Pub. 6 2016-2017 Issue 1

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S July • August 2016 9 Call us today at 303.860.0242 or refer a small business anytime at coloradoenterprisefund.org Financing startups and existing businesses up to $500K plus SBA loans up to $250K Dragonfly Apparel Celebrating YEARS OF IMPACT market-based salary, annual bonus based on performance, stock options or restricted stock (where applicable), reasonable contributions to a 401(k) or other qualified retirement plan, medical care and other standard benefits, change-in-control agreement and a custom-tailored nonqualified retirement plan. Another important trend is the disruption created inmanymarkets bymergers. The purchasing bank wants to retain the top lenders and other’s revenue generators, but the change in ownership can cause those individuals to con- sider other options. Competing banks that have developed a game plan for such situations will be positioned to hire some of these talented individuals. A nonqualified plan (custom - ized for each executive) can play a vital role in attracting and retaining these individuals. Another trend that has been taking place is an increase in the number of community banks that previously only offered salary and annual bonus plans, but are now providing more comprehensive compensation packages for key executives. This is a result of increased competition for executives as well as improved earnings. Nonqualified plans need to be tailored to meet the needs of the individual. For example, a younger officer in his or her thirties may not see the value of a re- tirement benefit targeted at age 67, but would see value in a plan that allows for earlier cash distributions to pay for a child’s college education, or allows for early retirement at age 55. Many organizations use a combination of plans and approaches to attract and retain their key people. Here are some examples of situations and challenges bankers have faced when contemplating compensation plans: 1. You have an executive in his mid-fifties who has contributed to leading and growing the organization but has not yet been rewarded for his efforts. This executive’s compensation focus is now being more directed at retirement and wealth building rather than solely increases in current cash compensation. Consider a supplemental executive retirement plan (SERP) plan and perhaps a long-term incentive plan. He may also be interested in deferring current salary. 2. You have young officers in their thirties and forties who are high producers and need to be compensated for their efforts with more than just base salary and annual bonus amounts. Consider a performance-based nonqualified benefit plan or a combination of an SERP and performance-based nonqualified plan. It is important to tie these indi- viduals to your bank if you remain independent, but it can also enhance the sales price if these individuals stay with the purchasing bank in the event your bank is sold. Properly designed nonqualified plans can substantially increase the probability they will stay in either scenario. 3. For closely held banks that would like their man- agement team to think like owners, consider nonqualified plans using a phantom stock or stock appreciation rights approach or, if another type of de- ferred compensation plan is adopted, consider linking the interest credited to the executive’s account to the bank’s return on equity. Summary With an improving economy and asset growth of commu- nity banks, along with a higher than normal level of merger activity, banks have been adding officers to existing long term incentive and nonqualified benefit plans or developing and im - plementing new plans to compete with other banks for talent. Utilizing more than one compensation strategy or plan can be an important element in attracting and retaining talent. The bank’s franchise value is dependent on its level of success in attracting and retaining key executives. n Equias Alliance offers securities through ProEquities, Inc. member FINRA& SIPC. Equias Alliance is independent of ProEquities, Inc. David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact David Shoemaker at 901-754-4924 or dshoemaker@equiasalliance.com. Ken Derks is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@equiasalliance.com .