Supplemental Materials Compensation Philosophy Examples TOTAL COMPENSATION

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1 Supplemental Materials Compensation Philosophy Examples TOTAL COMPENSATION Julia A. Johnson Senior Manager Wipfli LLP Green Bay, Wisconsin August 10 & 11, 2017

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3 Compensation Philosophy Sample COMPENSATION PHILOSOPHY We believe that it is in the best interest of Sample Bank, our employees, and the communities we serve to competitively and fairly compensate employees for the value of the work provided. We have developed our compensation system to align with the following objectives: To recognize the value each position and employee brings to Sample Bank To pay salaries that are equitable for work being performed To be equitable in pay across departmental lines To attract and retain fully qualified employees To reward and motivate employees for goal achievement To increase employees understanding of pay administration To increase leader accountability for administering pay Our compensation system is composed of three key components: (1) Base Compensation; (2) Incentive Compensation; and (3) Benefits. Our compensation system will be objective and nondiscriminatory in theory, application, and practice. Sample Bank has determined that this will be best accomplished by using external professional consultants as recommended by executive management and approved by the Board of Directors. Base compensation is designed to provide competitive and fair compensation to employees for fulfilling the full scope of responsibilities and accountabilities as outlined in our job descriptions. Base compensation ranges for each position are established by researching industry and local salary survey data. Base compensation levels within the established range for the position are determined on the basis of an employee s ability to execute the full responsibilities of the position at acceptable standards of performance. Generally, Sample Bank will administer base compensation to reflect our pay for performance culture. To support our pay for performance culture, an employee may be eligible for incentive compensation. Incentive compensation is designed to reward employees for supporting Sample Bank s strategic business objectives by achieving specific levels of individual, departmental, and/or organizational performance as predetermined by management. Participation in incentive compensation opportunities will be individually determined by the President/CEO, Vice President of Administration, and the Human Resources Director as appropriate. Not all individuals are eligible to participate. Targeted levels for incentive will be determined by reviewing industry and local salary survey data and will be administered at the market median. Sample Bank believes in discretionary bonuses as individual situations warrant and budgets allow. Our benefits will be reviewed on an annual basis to ensure they remain competitive within the marketplace and reflect those benefits valued by our employees. Targeted levels for benefits will be positioned at the market median as derived by review of industry and local survey data and discussion with Sample Bank s insurance representatives and other advisors. Sample Bank will also provide flexibility in scheduling to assist our employees to allow them to fully engage in personal, family, and community activities. Wipfli LLP

4 Compensation Philosophy Sample EXECUTIVE COMPENSATION PHILOSOPHY Background The Compensation Philosophy of Sample Bank (the Bank ) is the foundation for the Bank s compensation system and has been developed to guide the compensation decisions for executive officers and other seniorlevel officers. However, the basic principles of this philosophy may be adapted and extended to staff level employees in order to provide continuity and a consistent message throughout all levels of the organization. Compensation Philosophy and Guiding Principles The guidelines that govern the executive compensation policies and programs of Sample Bank are developed by the Compensation Committee (the Committee ) of the Board, reviewed by the Board of Directors, and administered by the Committee with the key goals of hiring, motivating, rewarding, and retaining highperforming executives who support the Bank s mission, strategy, and values. The Committee acts on behalf of the entire Board in providing recommendations regarding executive compensation and annually reviews recommendations submitted for all other officer and staff level compensation programs. The compensation structure of Sample Bank is linked to an effective performance management system with individual growth and development goals as well as professional achievement goals, while comparing competitive compensation levels in similar banks and in the markets where Sample Bank does business. The compensation programs at Sample Bank are governed by the following main objectives: 1. To develop compensation policies and practices that protect shareholder interests. 2. To provide total compensation that is competitive when compared to markets in which the Bank competes for executive talent. 3. To provide incentive opportunities that reward strong bank and individual performance. 4. To divide total compensation between annual and long term components. 5. To maintain flexibility in order to attract qualified individuals. 6. To become the employer of choice in the Bank s marketplace. Some of the major components of compensation that may be utilized as part of the executive compensation program are as follows: 1. Base Salary with the primary objectives of: Attracting the best executive talent; and Recognizing Bank performance, market value of the position, and individual differences in years of experience, length of time in the position, responsibilities, and current job performance. 2. Annual Incentives with the primary objectives of: Motivating achievement of annual goals that are linked to and aligned with the strategic plan of the Bank; and Wipfli LLP

5 Providing a means for adjusting pay on an annual basis to reflect individual and bank wide performance, thus fostering teamwork and providing variable pay that fluctuates annually solely on performance of the institution and of the individual and/or his or her team. 3. Long Term Incentives with the primary objectives of: Motivating achievement of long term performance aligned with strategic direction; Aligning executives with shareholder interests; and Retaining talent. 4. Supplemental Benefits (e.g., deferred compensation, SERP) with the primary objectives of: Reducing shortfalls of qualified plans relative to retirement; Providing financial security and protection; and Retaining talent. The Committee considers Bank performance, industry comparative data, experience, tenure, and responsibilities in recommending compensation for each position. Executive and officer compensation is weighted toward the Bank s performance and achievement of annual and long term objectives. In general, Sample Bank will attempt to target total compensation (i.e., base salary, cash compensation, etc.) of applicable positions at market competitive levels of peer banks. On addition, the following guidelines will apply: 1. Base salaries for executives and officers will be targeted at or slightly above market level. 2. Incentive payouts throughout Sample Bank are intended to be performance based. 3. Annual incentive payouts may provide cash compensation at market when minimum performancebased goals are achieved and above market if target or higher performance based goals are achieved. 4. Long term incentive payouts, paid in equity or synthetic equity alternatives, are intended to follow similar guidelines utilized under the annual incentive plans but with a focus on longer term performance. 5. The Committee, with approval from the Board, reserves the right, in its sole discretion, to not award any incentive payouts when extraordinary circumstances occur that may negatively impact the safety and soundness of Sample Bank. The Compensation Committee may enlist the services of a reputable independent consulting firm to assist with benchmarking total compensation, along with establishing job grade pricing and updating salary ranges, in order to maintain internal equity and ensure alignment with market trends and industry best practices. Wipfli LLP

6 Compensation Philosophy Sample BOARD OF DIRECTORS COMPENSATION PHILOSOPHY Director compensation at Sample Bank is not performance based but is limited to set fees for service (Retainer and Meeting Fees) as well as equity compensation (stock or stock options). The Compensation Philosophy of Sample Bank is to compensate the Board of Directors at or slightly above the market median for comparable financial institutions within the market area of similar asset size, and taking other factors into consideration when appropriate. The following components may be considered when determining the appropriate mix of elements for compensating the Board and reinforcing the Director role as company fiduciary: 1. Cash Compensation/Retainer: Board members receive cash compensation in the form of a Retainer on an annual basis for participation on the Board. Board members may also have the option of deferring all or a portion of this compensation. 2. Meeting Fees: Attendance at regular Board meetings is compensated on a per meeting basis in the form of cash. Board members may also have the option of deferring this compensation. If the Board Chair is an independent (non employee) Director, the cash payment will be set at an appropriate amount as compared to similar financial institutions or at slightly above the market median. 3. Committee Compensation: Attendance at Board Committee meetings is also compensated on a per meeting basis in the form of cash. Board members may have the option of deferring this element of compensation. The meeting fees for each committee chair will be set at an appropriate amount as compared to similar financial institutions at or slightly above the market median. 4. Equity Grants: Directors may also be entitled to receive an annual grant of equity based compensation to align their interests with that of the shareholders. The grant date fair value of the equity granted to each Board member consists of a pre defined amount that is not dependent on the annual performance of the Bank. These shares may vest in a shorter timeframe than is the practice with employees, as the equity grants are considered to be compensation for current service. The Board of Directors will annually determine the appropriate type of shares to grant to its Directors. This decision will be based on market best practices and current legislation. 5. Other Benefits and Perquisites: Sample Bank may provide benefits to Directors for service on its Board of Directors, including deferred compensation, insurance benefits, retirement benefits and other appropriate benefits for Board service. Decisions regarding such benefits will be made based on market trends and all applicable laws. All decisions made by the Compensation Committee regarding Director compensation will be made within the guidelines of this Compensation Philosophy. These guidelines will be reviewed periodically and modified, as appropriate, to reflect industry best practices and market trends. Wipfli LLP