Trends in Bank Director and CEO Compensation
Carl Chatto, Managing Principal
December 2, 2014
Bank Director and Meyer-Chatfield Corporation produced a report earlier this year highlighting recent trends in director and CEO compensation. The report shares the continuing challenges of setting compensation at appropriate levels across banks of all sizes, regions, and ownership structures.
The survey results show that director compensation is most commonly provided in the form of a board meeting fee (80% of respondents) and an annual retainer (53%). The retainer varied considerably from a median of $50,000 at banks with over $5 billion in assets to $10,200 at banks with assets of $250-$500 million. Meeting fees also ranged considerably, from $1,125 to $550, for the same two groups. Interestingly, there were 7% of respondents whose banks do not provide any compensation to directors.
Directors reported spending an average of 15 hours per month on director duties. Asked to select the top three issues, they reported spending most of their time on lending (58%), and risk and regulatory matters (each at 44%). Governance (34%) and audit compliance (33%) rounded out the top five categories. Board meetings are typically monthly. Committee meeting frequencies range from four per year for executive committee to 16 for loan committee. Audit and risk committees meet six times per year, on average.
When asked if director compensation was tied to key performance indicators, 96% said that it was not.
49% of boards have a mandatory retirement age; the median retirement age for those banks is 72.
CEO and senior executive compensation
Tying compensation to performance is the key challenge in setting compensation, cited by 66% of respondents. Of the banks responding, 82% felt that the executive compensation programs were meeting their objectives, although the percentage was higher at the largest banks (93%) compared to smaller banks (64%).
Promotions or new hires at the executive level were primarily in lending (44% of banks) followed by compliance (29%) and risk management (26%). For those banks with promotions or new hiring, 59% reported the key factor was growth or other strategic reasons; next was regulatory pressures at 33%. Corporate culture and corporate stability were reported as the top two factors making banks attractive to potential executive-level hires at 69% and 53%, respectively. Compensation was last at 13%.
About half of the reporting banks (48%) tie CEO compensation to their own strategic plans, (59% for mutual banks). Banks that base compensation on the strategic plan use a combination of performance indicators such as asset quality, return on assets, and return on equity. CEOs are offered non-qualified retirement benefits at 43% of banks, 55% for mutual banks.
The full report breaks responses down by size, and often by region or ownership structure. The full report can be found here.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.