A Deeper Dive Into Board Pay

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How you pay your board may have a surprising effect on its total pay package, according to Bank Director’s 2020 Compensation Survey. This exclusive analysis has been created specifically for members of our Bank Services program.

Across asset sizes, banks paying an annual retainer generally award more total compensation to the board compared to their fee-only peers or those that award a mix of the two. This analysis focuses solely on cash compensation for the full board, in the form of meetings fees and retainers. Committee compensation is excluded due to variances in structure and meeting frequency, although 63% award committee fees.

Estimated Annual Pay, by Type and Asset Size

 >$10B$1B – $10B$500M – $1B$250M – $500M<$250MAll Banks
Annual Retainer Only$595,000$380,000$312,750$180,000$150,000$400,000
Meeting Fee Only$921,000$120,000$140,000$105,000$65,000$107,500
Both Retainer + Fees$225,000$118,000$90,000$85,400$77,500$105,000

*Estimated annual pay assumes 10 directors per board and 10 meetings per year, based on the 2020 Compensation Survey.

The low usage of meeting fees by banks above $10 billion in assets, and of annual retainers by banks below $500 million in assets, result in smaller data sets for those groups.

So, are retainer-only banks overpaying their boards? Are fee-only banks underpaying theirs?

Board responsibilities have risen greatly since the last financial crisis more than a decade ago. Regulators expect more from directors; while the buck stops with the CEO, that individual ultimately reports to the board. So, while it’s hard to say what’s right and what’s wrong when it comes to board pay, the gradual, increased use of annual retainers — from 61% five years ago to 70% today — reflects a realization by many boards that their members are spending more time outside of meetings on bank matters, whether that’s reviewing board packets or educating themselves on issues important to the oversight of the bank.

Annual retainers can better demonstrate the amount of the work directors put in. 

What’s more, technology has expanded how the board can meet. Some boards already offered phone and video conferencing options to more-remote members, like snowbirds who head south for the winter. The Covid-19 pandemic forced entire boards to adopt these measures, so they could become a more permanent feature for some. Should those attending virtually be compensated differently?

Annual Cash Compensation Per Director, by Type and Asset Size

 >$10B$1B – $10B$500M – $1B$250M – $500M<$250MAll Banks
Annual Retainer Only$59,500$38,000$31,275$18,000$15,000$40,000
Meeting Fee Only$92,100$12,000$14,000$10,500$6,500$10,750
Both Retainer + Fees$45,000$28,000$22,500$17,900$14,500$24,000

*Estimated annual pay per director assumes 10 meetings per year, based on the 2020 Compensation Survey. The low usage of meeting fees by banks above $10 billion in assets, and of annual retainers by banks below $500 million in assets, result in smaller data sets for those groups.

Getting the compensation mix right is vital to attracting the new talent a board needs to oversee the bank. Boards are often seeking someone younger. They may be looking to add gender or ethnic diversity. Or they may be looking for new skills.

While the 2017 Compensation Survey indicated that directors serve for loftier reasons than a supplemental paycheck — 62% cited personal growth as the top reason they serve — new, younger directors could be balancing an already high-pressure career with family obligations. And other organizations could be seeking their valuable time. Your bank likely isn’t the only one in its community on the hunt for board talent.

“It’s difficult to fully compensate someone for their time as a director,” says Flynt Gallagher, president of Compensation Advisors. “If you’re going to pay them for the time they put in, the skills they bring to the board — they’d be unaffordable.”

But boards still need to make it worthwhile to serve. Simultaneously, they may feel pressure to maintain current pay levels during the economic downturn.

Compensation committees could consider awarding equity compensation, which wasn’t factored into this analysis. Equity provides a way to pay directors more — and gives them additional skin in the game — without having an outsized effect on total compensation. Roughly half of survey respondents, primarily at public banks, awarded equity to outside directors in fiscal year 2019, at a median fair market value of $30,000. 

Bank Director’s 2020 Compensation Survey, sponsored by Compensation Advisors, surveyed 265 independent directors, CEOs, human resources officers and other senior executives of U.S. banks to understand trends around the acquisition of talent, CEO performance and pay, and director compensation. The survey was conducted in March and April 2020. Compensation data for directors and CEOs for fiscal year 2019 was also collected from the proxy statements of 98 publicly traded banks. Fifty-three percent of the total data represent financial institutions above $1 billion in assets; 59% are public.

Several units in Bank Director’s Online Training Series focus on compensation matters. You can also learn more about finding new talent for the board by reading “Cast a Wider Net for Your Next Director” and “How to Recruit Younger Directors.” If you’re considering virtual meetings, read “Best Practices for Virtual Board Meetings” to learn more about navigating that shift.

Preparing for Challenges to Director Equity Compensation

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compensation-7-31-17.pngOne of the most difficult fiduciary issues facing boards is director compensation, since it is essentially and unavoidably a self-dealing transaction. The trend in recent years has been to increase the amount and proportion of director compensation that is comprised of equity. However, director stock compensation has also developed as a new frontier in stockholder litigation, and in response to successful challenges from stockholders to equity pay that has been viewed as excessive, several companies have been forced to modify director pay practices, including Facebook.

When challenged, board decisions are usually entitled to the protection of the business judgment rule, and will be dismissed unless the stockholder challenger can produce evidence of director bad faith or gross negligence. However, because directors have an interest in their decision as to their own compensation, business judgment protection is unavailable, and the burden is placed on the board to demonstrate that the award of compensation was fair, which means that stockholder challenges will rarely be dismissed at the pleadings stage.

Recent Delaware court decisions have provided important guidance for companies in terms of structuring equity compensation programs for directors. Directors can avail themselves of the protection of the business judgment rule, and challenges to director equity compensation will be dismissed under Delaware law, if disinterested stockholders have approved the payment of equity compensation for directors based on a fully informed and uncoerced vote. If the business judgment rule applies, a board’s decision as to its own compensation will be upheld if it can be attributed to any rational business purpose. As these court decisions further explain, however, not all stockholder approval is of equal effect.

In the 2014 lawsuit Calma v. Templeton, the board of software company Citrix Systems had annually awarded directors individual equity compensation of $250,000 to $350,000, in addition to annual cash compensation, over a multi-year period in accordance with the terms of a stockholder-approved equity plan. The equity plan allowed directors to participate in a plan to distribute up to 16 million shares as options, restricted stock awards, or restricted stock units (RSUs), of which up to 11 million shares could be awarded as RSUs, and authorized the compensation committee at its discretion to make all determinations with respect to awards granted, including to directors. The only limitation contained in the plan as to individual awards related to IRC Section 162m, and provided that no individual could receive more than 1 million shares in any one calendar year. The limit had an aggregate value of $55 million at the time of the litigation. The plaintiff claimed that the stock compensation paid to the directors, when combined with the annual cash compensation, was excessive, in breach of the board’s fiduciary duties. The Delaware Chancery Court declined to apply the business judgment rule and dismiss the stockholder challenge based on stockholder approval of the plan because the plan did not include any meaningful limit “bearing specifically on the magnitude of compensation to be paid” to the non-employee directors. The generic individual limit was insufficient for this purpose. The company settled the case, imposed annual dollar limits on the value of equity that annually could be granted to directors, and agreed to pay up to $425,000 to plaintiff’s counsel.

In another case, the Delaware Chancery Court this year dismissed a challenge to equity awards made to directors at Short Hills, New Jersey-based Investors Bancorp, which the court acknowledged were “quite large,” but which were made in accordance with the terms of the stockholder approved plan that included director-specific limits. Following stockholder approval of a stock benefit plan, the board of directors of the $23 billion asset Investors Bancorp had granted stock options and restricted stock awards to directors having an aggregate grant date value of approximately $2 million, which vested predominantly over a five-year period. The court noted that the compensation committee followed a diligent process involving four meetings and included input from an independent compensation consultant. The plan allowed for up to 30 million shares to be granted to officers, employees and directors. Of these shares, up to 17 million could be granted as stock options, and up to 13 million shares could be granted as restricted stock awards and RSUs. Importantly, the plan stipulated that no more than 30 percent of the shares reserved for issuance as stock options or restricted stock awards could be granted to outside directors, all of which could be granted in any one year. The court noted that this limit was unlike the “generic” limit for all beneficiaries found in the Citrix case, and that the plan meaningfully informed stockholders of the magnitude of the stock compensation that could be granted to directors.

Dangling the Carrot: How Banks Can Approach Incentive Compensation

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incentive-5-24-17.pngWith the dearth of talent at many community banks, particularly in the executive suite, it has become increasing important to make sure that key employees stay put and not pack their bags for the competitor down the street. It is one thing to tie up these executives with non-competition and non-solicitation restrictions, but finding that delicate balance between appropriately protecting the bank’s interests and over-reaching, thereby running the risk of unenforceability, can often be tricky. In addition, adopting a carefully drafted incentive compensation plan can have the benefit of not only improving executive loyalty, but also encouraging revenue-enhancing or other desirable behaviors.

Cash or Equity?
Each employee may be motivated by different things, so it is often difficult to gauge what will have the biggest impact from an incentive perspective. There a few things, however, that should be kept in mind in evaluating this decision:

  • Cash has the advantage of immediate gratification. Equity awards are often subject to vesting requirements and can be difficult to monetize due to the virtually non-existent markets for most community banks’ stock.
  • Because of the vesting requirement of equity, such awards have the advantage of providing a longer-term benefit to the bank, in that executives will be loath to leave while they hold unvested equity awards.
  • It can be difficult for both the bank and the executive to value equity awards, given the lack of an efficient market for the shares.
  • Any time stock is issued by a bank holding company, it must be issued pursuant to a registration statement with the Securities and Exchange Commission, or an appropriate exemption must be available. The most common exemption for equity incentive awards is Rule 701, which requires awards to be issued, among other things, pursuant to written compensatory plans.

Appropriate Triggers
There are endlessly creative ways that community banks and their compensation consultants use to determine incentive compensation awards. So much of this is driven by the types of behaviors that the bank desires to encourage. However, there are a few things to keep in mind as you decide how to design your particular plan:

  • Beware of the Wells Fargo effect. While it is not uncommon to tie awards to achieving certain revenue and sales metrics, it is important to have appropriate controls and/or claw back policies in place to recoup pay and discourage overly aggressive sales practices.
  • Avoid tying incentives to confidential supervisory information. Many banks want to tie incentive compensation to achieving certain examination findings or CAMELS ratings. However, regulators have consistently stated this is inappropriate on a number of levels, not the least of which is that they do not appreciate being one of the deciding factors in whether an executive gets a bonus or not.

Other Do’s and Don’ts

  • Revisit plans that have been in place for a while to ensure that they are Section 409A compliant. Section 409A of the Internal Revenue Code sets forth certain rules regarding the timing of deferrals and distributions with which non-qualified deferred compensation must comply. Non-compliance could have significant negative tax consequences on the employee and, potentially, the bank.
  • The worst time to adopt a new incentive compensation plan, particularly one that contains change-in-control provisions, is right before the board decides to put the bank up for sale. Doing so may be perceived by shareholders as a breach of the board’s fiduciary duties.
  • If any of the bank’s mortgage loan originators are included in the pool of executives entitled to participate in the executive compensation plan, additional attention will need to be given to ensure that any awards granted under the plan do not run afoul of the loan original compensation restrictions set forth in Regulation Z.

While it is certainly a good idea to make sure your most valuable assets—your executives—are protected, there are a lot of variables to consider in putting together incentive compensation plans, which should be carefully crafted to achieve the bank’s objectives while avoiding unintended consequences.

Director Compensation: Consider Adopting These Big Company Practices at Your Bank

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director-compensation-2-29-16.pngThe evolution of pay and governance practices tends to be led by large companies—organizations that are under the watchful eyes of institutional shareholders, proxy advisors and the media. Smaller organizations have less visibility, fewer constituents, and can afford to take more time evaluating whether or not to adopt emerging pay practices, some of which may take years to be adopted or ultimately rejected due to unwarranted complexity, cost or irrelevance. But certain current pay and governance trends are worth considering right away, regardless of company size.

Pearl Meyer recently completed its annual Director Compensation Report analyzing director pay practices for 1,400 public companies. We have identified three practices that are nearly universal among the largest 200 companies in the S&P 500 (we’ll call them the Top 200) that we believe transcend company size and deserve consideration at banks, both large and small:

  • The shift toward retainer-based pay;
  • Delivery of over half of pay for board service in stock; and
  • The adoption of stock ownership guidelines.

Shift from Attendance-Based to Retainer-Based Pay
The largest companies generally have the most complex compensation structures. But on rare occasions, they actually lead the way toward greater simplicity in pay practices. One example is the shift from a retainer plus meeting fees structure to a retainer-only approach. This simplification of director pay has been an increasing trend among large public companies for a decade. Today, fewer than one in five Top 200 companies now pay meeting fees for board service, while roughly 40 percent of companies with revenues of $50 to $500 million (so-called micro companies) continue this practice.

The most compelling argument for retainer-based compensation is the investor expectation that a director’s full commitment to attend all meetings should be a given. A retainer structure emphasizes that directors are compensated for the skills and experience they bring to the position, an expectation just as relevant for small companies as the Top 200. A side benefit of this approach is its greater simplicity, something community banks may find attractive.

Increase in Equity Pay
A long-promoted principle of the National Association of Corporate Directors (NACD) is to align director compensation with the interests of the shareholders they represent, in part by delivering at least half of director pay in the form of stock. Two-thirds of all companies studied, and nearly 90 percent of the Top 200 companies, comply with this guideline. Practices among banks in the study were similar to the general industry. The prevalence of companies meeting this threshold generally increases with the size of the organization.

With certain exceptions (mutual organizations, family-owned, closely-held, etc.), the rationale for paying at least half of director compensation in equity is no less compelling for community banks than for large corporations:

  • Directors at community banks are equally responsible for representing their shareholders;
  • The governance practice of aligning director pay with the long-term interests of shareholders is universal; and
  • Stock-based compensation is more capital-friendly than cash, which may add special appeal for banking organizations.

Community bank boards may include a diverse group of directors and demographics, and cash-focused director pay may at times be more appropriate. However, the benefits of a greater mix of equity-based compensation may be appropriate for your organization.

Director Stock Ownership and Retention
Larger companies have almost universally adopted stock ownership guidelines requiring directors to accumulate or retain shares received over a defined period of time. The rationale is consistent with the purpose of stock-based pay—greater alignment with the long-term interests of shareholders. This is a reasonable objective for stock companies, regardless of industry or size.

While ownership requirements vary from company to company, they are typically attainable through retention of shares received under the compensation program. A common structure might require ownership equal to a multiple of the annual cash retainer (for example, three to five times the retainer), with retention of at least 50 percent of shares until an ownership level requirement is met. For community banks looking to score points within the governance community, adopting modest, achievable stock ownership guidelines can be a relatively easy win.

Community banks aren’t known to be early adopters of pay trends, and that’s a good thing much of the time. But the three director compensation trends discussed above have been tested and refined at large companies for many years and they have direct and immediate applications to smaller organizations. Consider exploring the merits of these big company director compensation practices for your bank in 2016.

Are Your Retirement Vesting Provisions Motivating the Wrong Behaviors?

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incentive-1-4-16.pngAs more executives near retirement age, many banks are realizing their equity vesting provisions may be motivating unintended behaviors. Do your bank’s retirement provisions encourage executives to:

  1. Provide advance notice of retirement to facilitate planned succession?
  2. Assist in their transition?
  3. Remain engaged and motivated through the last day on the job?
  4. Remain interested in the bank’s success following retirement?

Unfortunately, many retirement provisions don’t consider these important objectives and in some cases motivate the opposite behaviors.

Current and Emerging Retirement Provisions

Forfeit
Forfeiting all unvested equity may be used as a means to retain executives, but this practice can unintentionally encourage executives to wait around for equity to vest when the executive is no longer fully engaged.

Fully Accelerate
Accelerating unvested equity upon retirement allows executives to announce and retire whenever they want without losing any equity. However, if an executive communicates an intention to retire two months before an equity award, does the company make the award? Not doing so could impede the executive’s motivation to provide advance notice of pending retirement. However, full acceleration can limit the retention value of awards once the executive reaches (early) retirement eligibility.

Prorate
Proration provides executives with a portion of unvested equity based on the amount of time the executive has worked during the vesting period, regardless of when the grant was made. The bank may be uncomfortable with executives receiving value from recent grants, while executives may feel that they are forfeiting earned compensation. Below are three potential solutions to this concern which combine proration with acceleration:

  1. Holding Period. Participant must have received the grant at least 6-12 months prior to retirement in order for vesting to accelerate or performance awards to vest.
  2. Prorated 12 Month Period. The amount of award that accelerates or vests is based on the portion of time worked during the first year after grant. If a participant works for six months following a grant, he/she would receive value of half the award. This alternative is more generous and does not create as much of a cliff timeline.
  3. Most Recent Grant Pro Rata. Equity accelerates in full except for the most recent grant (made in the last 12 months) which would vest pro rata based on the full vesting period of the award (e.g., if stock options vest ratably over 4 years, a participant who works for six months during year one would receive one-eighth of the award).

Continue Vesting
Continued vesting is an emerging practice with benefits for the executive and the bank. Continued vesting allows the executive to retire without forfeiting all or a portion of outstanding awards. Instead, the awards continue to vest on the original schedule. This also encourages the executive to leave the bank in sound condition and facilitate transition. Another benefit for the bank is that continued vesting helps reinforce non-compete or non-solicit agreements because the bank can cease vesting if the executive violates the restrictive covenant.

Committee Discretion
Some committees want the discretion to determine retirement treatment on a case by case base. This treatment acknowledges that each executive is different and each retirement situation is unique. However, this approach puts a significant pressure on the committee and may be perceived unfair by executives if the discretion is not applied consistently.

Other Considerations

Retirement Definition
Banks should also review the retirement definition to ensure it remains appropriate. If a bank’s retirement age is 65, what is the treatment if an executive is hired at age 64? Some banks define an age plus service definition such as age 65 and 5 years’ service or an age and service definition to recognize early retirement (e.g. 55 age plus 10 years’ service or age plus service equals 75). For these definitions, banks may want to consider including a “retire from the industry” requirement in their retirement definition.

Performance Awards
Should performance award payout be based on target or actual performance? Awards paid based on actual performance at the end of the performance period could encourage the retiring executive to leave the bank in sound condition.

Vesting Schedule
Finally, the vesting schedule may also impact which type of retirement provision a bank chooses. For example, if time-vested restricted stock vests ratably over three years (i.e. 1/3 per year), a forfeiture provision would not be as detrimental to the executive as if the award was cliff vested.

Choosing the right retirement treatment is a more strategic decision than ever before. Banks should review their long-term incentive plans to ensure they are meeting desired objectives.

It’s a New Day in Executive Pay

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12-3-14-Naomi.jpgEver since the financial crisis, bank boards have been operating under a tremendous amount of scrutiny, and that is leading to substantial changes in pay packages. Changes that at first only impacted the largest, global banks are cascading down to smaller community and regional banks.

People such as John Corbett, the CEO of the $3.9-billion CenterState Bank of Florida, headquartered in Davenport, Florida, say their banks are paying executives more of their total compensation in long-term equity. If the bank’s shareholders do well, so do the executives, so the thinking goes. Half of the stock is time vested, meaning it takes a few years before executives have access to it. The other half is tied to performance goals. Also, the bank’s annual bonus plan for top executives is a mix of cash and stock, and the bonuses are deferred for three years in case the credit quality of the bank’s loan portfolio deteriorates.

Corbett spoke at Bank Director’s Bank Executive and Board Compensation Conference last month in Chicago.

Kevin O’Connor, president and CEO of Bridge Bancorp, Inc. in Bridgehampton, New York, also spoke at the conference and said his more than $2-billion asset banking company has made substantial changes, adding long-term incentives in the form of equity, tying those to individual and corporate performance, and requiring vesting periods for the stock.

O’Connor said not all banks provide employees with as much transparency into exactly how the bonus plan works as Bridge Bancorp does now. But his bank’s plan has generated more discussion about how to reach corporate and individual goals, and he feels good about that result.

“[Employees] want to know what the corporate goals are,’’ O’Connor said. “They want to know how they can affect it. What I like is there is actually a dialogue now with the manager as to what they should be focused on.”

Other changes that are happening in bank pay plans include:

  • More publicly traded banks are using restricted stock. The stock typically vests over a three-to-five year period, to provide a retention tool, or vests based on achievement of specific performance measures. Common performance measures include the company’s shareholder return relative to a peer group, return on assets, or earnings per share. Goals for the highest executives tend to be focused on corporate performance, while lower level employees have more weight given to individual and department goals. Private companies can offer incentives in the form of “synthetic stock” or “phantom stock” that increases in value with the company’s value, and is ultimately paid in cash.
  • Long-term incentives are an increasingly important part of the average executive’s pay, but the percentage varies greatly by size of bank. For example, CEOs at banks above $1 billion in assets on average receive 26 percent of compensation in long-term incentives, typically stock, according to a review of about 150 publicly traded companies by Blanchard Consulting Group. For banks between $500 million and $1 billion in assets, the percentage of total compensation that is long-term is 12 percent.
  • Stock options are going away. Regulators have a “stated disdain” for stock options, according to compensation consultant Todd Leone of McLagan. “They have been slowly dying on the vine,’’ he said. Powerful shareholder advisory groups, such as Institutional Shareholder Services and Glass Lewis & Co., don’t consider stock options tied to performance.
  • Gone are the days of executives getting change-in-control payouts when a sale occurred even when they didn’t lose their jobs. The payouts also are smaller, in the range of two to three times base pay, rather than four or five times base pay as was common five or six years ago, said Barack Ferrazzano attorney Andy Strimaitis.

Figuring out how to pay top executives has always been a huge challenge for the board. You don’t want to lose top talent to competitors, but you also don’t want to give overly lavish pay packages, either. There is no one way to do this. There are plenty of ways to get your bank in trouble with regulators or ensure a negative say-on-pay vote at the annual shareholders’ meeting, but each board has to come to its own decision about what makes an optimal pay package.

Banks Increasingly Use Restricted Stock

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11-10-14-Blanchard.jpgEquity compensation practices at community banks have shifted significantly during the past 10 years. This shift has focused primarily on the type of equity, the way in which equity is granted, and the prevalence of equity use for both executives and directors. While some of the changes have been triggered by regulatory bodies, I believe some of the changes have also been the result of common sense and experience.

Executive Equity Grant Trends
In the early 2000s, before the implementation of stock option accounting, stock options were the most prevalent form of equity compensation. But with the implementation of stock option accounting under FAS123R (now ASC 718), companies now had to recognize a stock option expense and there was the chance that the executive never recognized a reward if the stock price declined after grant. In the late 2000s, numerous stock options were “underwater,” or no longer accomplishing the goals of equity compensation for executives, including reward, retention and link to shareholders. As such, the last five years have seen a significant rise in grants of full-value shares (commonly, restricted stock units or RSUs). These full-value shares will:

  1. Always have value (so long as the underlying stock has value). They can’t go “underwater.”
  2. Create executive shareholders. They are stock grants and executives become shareholders upon vesting.
  3. Promote retention if vesting provisions are included, with vesting typically ranging from three to five years.

In a Blanchard Consulting Group study of approximately 200 publicly traded banks, 86 percent of those that granted equity to the top executive in 2013 used restricted stock, 39 percent used stock options, and 24 percent used a blend of both. Restricted stock has clearly become the preferred equity compensation vehicle.

Another trend with executive equity grants is the use of performance criteria in determining the amount and/or vesting of the equity grant. Historically, equity was often granted on a discretionary basis and not tied to any performance criteria. Today, I see banks using performance-based grants, where the bank determines specific levels of performance that will result in equity awards if achieved. After the performance cycle is complete, the resulting equity award is granted, typically with additional time vesting. Performance-based vesting is also being utilized in larger banks and Fortune 500 companies. Under this concept, a number of shares are granted, but shares will only vest if performance levels are achieved. I have not seen a high prevalence of performance-vesting in community banks (time-based vesting is more common), due to some complexities with the performance-vesting methodology and accounting. However, banks certainly tie equity grants more frequently to performance than they did in the past.

Director Equity Grant Trends
Ten years ago, the use of equity grants for directors was somewhat sporadic. I have seen this change significantly in recent years, as bank boards decide that director pay should be based on time spent, as well as value and expertise brought to the board. There also is an increased need to attract qualified directors with specific skill sets to help assess risk and handle increased regulatory scrutiny.

These changes to the typical community bank board have created a situation where banks are granting directors equity, commonly as restricted stock. Often, this stock is granted in the form of an annual retainer with either immediate or very short vesting periods, often just a year. Blanchard Consulting Group conducted a study of approximately 150 publicly traded banks and found the following:

  • 75 percent of the banks have an equity plan in place for directors
  • 49 percent of the banks granted equity to directors in 2013
  • 90 percent of those banks which granted equity to directors utilized restricted stock

The goal is to provide directors with a specific amount of remuneration for their annual service on the board, and restricted stock retainers with quick vesting are the best way to tie a specific dollar value to director service. It also makes new directors shareholders and further links them to the people they represent. Our study also found 38 percent to be the median value of equity as a percent of total director compensation.

Another area that is gaining traction in larger organizations and among shareholder advisory firms is executive and director equity ownership guidelines and holding requirements. I have yet to see these items reach a significant prevalence level in community banks, but I expect a gradual increase in upcoming years.

In summation, community bank equity practices have shifted. The shift has been to full-value equity vehicles and restricted stock has become the clear choice. We will see what the future holds.