ABA Urges SBA to Improve Communication and Increase Staffing.
ENPNewswire-November 22, 2021--ABA Urges SBA to Improve Communication and Increase Staffing
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Release date- 21112021 - One of the key roles of bank directors is to oversee compensation of the bank's top executives and ensure the compensation plans reflect the bank's strategic priorities.
To that end, there are several things directors need to keep in mind related to key elements of these compensation programs: nonqualified benefit plans and bank-owned life insurance.
Nonqualified plans include supplemental executive retirement plans, deferred compensation plans, and supplemental life insurance plans. According to the most recent ABA Compensation and Benefits Survey, approximately two-thirds of banks have either a SERP or DCP in place. Many banks have had plans in place for a number of years, while others have more recently created new plans.
The goal of a nonqualified plan is to recruit, retain and reward select key contributors. To maximize the effectiveness of the plan, it is important to choose the right design, keeping in mind that one of the advantages of a nonqualified plan is the ability to custom-tailor the design for each participant. For example, a 35-year-old bank officer with a young family would likely value a DCP with distributions timed to college education for the children, combined with a SLI plan, more than a SERP with no benefits paid until age 65. In contrast, a 55-year-old executive with grown children would more likely value a SERP over a DCP.
Banks that have had plans in place for a number of years should review them to see if the intended objectives are being accomplished. Some questions board members can ask during the review include:
Are the plans one-size fits all or are they custom-tailored to each participant?
Have the benefit amounts been adjusted properly to keep up with changes in compensation?
Is the change-in-control benefit appropriate? (Keep in mind that CIC benefits can, and often do, vary by position).
Are there additional key contributors that should be added to the plan? (Studies show that replacing a high-performing employee who leaves can cost between 200 percent and 400 percent of the annual salary associated with that position.)
Even if the plans have been in place for some time, it is not too late to make warranted changes. Such changes must be in compliance with IRC Section 409A, but there are a number of methods available to meet the plan's...
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