Aligning Pay with Long-Term Strategy

While bank boards recognize the need to tie compensation to the performance of the bank in the long term, they continue to struggle with how to get the pieces in place to attract and reward the best leaders to meet the institution’s strategic goals. Many of the directors and senior executives that responded to Bank Director’s 2014 Compensation Survey, sponsored by Meyer-Chatfield Compensation Advisors, confirm that getting pay for performance right continues to challenge their boards. Less than half tie CEO pay to the strategic plan or corporate goals, and more than one-quarter of respondents say that CEO compensation is not linked to the performance of the bank. Flynt Gallagher, president of Meyer-Chatfield Compensation Advisors, says that boards should always keep the strategic plan and long-term goals in mind when determining compensation for executives, but many boards aren’t specific about the goals and objectives they expect the top executives of the bank to achieve.

Meyer-Chatfield Compensation Advisors offers the following advice for boards based on the results of the survey:

• Executive performance goals should be clearly defined and tied to the bank’s strategic plan.
• Make sure the bank is planning for the future and has a succession plan in place. Forty-two percent of executive hires were driven by executive departures in 2013.
• Competitive pay is critical to attract and retain key talent, but it is not the determining factor. Culture can be the intangible that drives talent to—and from—an organization.
• The board must determine its own pay—not the CEO.
• Evaluate whether the board’s pay is fair and aligns with market practices.

For more on these considerations, read the white paper.

To view the full results to the survey, click here.