Pay for Performance: An Updated Look at Bank Incentive Plans

As banks continue to grow and become more profitable, many pay-for-performance incentive plans have provided target and above target level payouts. Blanchard Consulting Group conducted an analysis of cash incentive payouts for the CEO and chief financial officer positions over the past three years to assess how incentive payouts compare to median return on average assets (ROAA) and return on average equity (ROAE) performance. For each bank, actual cash incentive/bonus payouts for these positions versus ROAA and ROAE were reviewed to determine whether there was a significant difference on a year-to-year basis.

What did the analysis find about CEO and CFO cash incentives/bonuses paid in 2025, 2024 and 2023?
The median value of cash incentive/bonus payouts in 2025 increased by just over 30% for both the CEO and CFO positions as compared to 2024 payouts. The increase in 2024 payouts versus 2023 was approximately 25%.

CEO and CFO Median Cash Incentives/Bonuses Paid in 2025, 2024 and 2023*
*Various asset size ranges were examined, and no significant differences were found in the summary results.

What did the analysis find about ROAA and ROAE in 2025, 2024 and 2023?
An analysis of year-end ROAA and ROAE performance was conducted for each bank. The median 2025 ROAA for these banks increased by approximately 20% as compared to 2024. For ROAE, an increase of 11% was found in 2025 as compared to 2024.

CEO and CFO Banks Median ROAA and ROAE in 2025, 2024 and 2023*
*Of note, the ROAE and ROAA ratios decreased in 2024 as compared to 2023. However, cash incentives still increased from 2023 to 2024. This increase may be attributed to the fact that many of these banks experienced significant growth in 2024, and many executives were rewarded for this growth versus solely financial performance.

This growth reality was also evident when the analysis from two years ago was reviewed. The number of banks in the analysis with assets between $3 billion and $10 billion almost doubled, from 64 to 108 banks. Since banks with larger assets typically have higher cash incentive/bonus potential, the median bonus for these banks would likely increase independent of performance.

Current Trends in Annual Incentive Plan Designs
Due to economic uncertainty over the past five years, some banks have made modifications to the goals in their annual cash-based incentive plan scorecards. Examples of these modifications include:

1) Wider performance/goal ranges. Since it has become more difficult to predict annual budgets, many banks have increased their performance/goal ranges in their annual incentive plans, especially at the lower end of the range.

2) Use of strategic/department goals. Banks have started to incorporate strategic or department goals, such as core deposit growth, loan growth and credit quality into their annual incentive plan design.

3) Use of discretion. Banks have also incorporated a discretionary component (typically no more than 10%-15% as a goal weighting) into their annual performance-based, cash-incentive plans.

Cash incentives continue to remain very prevalent in the banking industry. Blanchard Consulting Group’s 2026 Compensation Trends & Lender Incentive Practices Survey showed that approximately 96% of banks paid a cash incentive or bonus for 2025 performance.

It appears that performance-based plans are showing a solid pay-versus-performance link. The analysis showed that as profitability increased in 2025, this resulted in higher cash incentive/bonus payouts for the CEO and CFO positions. Additionally, strategic growth initiatives appear to have contributed to the increase in incentive payouts in 2024 as compared to 2023.

Overall, the purpose of performance-based annual incentive plans is to increase or decrease variable pay levels based on both profitability and strategic growth goals. This reality appears to be playing out in banks in recent years.