Rewarding performance without increasing risk or running into problems with regulators or shareholder advisory groups has been a tough job for bank boards in recent years. Many have made changes to their long-term and short-term incentive plans and metrics. Bank Director asked some board member and management speakers at its upcoming Bank Executive and Board Compensation Conference in Chicago Nov. 4-5 to address what changes they have made recently.
Has your bank implemented any changes to compensation or to the compensation committee during the last year that you would view as an improvement? If so, please describe.
Avenue Bank introduced a long-term incentive plan in 2012 for executives, key officers and directors. This is a performance-based plan. Based on achievement of annual goals, equity awards in the form of restricted stock will be granted at threshold, target or maximum and vested evenly over a four-year period. Objectives included the ability to attract and retain key employees in a highly competitive talent market; encourage ownership; provide a portion of total compensation in deferred compensation; minimize accounting expense and provide the most efficient long-term incentive vehicle.
— Ron Samuels, chairman & CEO, Avenue Bank, Nashville, Tennessee
First Business Financial Services, Inc., has undertaken two major projects over the past year to align compensation and performance. CEO performance is now evaluated using a robust process, which incorporates both business results and excellence in leadership. In addition, we have developed a new peer group that best reflects our business model, size and markets. This peer group will be used in evaluating both our performance and our compensation. When combining these tools with engaged directors, we believe we provide a solid foundation for both the art and the science of compensation.
— Barbara Stephens, compensation committee chairman, First Business Financial Services, Inc., Madison, Wisconsin
Our annual compensation review considers key factors such as: talent acquisition and retention needs, long term strategy of the bank, changes in competitive landscape, and the complexity of our growing company. In 2013, we continued the practice, established a few years ago, of shifting from options as our single, long-term incentive to a combination of options and restricted shares. Going deeper into our company with options has also allowed us to recognize the hard work and commitment of our management team as well as rewarding our promising young employees that have the potential to assume leadership roles in the future.
— Leon Holschbach, president and CEO, Midland States Bancorp, Effingham, Illinois
At ConnectOne Bank, we have recently focused on an alignment strategy for compensation. This was accomplished by creating both an annual cash incentive plan and a formal long-term incentive plan. The dynamic tension between these two different plans motivates and rewards short-term actions while making sure that those decisions also drive long-term value creation. For a high-growth, risk-compliant organization such as ours, retaining and rewarding our top talent has become a priority for our compensation committee. This balanced approach between short and long-term incentive aligns our employees’ goals with those of our shareholders, while also building leaders who reinforce our client-centric, sense of urgency culture. The result: good decision-making, added shareholder value and strategic focus.
— Frank Sorrentino III, chairman/CEO, ConnectOne Bank, Englewood Cliffs, New Jersey
Last year, we changed one of the executive non-equity incentive plan performance measures from strategic/nonfinancial goals to a financial goal of measuring the holding company/bank’s nonperforming assets ratio against the company’s peer group. In discussions with some of our institutional investors and after reviewing some of our past proxies, we found that this previous goal was not easily explained and not clearly an objective performance measure. As such, the old measurement might not clearly qualify for 162(m) treatment; which, if disqualified, would mean that part of the compensation awarded would not be tax-deductible by the company.
— Vernon Hirata, vice chairman, co-chief operating officer and general counsel, Territorial Bancorp Inc., Honolulu, Hawaii