by Terry Saber, Partner, Wipfli CPAs & Consultants
Across the country, Board Compensation Committees are gearing up for the annual review of CEO compensation, made more challenging by the current regulatory climate, the passage of Dodd-Frank, and the related need for risk assessed compensation. In many respects, the movement toward more active and engaged Board participation on executive compensation is long overdue.
What Does This More Active Involvement by the Board Mean?
First and foremost, there is now a Compensation Committee of the board in most financial institutions. Some of the committee duties include the following:
- Ensuring an updated Compensation Philosophy that generally outlines the guidelines for compensation components and aligns compensation with both short- and long-term interests of the shareholders as well as with strategic plan priorities. (Yes! The regulators appear serious about the need for meaningful strategic plans that go beyond “motherhood and apple pie” and address critical profitability, growth, and leadership strategies under the umbrella of an updated capital plan.)
- Having a specific Compensation Committee chaired by an independent Outside Director and a team of Outside Directors. (3-4 members would be the norm.)
- Having an annual, documented formal evaluation of the CEO. (Most CEOs welcome this and look forward to a meaningful evaluation related to execution of strategic direction.)
- Reviewing the total compensation package and the competitiveness of such package related to market competitive base salary, annual cash incentive, long-term vested incentive, benefits/perquisites, and deferred compensation that closes a portion of the gap of retirement income. (Typically pays out upon retirement and is an established annual amount for a specified period of time, typically 10-15 years). The larger the financial institution, the lower the percentage of base salary as a component of the total compensation package. In other words, the larger the institution, the more opportunity for both annual and long-term awards.
Terry Saber is a partner with Wipfli CPAs and Consultants. Terry Saber is nationally known for her facilitation skills as well as her all-inclusive, highly customized, and organization-specific approach to strategic planning and performance management.will be presenting a session, “A New Era in Compensation” at the IBA Bank Management Conference on February 12-13 in Des Moines at the Embassy Suites.