American Association of Bank Directors - Members Only: Subject Matter: Today's Compensation Environment: 2008

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Today's Compensation Environment: 2008

A guide for bank directors and executive officers to recent developments affecting compensation of bank directors, officers, and potential implications for their compensation plans. Amalfi Consulting, in conjunction with the American Association of Bank Directors ("AABD"), has prepared the guide.

Copies of the report are available without charge to AABD members at the following link. To read or download, log in as an AABD member:

Download the full report: Today's Compensation Environment: 2008 (PDF)

(If you are interested in becoming an AABD member, learn more about membership.)

One of the objectives of the paper is to provide bank board members and senior management with guidance on acceptable, responsible and competitive compensation strategies in the current rapidly evolving landscape. A principal message is that the compensation abuses reported by the press are uncommon in community banks, and that community banks should make changes in compensation programs deliberately, with care, and with a view to shareholders' best interests.

The paper identifies some "best practice" guidelines for bank directors to apply to compensation decisions. These include the adoption of a strong and effective compensation committee charter; the establishment of a reasonable compensation philosophy; the use of "tally sheets", which summarize payments resulting from each compensation plan or agreement in various scenarios; the use by the compensation committee, when appropriate, of outside expertise; regular review of officer and director compensation and performance; the appointment of one or more board members to the compensation committee who are experienced and knowledgeable in compensation matters.

The paper also summarizes many recent important compensation developments and trends that affect banks and savings institutions, including the implications of funding under the Treasury's Capital Purchase Program; an evaluation of the impact of the requirement to expense options; the SEC's evolving proxy disclosure requirements for executive and director compensation; the changes in tax rules relating to deferred compensation and employer-owned life insurance; and the impact of stock option backdating scandals on bank board and executive officer compensation.