Johanson Group’s normal approach to Executive Compensation is one of a long range approach that seeks to recruit, reward, retain and retire key personnel. When we are working with executive management positions, we determine each base salary’s last five year average figure before retirement at 65 and then use 70% to 80% of these amounts as a basis for retirement planning. We take these projected figures and subtract out any existing retirement plan funds (at retirement) such as 401(k), social security, etc. and the remaining balance is the amount that is used to create various types of retirement offerings to close the gap. The following items are common to supplement an executive’s basic retirement plan:
Employee Stock Option Program (ESOP)
Bank Stock Granting
Stock Appreciation Rights or Performance Share Plan
Bank-Owned Life Insurance
Variable Life Insurance
Salary Continuation Plan (Pays a flat amount annually at retirement for “X” number of years)
The recruit portion includes a competitive base salary, health insurance, car allowance, club membership, paid time off for vacations, basic life insurance and other common benefits which most all other employees enjoy.
The reward piece typically involves a formalized incentive compensation plan where three to five stretching goals or metrics are established and bonus dollars are paid one to two months after the performance period. The incentive compensation program that we like includes four payout levels: threshold, target, target plus, and target maximum. The payout range of the CEO is roughly 30% to 50% of base salary, 25% to 40% of base salary for the CFO, COO and CLO, and 20% to 35% for the next layer of management.
The retain and retire aspects typically include a combination of the items above to close the gap between the 70% to 80% of final average pay and the current projected plan balances an executive would have through their 401(k) and social security. If a Bank has publicly traded or internal stock, then stock options or stock appreciation rights can be provided to the executive. If the stock is closely held, then phantom stock is an effective approach to provide an executive with the ability to realize the same return as the real stock.
Download our free HR Guide to a Compliant, Equitable & Competitive Compensation program on the right or click below to contact us for a free demo!