Banking Compensation and

Transcription

1 Banking Compensation and Nonqualified Benefit Plan Study February 2014 Presented by: Executive Benefits Network 626 East Wisconsin Ave, Suite 1000 Milwaukee, WI Phone Fax ebn-design.com

2 I. Background II. Salary Analysis III. Nonqualified Plans IV. Findings Agenda V. Takeaways VI. Additional Resources 2

3 Background Nonqualified Benefit Plans allow flexibility based on the employer s goals and help to: Attract and retain key talent Provide supplemental retirement benefits to key executives Data extracted from EBN clients and industry knowledge Study focused in CO, IL, IA, KS, LA, MD, MI, MN, MO, NE, NY, OH, OK, SD, WI Asset size: 22.7% less than $100 million 30.7% $100 million to $250 million 26.1% $250 million to $500 million 14.8% $500 million to $1 billion 5.7% greater than $1 billion Out of 111 banks studied, 45% of banks have Nonqualified Benefit Plans or Split Dollar Plans Out of 454 executives in the study, 26% have Nonqualified Benefit Plans, not including Split Dollar Plans 3

4 Salary Analysis EBN analyzed the salaries based on two different factors: 1. The average salary based on the Bank s total assets per their September 30, 2013 call report is below. Asset Size Less than $100m $100m-$250m $250m-$500m $500m-$1b Over $1B President/CEO $99,625 $141,218 $194,711 $216,824 $304,893 Senior/Exec VP $101,875 $98,148 $117,081 $116,129 $218,400 VP $78,109 $79,836 $82,155 $79,033 $120,541 AVP N/A $61,421 $62,983 $59,916 N/A 2. We also broke it out by population size of the area in which they are located. This was done to offer a demographic basis for compensation decisions. Population Less than 5k 5k-10k 10k-25k 25k-50k 50k-100k Over 100k President/CEO $120,121 $175,608 $167,736 $234,565 $212,964 $306,086 Senior/Exec VP $91,259 $117,402 $100,631 $125,018 $120,298 $291,270 VP $68,292 $90,842 $75,756 $73,783 $82,144 $141,775 AVP $54,048 $51,531 $67,713 $61,596 $62,055 $69,167 4

5 Nonqualified Benefit Plans A Nonqualified Benefit Plan is designed to meet a specific business need to attract and retain key talent. The key difference between these plans and Qualified Benefit Plans is these plans are exempt from discriminatory treatment and are, therefore, able provide a variety of benefits to top executives. Typically, these plans are funded by an investment vehicle, such as Bank Owned Life Insurance. The key nonqualified plan types are as follows: SERP (Supplemental Executive Retirement Plan) An arrangement where an employer promises to pay additional income at a later date typically at retirement. Often referred to as a Salary Continuation Plan. The employer typically provides a fixed benefit for a fixed duration, like a pension plan. Deferred Compensation- An arrangement where part of an employee s income is currently deferred and paid at a later date or at retirement. The primary benefit is to defer income and taxes to when the income is actually received. Defined Contribution Plan (Long Term Incentive Plan)- A benefit plan in which the amount of the employer s annual contribution is typically based on a percentage of salary throughout employment and paid out in retirement in either a lump-sum or a term previously agreed upon. The annual contribution amount can be tied to individual performance measurements and bank profitability measurements. Phantom Stock Plan- A benefit plan that gives select executives many of the benefits of stock ownership without actually giving them any company stock. The phantom stock follows price fluctuations of the actual stock, and ending account balances are determined at retirement. Split Dollar Plan- A benefit provided to an employee to share the benefits of a life insurance policy. The policy is typically owned by the employer, and some of the death benefit proceeds are allocated to protect the employee and their family. 5

6 Summary of Findings 27% of executives have Split Dollar and 26% have a Nonqualified Benefit Plan 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 27% Of the 26% with Nonqualified Benefit Plans, not including Split Dollar: 26% 45% Split Dollar Only NQ Benefit Plan Only NQ Benefit Plan and/or Split Dollar Type % Average Benefit Amount Average Duration of Benefit SERP (Supplemental Executive Retirement Plans) 77% $47, years Deferred Compensation 19% $193, (account balance) N/A Defined Contribution Plan 4% $29, years 6

7 President and CEO Benefit Plan Analysis The total percentage of President/CEOs that have a Nonqualified benefit plan is 60%. 70% 60% 50% 60% 44% The distribution of Nonqualified benefit plan types: Defined Contribution Plan, 8% Deferred Compensation, 13% Phantom Stock, 5% 40% 30% 27% 20% SERP, 74% 10% 0% NQ Benefit Plan and/or Split Dollar NQ Benefit Plan Only Split Dollar Only 7

8 Executive/Senior Vice President Benefit Plan Analysis The total percentage of Senior Vice Presidents that have a Nonqualified benefit plan is 42%. 45% 40% 42% The distribution of Nonqualified benefit plan types: Deferred Compensation, 9% 35% 30% 25% 20% 22% 27% 15% 10% SERP, 91% 5% 0% NQ Benefit Plan and/or Split Dollar NQ Benefit Plan Only Split Dollar Plan Only 8

9 Vice President Benefit Plan Analysis The total percentage of Vice Presidents that have a Nonqualified benefit plan is 41%. 45% 40% 35% 30% 41% 30% The distribution of Nonqualified benefit plan types: Defined Contribution Plan, 8% Deferred Compensation, 14% 25% 20% 18% 15% 10% SERP, 78% 5% 0% NQ Benefit Plan and/or Split Dollar NQ Benefit Plan Only Split Dollar Plan Only 9

10 EBN Takeaways Nonqualified Benefit Plans increase in prevalence, variety and benefit amount the higher up the employee is in the organization. SERP (Supplemental Executive Retirement Plan) is the most common form of a Nonqualified Benefit Plan offered. We are seeing an uptick in Defined Contribution Plans for younger executives, because they offer more flexibility to incentivize based on the results of the employee and/or the success of the Bank. They are also easier to administer than a Phantom Stock Plan, which also correlates company performance to employee benefit. Associate Vice Presidents are rarely offered a Nonqualified Benefit Plan outside of Split Dollar; however, in the Vice President role, that number doubles, and doubles once again as you move from Vice President/Executive Vice President to the President/CEO role. Split Dollar Plans are similarly prevalent among all executive roles. It is a relatively inexpensive way to offer a benefit for the employee in the form of supplemental life insurance protection. The amount of benefit is flexible and requires minimal upkeep once the plan is in place. Used exclusively when BOLI policies are in place. 10

11 OVERVIEW OF NONQUALIFIED EXECUTIVE BENEFIT PLANS E m p l o y e r C o n t r o l DESCRIPTION Employee defers income (typically) until retirement in lieu of current compensation EMPLOYER BENEFITS DEFERRED COMPENSATION Determines eligibility, earnings crediting rate and retirement distribution Deducts benefits when paid Avoids most qualified plan discrimination rules and funding limits Requires Department of Labor Notification EMPLOYEE BENEFITS Enhances retirement income Defers receipt of current compensation Incurs no current cost for the benefit Pays income tax on benefit when received SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) Employer provides a deferred compensation benefit in addition to current compensation Employer bears full cost of the benefits Determines eligibility, contribution formula, earnings crediting rate and vesting of benefits Generally deducts benefits when paid Avoids most qualified plan discrimination rules and funding limits Requires Department of Labor Notification Provides additional retirement income Incurs no current cost for the benefit Pays income tax on benefit when received DEFINED CONTRIBUTION/ LONG TERM INCENTIVE PLAN Similar to a profit sharing plan rewards key employees for their individual contribution to corporate profitability Provides the greatest pay for performance planning flexibility Employer provides life insurance protection to employee and gives the employee the right to designate a portion of the death proceeds to the beneficiary Employer will bonus the employee some or all of the premium for a life insurance policy owned by the employee Can provide this in lieu of group term coverage Pre tax cost is equal to reward contributions Vesting on reward contributions reduces costs on shortterm participation and compliments company compensation and retention strategies Plan costs are offset indirectly through increased profitability SPLIT DOLLAR PLAN Employer owns the policy, retains policy cash values and dt determines eligibility ibilit No IRS approval, but other reporting requirements Accounting liability if post retirement benefit plan EXECUTIVE BONUS PLAN Rewards key employees Tax deductible benefit No IRS approval No accounting liability Employer provided personal wealth accumulation Received death benefit protection for a term cost Income tax free death benefit to beneficiary Supplemental retirement income Portable Benefit E m p l o y e e b e n e f i t S e c u r i t y 11

12 Additional Resources EBN Insights EBN Newsletter Coming Soon: Case Studies Succession Planning Webinar 12

13 Questions? Please contact us for further information: R. David Fritz Jr., CLU Managing Partner, Founder (414) or Patrick J. Marget, JD, CPA, CFP, CLU Managing Director (414) or design.com Sign up for our newsletter to be alerted of more EBN Insights on our website 13