27 HќќѠіђџȱ юћјђџ ѝџіљ 2014 individual, departmental and/or bank-wide plans. The primary message to employees ȱȱȱȱȂȱęȱǰȱ so goes their pay. A sales incentive program would also be part of any incentive plan considerations. ęǯȱThe change in philosophy from merit-based to incentive-based compensation also changes the ȱȱęȱǯȱ ȱ can be more variables but, again, ę¢ȱȱ¢ǯȱ ȱ organizations are establishing or converting retirement plans to 401(k) and/or ESOP arrangements, which ¢ȱȱȱę¢ǰȱȱ employees and management even more incentive to perform. Compensation structure. The following examples compare components of a typical meritbased and a typical incentive-based compensation plan. 0HULW EDVHG FRPSHQVDWLRQ (Example – See Chart 1.) Base salary: 100 percent (71 percent of total compensation) = $25,000 ęDZȱřŖȱȱǻŘŘȱȱȱ total compensation) = $7,500 Bonus/incentive: 10 percent (7 percent of total compensation) = $2,500 Total compensation: 140 percent of base salary = $35,000 ,QFHQWLYH EDVHG FRPSHQVDWLRQ (Example – See Chart 2.) Base salary: 100 percent (65 percent of total compensation) = $25,000 ęDZȱŘśȱȱǻŗŜȱȱȱ total compensation) = $6,250 Bonus/incentive: 30 percent (19 percent of total compensation) = $7,500 Total compensation: 155 percent of base salary = $38,750 It is important to remember that when an incentive-based program is well-designed, the bank will ¡ȱȱęȱȱ will more than pay for the increase in employee compensation. Thus both employees and shareholders ęǯȱ ȱȱȱǰȱȱ bank needs to set levels of expected performance and only provide payments for performance above these expectations. Future considerations. Current trends in compensation indicate that: % Financial institutions are continuing to actively manage ȱȱȱȱĜȱ levels. % Organizations are reducing the number of positions, in part by increasing productivity levels and ȱĜ¢ȱȱǯ % Financial institutions are paying ȱȱȱęȱ individuals. % Employees are paying more of ȱęȱǯ % Increasingly, the industry is ěȱȱȱ ȱ to encourage higher levels of employee performance. Combined, these trends indicate that leaders of forward-looking banks are continually evaluating the methods by which they can enhance their operations, maintain a competitive ȱȱĴȱ ȱ¢- ees for results. Well-designed performance-driven incentive compensaMERIT-BASED COMPENSATION STRUCTURE Bonus/Incentive 7% Benefits 22% Base Salary 71% Total Compensation: 140 percent of base salary = $35,000 2. Incentive-based compensation (Example) Base Salary: 100 percent (65 percent of total compensation) = $25,000 Benefits: 25 percent (16 percent of total compensation) = $6,250 Bonus/Incentive: 30 percent (19 percent of total compensation) = $7,500 Chart 1 INCENTIVE-BASED COMPENSATION STRUCTURE Total Compensation: 155 percent of base salary = $38,750 Bonus/Incentive 19% Benefits 16% Base Salary 65% Chart 2 &RQWLQXHG RQ SDJH
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