American Association of Bank Directors Announces Clark/Bardes White Paper on Compensation of Bank Boards of Directors and Executive Management

Mar 5, 2003—Bethesda, Maryland

The American Association of Bank Directors ("AABD") announced today the issuance of a White Paper on bank board and executive management compensation prepared for AABD by Clark/Bardes Consulting (NYSE: CBC - news), a leading bank compensation consultant.

The objective of the White Paper is to provide community bank board members and senior management with guidance on acceptable, responsible and competitive compensation strategies in the current confused 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.

"AABD selected Clark/Bardes Consulting, a nationally-recognized consultant with considerable expertise in the bank compensation field, to prepare this White Paper in light of the compensation issues raised following the demise of Enron, WorldCom, and other recent corporate debacles," David Baris, Executive Director of AABD, said. "Although banks were not among those large public companies that failed, they, unlike most other corporations, have additional responsibilities under federal banking laws governing compensation. It is essential that bank directors have the information and knowledge they require to meet their responsibilities."

"Community banks should plan, not panic, in this compensation environment," Baris said. "They should act with deliberate speed, however, and be mindful of the 'best practices' in the industry. This White Paper will help directors and management in these efforts."

While Clark/Bardes Consulting is a national firm dedicated to helping companies keep their best people, this White Paper was developed by the Compensation Consulting Group of Clark/Bardes Consulting's Banking Practice. The Compensation Consulting Group focuses on all aspects of officer and director compensation for community banks on a national basis.

Robert Miller, President of the Compensation Consulting Group notes, "While there were significant excesses in compensation in other sectors of the market, the compensation in community banks has clearly been more reasonable. The community banker simply did not get caught up in the euphoria of compensation as other market segments did."

At the same time, there has been a definite change with respect to how compensation is governed according to Todd Leone, Senior Vice President and the study's author, "In the past few months we have seen bank compensation committees become more assertive. In particular, among our large publicly traded bank clients, compensation committees have taken the lead role in executive compensation. While the role of the compensation committee will vary based upon a bank's ownership structure and other factors, this is just an example of the 'new day' in executive and board compensation that is just emerging. While community banking's compensation did not spiral out of control, the advent of the Sarbanes-Oxley Act has caused the community banker to make a greater effort to ensure that their pay plans, and more importantly their process of setting pay, is reasonable and appropriate for their given situation."

The White Paper identifies some 'best practice' guidelines for directors of community banks 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 by the compensation committee, when appropriate, of outside expertise, regular review of officer and director compensation and performance, the appointment of independent board members to the compensation committee, and the appointment of one or more board members to the compensation committee who are experienced and knowledgeable in compensation matters.

The White Paper also summarizes many of recent important compensation developments and trends that affect banks and savings institutions, including an evaluation of the possible impact that a requirement to expense options may have on community bank board and executive officer compensation.

In the near future, AABD will issue a comprehensive list of preliminary 'best practice' guidelines for directors of banks and savings institutions to employ immediately in their institutions. This will be followed by a study of the preliminary guidelines by a Task Force on Bank Compensation 'Best Practices' consisting of outside Chairmen of banks and savings institutions.

Founded in 1989, the non-profit American Association of Bank Directors is the only trade group in the United States solely devoted to bank directors and their information, education, and advocacy needs. The Institute for Bank Director Education was established in 1993 as the educational arm of AABD. Its purpose is to act as a clearinghouse for education programs designed for bank and savings institution directors that support the nationally recognized Director Certification Program.

Founded in 1967, Clark/Bardes Consulting is a firm with expertise in executive compensation and benefit design, funding and plan administration. With more than 4,500 corporate, health care and banking clients, the Company's mission is helping companies keep their best people.