Bank directors at smaller banks are working longer hours than last year, and some are being paid less with fewer benefits, according to the results of Bank Director’s annual Compensation Survey co-sponsored with Blanchard Consulting Group.
The survey, conducted in July and August, comes following a multi-year recession and economic slump that bank balance sheets are only now recovering from. But with a host of new regulations on the drawing board and diminished profitability, bank boards in some cases have responded by getting less and doing more.
The median number of hours spent on the job for all asset sizes is the same as last year, 15 hours per month.
However, for smaller banks, those under $100 million in assets, the median number of hours spent on the job went from 10 hours per month last year to 15 hours. Banks between $251 million and $500 million in assets had directors who spent about 13 hours per month on the job last year. This year, they are spending three more hours per month on bank business, suggesting the economic environment is disproportionately impacting smaller banks and the workload of their directors.
The most common form of compensation for outside directors is board meeting fees, with 51 percent of all banks paying them. That was down from 62 percent of respondents who said their bank paid meeting fees last year. Twenty-eight (28) percent also get a cash retainer, down from 32 percent last year.
However, for the banks that continue to pay fees and retainers, the median amounts stayed the same as last year, $600 for a full board meeting and $10,000 for an annual retainer.
Fifteen (15) percent of respondents to the survey say they get some sort of equity compensation, compared to 16 percent last year.
Benefits appear to have eroded.
Thirty-nine (39) percent of banks offer no benefits to board members, up from 28 percent last year, with the percentage of private banks offering no benefits higher than public, 44 percent to 35 percent.
Satisfaction with the board’s job handling compensation issues also has gone down. This year, 63 percent of respondents give their board high marks for managing the executive compensation program. That compares to 74 percent last year who said their bank was managing executive compensation well or very well. This year, 56 percent think the board is managing director compensation well or very well, compared to 68 percent last year.
Pay-for-performance metrics and gathering and understanding peer/comparison data continue to be the most challenging issues for the bank’s compensation committee this year. The same percentage named those two topics as the most challenging issues this year, 26 percent.
New federal regulations requiring banks to analyze risk in incentive compensation plans has led slightly more than one-third, or 34 percent, of banks in the survey to make changes. Only 29 percent say they have implemented a claw back provision for executive pay. Of those who do have a claw back provision, 65 percent have one for the management team, and 60 percent have one for the CEO. Twenty-eight percent (28) have claw backs on pay for loan officers.
In a new question this year, half of all respondents say they link CEO pay to the strategic plan. Another sixty-eight (68) percent say they link CEO pay to performance metrics. Of those who link CEO pay to performance, 66 percent use asset quality, 59 percent use return on assets and 62 percent use return on equity. Only 35 percent tie CEO pay to total shareholder return and 37 percent tie it to earnings per share growth.
The Compensation Survey was sent to 8,675 U.S. bank CEOs and directors via e-mail on July 21, Aug. 4 and Aug. 18. Surveys were returned by 617 people, for a response rate of 7.1 percent.
For more details on the survey and bank director pay, review our analysis in the fourth quarter issue of Bank Director magazine.