasedDeferredCompensationPlan
Equity Incentives & Longer‐Term Compensation
The table below from the 2014 Blanchard Consulting Group Compensation Trends Surveyshows the prevalence of equity‐based compensation programs/plans.*
* Respondents were allowed to choose more than one option; therefore, the percentages will not sum to 100%.
We do not currently have any equity, "synthetic equity", or…
Deferred compensation plan (with no company match or…
Deferred compensation plan (with both a company match or…
Supplemental retirement program (SERP, Salary…
Phantom or synthetic stock
Stock appreciation rights (cash‐settled)
Stock appreciation rights (stock‐settled)
Restricted stock
Stock options
20%
17%
31%
31%
8%
5%
3%
30%
41%
Increasing Use of Equity
• The portion of long‐term incentives as a percent of total compensation has increased 2X to 3X from 2009 to 20131.
Long‐Term Incentives – Top Executive
Asset Size
2009 Proportion of LTI to Total
Compensation
2013 Proportion of LTI to Total
Compensation
Over $1B 15% 26%
$500M to $1B 4% 12%
Under $500M 4% 7%
1 Based on proxy data from the Blanchard Consulting Database of public banks
Long‐TermIncentivesStockPlanTrendsandBestPractices
Real Equity ‐ Actual shares of stock, which create real equity holdings and shareholder dilution Incentive stock options (ISOs)
Nonqualified stock options (NSOs)
Stock appreciation rights (SARs) – stock settled
Restricted stock
“Synthetic” Equity ‐ Value is tied to share price, but no real stock is transferred (cash payments) Stock appreciation rights (SARs) – cash settled
Phantom stock
Performance shares
Restricted stock units – cash settled
Reminders:** Appreciation‐based vehicles (example: stock options) ‐ value is only created with appreciation
** Full‐value vehicles (example: restricted stock) ‐ value is immediate and is always there so long as share has value
CommonTypesofEquity‐BasedIncentives
Full value shares are more prevalent than stock options
• The table below shows the prevalence of restricted stock vs. stock options in the Blanchard Consulting Group database of public banks.
EquityIncentivePlans– CurrentTrends
2013 Equity Prevalence in Public Banks
Prevalence1Restricted Stock
Stock Options Blend2
All Banks (n=177) 47% 21% 14%
Banks that Granted Equity in 2013 (n=98) 86% 39% 24%
1 Represents publicly traded banks in Blanchard Consulting Group's internal database2 Blend indicates grants of both restricted stock and stock options
Executive Officers: Most Vesting Provisions in Executive Officer LTI Plans are 3‐5 years.
Stock Options: Typically a 3‐5 Year Vesting• 92% of stock options in Fortune 500 companies use Ratable Vesting 1
• Ratable Vesting: Awards vest in tranches over the vesting period
Restricted Stock: Typically a 3‐5 Year Vest• 40% of Restricted Shares use a cliff vesting1
• Cliff Vesting: Awards vest entirely at the end of the vesting period
• Most grants are based on the achievement of performance goals
EquityIncentivePlans– Vesting
1 The ClearBridge Report (January 2014)
Long‐TermIncentivesPerformance‐BasedDeferred
CompensationPlans
ObjectivesofIncentiveDeferredCompensationPlans
• Link component of senior management’s compensation to the long‐term success of the bank
• Increase bank performance and shareholder value
• Reward officers for long‐term performance
DefinedContributionIncentiveDeferredCompensationPlan• Bank contributes a specific dollar amount or percentage of
salary each year
• Bank contributions are discretionary or dependent on meeting budget or other goals
• The contributions may vest over 3 to 10 years
• Participant deferrals allow further tax‐deferral
• Interest is credited to the account balance (rate could be tied to an external index or an internal index such as bank ROE)
IncentiveDeferredCompensationPlanExample
• Assumptions– Officer Age 37
– Incentive Contribution (target) 8% of salary
– Current Salary $125,000
– Crediting Rate ROE
– Planned Retirement Age 65
IncentiveDeferredCompensationPlanExample(cont.)
Projected Account
Age Balance50 $290,00055 $528,00060 $895,00065 $1,409,000
Projected Annual Benefit(for 15 years) $133,000
The plan can provide that the account balance is forfeited if the officer competes with the bank.
Variations• Terms of payout
– Immediate vs normal retirement age– Lump sum vs over time– Interest credited after termination?
• Vesting– Length of vesting– Rolling
• Non compete clause• Interest rate credited• Other
– Matching
NonqualifiedBenefitPlans
Long‐Term/EquityIncentives&RetirementPlans
Source: Blanchard Consulting Group, 2014 Executive Benefits Survey. Public Bank proxy filing composite
Agreements Retirement
Assets N
Median Assets 2013Y ($000)
Employ‐ment
Change‐in‐
ControlQualified 401(k) Plan
Qualified Profit Sharing
Qualified Pension Plan
Nonqual Deferred
Comp. PlanNonqual SERP
Nonqual Deferred Comp or SERP
All Orgs 177 1,093,833 64% 73% 98% 48% 15% 36% 36% 60%
<$500M 34 363,274 68% 68% 97% 35% 18% 18% 41% 56%
$500M‐$1B 48 676,954 71% 75% 98% 52% 8% 23% 33% 46%
>$1B 95 2,112,474 59% 74% 99% 51% 17% 48% 36% 68%
OverviewofNonqualifiedPlans• Unsecured promise to pay future cash compensation• Purpose is to help attract, retain and/or reward key people• Documented in a legal agreement
– Terms include normal retirement, early termination, disability, change in control and death
• Limited to select management, highly compensated officers and directors
• Plans include:– account balance plans (Incentive Retirement, Deferred
Compensation), also known as “defined contribution”– non‐account balance plans (Supplemental Executive Retirement
Plans (SERP’s), Salary Continuation Plans and Director Retirement Plans), also known as “defined benefit”
OverviewofNonqualifiedPlans• Must comply with IRC Section 409A• Flexible plan designs available, but difficult to change the
form and timing of the payment streams once implemented• Distributions can commence at a specified date, age or upon
separation from service (documented at plan inception)• Benefit payments may be forfeited if the director/executive
competes after termination• Director/executive is a general creditor in the event of
insolvency
NonqualifiedBenefitPlanProvisions
• Payout events– Normal Retirement– Early Retirement– Change in Control– Disability – Death
• Terms of payout– Accrued liability, PV of full benefit, or full payout– Paid immediately or at normal retirement age– Paid in a lump sum or over time
DefinedBenefitSERP• DB SERPs (also called Salary Continuation Plans) help overcome retirement shortfalls
• The benefit is a fixed amount or percentage of final salary paid at retirement
• Examples:a) $50,000 per year for lifeb) 25% of final salary for 15 yearsc) 70% of final salary minus social security and 401k
plan benefit payments
SERP/SCPExample• Assumptions
– Officer Age 37
– Current Salary $125,000
– Projected Age 65 Salary $286,000
– Annual SERP Benefit Formula 35% of final salary
– Annual SERP Amount $100,000 per year for 15 years
SERP/SCPExample(cont.)Annual
Age Benefit50 $30,80055 $48,80060 $72,00065 $100,000
The plan can provide that the vested annual benefit is forfeited if the officer competes with the bank.
DirectorCompensationTrendsandBestPractices
Director Compensation
Qualified Plans Equity PlansCash Compensation
Director Total CompensationDirector Total Compensation
Cash RetainersCash
Retainers Chair FeesChair FeesCommittee Meeting FeesCommittee Meeting Fees
Per Meeting Fees
Per Meeting Fees
Other Compensation
Other Compensation
Equity RetainersEquity
Retainers
DirectorCompensation(Continued)
Basic Director Compensation Trends
Total compensation per average director was generally flat during the credit crisis (‘09 – ’12)• Director compensation has started to increase in 2013 & 2014
Director compensation should have a different philosophy from executive compensation.• Pay for time and expertise
Director annual incentives based on bank results are frowned upon by regulators.• Focus should be on long‐term results and sustainability
Use of equity as a component of director compensation is considered a best practice.• Typically an equity retainer and restricted stock (vs. stock options)• Shorter vesting for director equity grants
Increased focus on retainers and a decreased focus on per meeting fees
Director compensation differentiation for chairs versus non‐chairs
BlanchardDirectorCompensationSurvey
• Blanchard Consulting Group conducted a survey of director trends and 2014 directorcompensation during the spring of 2015. A total of 130* banks completed the survey. Therespondents included 53 public and 77 private banks. The asset size and regions of theparticipants are summarized below.
Region BreakoutNortheast – 8%Southeast – 23%Southwest – 9%Midwest – 46%West – 14%
* One participant did not provide the breakdown of board/committee meetings and fees. Therefore, their data is not included where applicable.
2014 Director Compensation (Avg. Director)*
Total compensation consists of fees earned or paid in cash, stock awards, option awards, non‐equityincentive plan compensation, change in pension and non‐qualified deferred compensation earnings, andall other compensation. The tables below and on the following slides show the total compensation paid toan average director. An average director excludes the board chair, employee directors, and any directorswith extraordinary events in 2014 (i.e. retirement or partial year board service).
All Banks, Med=$448Mn=130
Fees Earned or Paid in Cash ($)
Stock Awards ($)
Option Awards ($)
Total Granted Equity ($)
Non‐Equity Incentive Plan
Comp**($)
Change in Retirement Benefits
($)
All Other Comp ($)
Total Comp Per Average Director
($)
Average 20,133 13,512 20,493 17,528 1,546 6,906 3,475 24,270
25th Percentile 11,413 3,876 3,835 4,859 n/a 1,896 328 12,000
50th Percentile 16,888 12,497 10,721 13,074 1,546 4,405 2,500 18,102
75th Percentile 26,069 19,622 21,570 22,075 n/a 7,225 5,455 30,729
* Each column represents the summary statistics for the banks that have this form of compensation (0’s are excluded); therefore,total compensation per average director is not a sum of the previous columns.
** When fewer than three banks reported an amount (i.e. stock awards, option awards, etc.) we do not report data at the 25th and75th percentiles.
Board and Committee Chair Compensation – Additional
We show the additional compensation paid to the Audit, Executive, Compensation, andNominating/Governance committee chairs. We also provide the additional compensation paid to theBoard Chair or Lead Director. This compensation is in addition to the fees being paid to an average boardmember.
Typically board chairs and committee chairs earn 20‐30 percent more than other board or committeemembers for their additional time commitment and responsibilities.
Committee Chair Fees (Additional)
All Banks, Med=$448Mn=130
Board Chair/Lead Director Fees (Additional)
($)Audit($)
Executive($)
Compensation($)
Nominating/Governance
($)
Committee Chair Fee Average
($)Average 9,304 3,201 2,188 2,114 1,776 2,92625th Percentile 2,325 845 195 513 186 86050th Percentile 5,800 1,700 365 1,000 613 1,20075th Percentile 12,000 4,850 1,625 3,250 2,063 4,625Prevalence 46% 43% 9% 30% 12% 44%
Committee Meetings and Per Meeting Fees
Audit Comp ExecutiveNominating
&/or Corp GovALCO/
Investment Loan Risk Trust Other
All Banks, Med=$448M
Avg # of Cmte Mtgs
Avg Per Mtg Fee
($)#
Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
# Mtgs
Per Mtg Fee($)
Average 8 367 6 401 4 410 9 605 3 446 6 293 23 317 6 482 8 383 6 27325th Percentile 5 202 4 234 2 246 1 200 1 300 4 143 12 150 4 238 4 250 1 15050th Percentile 7 300 4 300 4 319 4 350 2 413 4 250 18 263 4 325 6 350 4 25075th Percentile 10 500 6 500 5 500 11 657 4 500 5 350 30 456 7 500 12 500 8 300Prevalence of Committee 92% 78% 48% 42% 51% 74% 22% 18% 17%
The table below shows the number of committee meetings held during 2014 and the amount of the permeeting fee paid for attendance at meetings. For banks that pay an annual retainer in lieu of a permeeting fee or in addition to a per meeting fee, we convert this to a per meeting fee for this analysis. Therow at the bottom of the tables indicates the prevalence of each committee among the specific datacut.
Director Benefits
* Respondents were asked to indicate all benefits that are offered to their directors; therefore, the percentages will not sum to 100%.
The table shows the prevalence of benefits offered to directors at each of the participating banks.*
Contact InformationKen DerksEquias Alliance7200 Bishop Road, Suite 240Plano, TX [email protected]
Mike Blanchard, MBABlanchard Consulting Group8725 Roswell Road, Ste. O‐216Atlanta, GA 30350(678) 461‐9016 [email protected]
