Long-Term Incentive Plan Design and Implementation

Implementing a long-term incentive plan allowed this bank to attract and retain its key executives, while enhancing the bank’s financial performance. 

Background:

A federal savings bank began a new way of banking for its members and their families by providing a full range of traditional deposit and lending services, all without any brick and mortar branches. The organization’s clients are able to fully access their accounts and services by internet, phone, fax, and mail. This organization has positioned itself for growth with assets of over $575 million.

Challenge:

To continue achieving its growth and success, the bank wanted to find a way to recognize and reward its executive team for the long-term profitability and performance of the bank, helping to ensure retention of its top talent. A unique operational and ownership structure required a creative design to meet its competitive need for talent and provide a meaningful return to its shareholders.

Solution:

Findley, working with the bank’s board of directors, developed specific objectives, which were critical to the success of a well-designed, long-term incentive plan for the bank’s executive team to:

  • Align the interests of executives and shareholders in growing the value of the
    organization;
  • Deliver market-competitive awards to attract and retain talent tied to
    performance;
  • Create executive investment so that executives, like shareholders, would be at
    risk for the future performance of the organization.

To accomplish these objectives, Findley designed a long-term incentive plan that measures performance by the growth of the bank’s per share value—if the bank grows, the value to the shareholders grows and the senior executive team is rewarded. The Plan uses a three-year performance period beginning each year on January 1. The growth of the share value from the first day through the last day of the performance period determines the award value. Half of the award is paid in cash while the other half is deferred until retirement.

The unique design component comes into play through the objective of creating executive investment in the organization. Each executive must “purchase” the right to the performance units at the beginning of each year through deferral of compensation. The executive is rewarded if the per unit value grows greater than the initial investment. Like any other investment, this amount is at risk if the value of the bank does not increase. This not only rewards consistent, long-term performance, but also provides a retention value to the reward program and strengthens the bond between executives and shareholders.

Results:

The bank has plans to double its asset size and loan portfolios in ten years, driven by the executive team. The long-term incentive plan designed by Findley has given the bank the ability to reward these individuals for long-term profitability and growth accomplishments, while giving additional incentive to stay and achieve the organization’s desired results-enhanced financial performance and attraction and retention of talent.

Category: Findley Proof
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