Employers increasingly recognize and understand the link between well-designed executive compensation and benefit packages and overall organizational performance. Creating effective strategies for attracting and retaining key employees across multiple generations can be the game-changer that ensures your most valuable and strategic employees stay and thrive within your bank. It requires structuring compensation packages with flexible options in order to address varying generational priorities. The following are three strategies that your bank can implement to retain and reward top talent. 1. Supplemental Executive Retirement Plans According to the American Bankers Association’s 2024 Compensation & Benefits Survey3, nearly 67% of banks report utilizing deferred compensation plans for key positions. These plans can include supplemental executive retirement plans (SERPs), providing a defined post-retirement benefit. SERPs are widely popular with baby boomers and Gen X generations. Unlike similar broad-based qualified plans, a SERP has no contribution limit or rules that mandate that all employees must be able to participate. They are purposely designed for highly compensated executives and key employees for whom the 401(k) contribution limits act as a form of “reverse discrimination” toward retirement. Also, SERPs are generally fully funded by the bank. 2. Strategic Deferred Compensation Plans These plans are used when a bank wants to create both a recruiting and retention incentive for top talent. A strategic and customizable deferred compensation plan (DCP) is fully funded by the bank. These are defined contribution plans, with contributions often based on performance criteria designed to support the bank’s strategic goals. These programs are not usually “all or nothing” in nature. In other words, there is a range of contribution levels tied to performance levels, including no contributions in down years. Strategic DCPs can allow for contributions and earnings to be credited to balances based on ROA, ROE or another metric, thereby tying the long-term value of contributions to the performance of the bank. See examples in the following chart. 2024 Pearl Meyer National Compensation Survey Report If Institution Performance or Department/Functional Performance is considered, are the following specific performance measures used for short-term or annual incentive plans? A deferred compensation plan often includes a vesting schedule for bank contributions, designed to incentivize participants to remain employed in order to fully benefit from the plan. This serves as a mechanism to not only align your top performers with the goals of the bank but also retain those top performers. For younger generations, a popular feature is one that allows for in-service distributions. “In-service” DCP payment schedules are customizable and can be made at any point, e.g., three, five or 10 years, or even to coincide with certain life events. These can include a home purchase, student loan repayments or a child entering college. 3. Phantom Stock/Stock Appreciation Rights Plans Long-term incentive plans can be an important part of an officer’s compensation package. However, while many privately owned banks are reluctant to share actual tangible equity with their employees, some have been more open to a strategy that is tied to the appreciation of the bank’s value over time. Phantom stock and SARs are ways to provide an equity-like benefit to employees without having them own actual stock. These plans can be designed to pay key officers bonus compensation tied to an increase in the bank’s stock or book value. In a SAR plan, the bank determines a hypothetical stock price through an internal or external valuation of the bank. Officers are awarded some number of hypothetical or “phantom” shares that include specific terms 7 Colorado Banker
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