It’s Not the Elephants That Bite
By Bill Borchert
Have you ever been bitten by an elephant? Do you know anyone who has been bitten by one? Probably not.
But, have you ever been bitten by a mosquito or many mosquitoes in a short period of time? Like everyone, of course you have. And in the community banking business, we all know that it’s not the big things that get you, it is the little things that get you. And it’s the little things, done consistently well, that make community banks and bankers successful in their market.
The same concept applies to the need to attract, retain and reward the key people who drive the success of a community bank, namely the top executives and directors of the bank. It is not one thing or issue that makes a compensation package meaningful for a prospective or current top executive or director, but the whole package, along with the details. These days, that whole package includes supplemental benefit plans, and the details of these types of plans will make them work successfully for the executive and/or director and the bank’s bottom line, or not.
EXECUTIVE SUPPLEMENTAL PLANS
Due to the “reverse discrimination” of pension, profit sharing, 401(k) and ESOP plans, there is a need to make up for lost benefits for top executives by some kind of Supplemental Executive Retirement Plan (SERP). A SERP can be tailored to look like a Qualified Plan, but you can individually select the executives you want to provide the benefits for. Unfortunately, many plans that were put in place years ago simply do not meet the needs of executives or the bank today, due to changing executives and compensation, revised bank objectives and other benefit plans now in place at the bank.
Therefore, bank executives and directors need to review their overall needs and current executive supplemental plans (and new options) on an annual basis, as they do for all other compensation and benefit plans. With the assistance of an experienced provider/consultant in the area of community bank supplemental benefit plans, this review can be done efficiently each year to help ensure that both the executives’ and the bank’s needs are being met.
DIRECTOR SUPPLEMENTAL PLANS
As we all know, the time commitment for directors/trustees serving on the boards of community banks has increased dramatically in the past few years due to increased compliance and corporate governance burdens. The liability borne by each director/trustee has also increased significantly.
Are we compensating our directors and trustees properly in light of the additional workload and liability? Are we providing appropriate benefits for our directors/trustees along with cash compensation?
Director/trustee supplemental benefit plans are becoming an important part of the total compensation package to attract, retain and reward these important players in the success of a community bank. While most community banks have some kind of deferred compensation plan for directors/trustees, many do not credit competitive interest rates to be meaningful.
In addition, for public banks you can now allow any deferred compensation to be invested in the bank’s stock. This way, directors/trustees can use pre-tax dollars to purchase bank stock. Over the years, this type of plan can provide a significant retirement benefit for a director/trustee at a successful community bank.
In addition, many community banks are exploring and implementing director/trustee retirement plans to reward their directors/trustees for their many years of active service at the bank. These types of plans, if designed and implemented properly, are both meaningful and appropriate in today’s community bank market.
Supplemental benefit plans require initial and ongoing work in the areas of regulatory compliance, accounting and administration. As stated above, the consistent management of the details of these plans is very important. By finding and working with an experienced provider of supplemental plans for community banks, the details will be handled efficiently, with limited time required by the financial staff of the bank.
It is important for a bank to consider using an experienced and independent third-party administration firm to handle the oversight of the ongoing regulatory due-diligence and accounting work. Together with the experienced consultant/provider, checks and balances will be in place to satisfy the needs of the bank and guideline recommendations of the bank’s regulator.
Managed properly, supplemental benefit plans will continue to provide powerful ways to attract, retain and reward the executive and director talent that drive the success of a community bank. And, the mosquitoes won’t bite!
Bill Borchert is president of Bank Financial Services Group, a New Jersey Bankers Association sponsoring company, providing supplemental benefit plans and BOLI exclusively for banks and bankers in the Northeast and throughout the country. He can be reached via e-mail at email@example.com.