contribution plans, with contributions often based on performance criteria designed to support bank 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. If Institution Performance or Department/Functional Performance are 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 and conditions. At a pre-determined time, the officer receives a cash payment equal to the difference between the original price and the appreciated price. For example, let’s assume the officer receives 1,000 phantom shares with a beginning price of $50. At the end of three years, the bank calculates the phantom stock price to be $75 and then pays the officer any positive difference; in this example, the bank would pay the participant $25,000. The Bottom Line This article highlights the importance of banks reviewing current programs and, where necessary, implementing new benefit plans that address the evolving needs of today’s multi-generational workforce. Based on NFP experience and research, we know that comprehensive benefits packages are key to providing the financial incentives needed to attract, retain and reward top talent and put both employers and employees on the path to success. If your bank has previously implemented some type of non-qualified plan or retention plan, perhaps it’s time to re-evaluate the design and the related benefit agreements. Items to periodically assess include (1) compliance with IRC §409A, (2) revisions to benefit amounts given participant promotions and salary changes, and (3) accounting and tax considerations, including Change in Control (IRC §280G) provisions. Whether your company has supplemental benefit plans in place or not, now is the time to take the next step toward securing your key employees’ financial well-being and your business’s future success. Don’t wait — invest in solutions that drive loyalty and growth today. 1 Source: 2024 National Compensation Survey Report, survey of banks was conducted by Pearl Meyer with data collected as of April 1, 2024 2 Source: 2024 Community Banks Compensation and Benefits Survey, survey of banks was conducted by ABA with data collected as of March 31, 2024 Ken Derks and Trey Deupree are consultants with NFP Executive Benefits. NFP is also a Premier Partner with the ABA. Derks and Deupree are registered representatives with Kestra Investment Services, Member FINRA/SIPC. NFP and Kestra Investment Services are not affiliated. To learn more, contact Ken Derks at ken.derks@nfp.com or Trey Deupree at trey.deupree@nfp.com. View Investor Disclosures at www.kestrafinancial.com. 2024 National Compensation Survey Report 12
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