Pub. 3 2013-2014 Issue 3

12 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S FEATURE ARTICLE DAVID SHOEMAKER kEN DERKS Equias Alliance Is Your Compensation Plan Generous Enough? W hile banks continue to have chal- lenges with low interest rates and slow loan growth, two issues are always critical: (1) the need to at- tract, retain and reward executive talent and (2) the need to consistently optimize earnings. Many bankers put compensation and retirement discussions on the back burner for the past four or five years, but are show- ing a renewed interest in these programs as the crisis has eased. While salary, annual performance bonuses and equity plans are important elements to consider in a compen- sation plan, many banks have been offering nonqualified plans to help balance the total compensation plan for key executives. If a bank upgrades its executive compen- sation and benefits to compete for outstand- ing talent, won’t the additional cost reduce earnings? Not really. When you are able to attract and retain key officers, the bank can expect to be rewarded with superior perfor- mance and increased earnings. Additionally, banks can generally offset these unfunded benefit liabilities with the tax-advantaged earnings from bank-owned life insurance (BOLI). There are several types of nonqualified benefit plans and unlimited benefit and con- tribution formulas as well as performance- based strategies that can be incorporated to meet board approval. Where do you begin? “Regulatory guidance says that the overall compensation package must be reasonable; therefore, SERPs and other nonqualified plans should take into consideration other compensation being provided.”