Incentive Compensation Plans in Financial Institutions

The Newburgh Group along with Milynco Financial recently conducted a survey of thousands of bankers throughout the Midwest and Southeast relative to Incentive Compensation for financial institutions.

The respondents were from a solid mixture of banks of all sizes. More than half were from larger banks (over $3 billion in assets). The remainder were fairly spread out amongst the following asset sizes,  $1-$3 Billion (17%), $500 million to $1 billion (15%) and financial institutions less than $500 million (13%).

Current Position

The majority of respondents were from the Commercial Lending sector (35%) with CEO’s and Presidents following closely at (17%).

Company providing an Incentive Compensation Plan

94% of the respondents indicated that their financial institution provided an incentive compensation plan.

Maximum Payout

The maximum % of the base compensation that each plan allowed  was relatively spread out across the board from 1% or more up to no CAP on incentive comp.

Most financial institutions fell in the 11%-50% which were half of the total group allowing for 25% stating they had a range of 11%-25% and the same percentage for the 26%-50% group. The next highest group indicated there was no CAP on their incentive plan (22%). Only 5% stated they had no incentive compensation plan.

Departments Participating

The vast majority stated their financial institution involved the entire company in their incentive compensation plan (43%). Revenue contributors were second (19%) with the lending area third most prominent (12%).

Basis for Awards

The basis for awards was Goal and Production driven (55%) with the Discretionary and Goal driven mixture being second (27%) and a small percentage being only Discretionary (9%).

Personal vs. Corporate Goal Achievements

The vast majority indicated that the awards were predicated primarily on a mixture of both personal and corporate goal achievements. (63%), while the remainder were split between personal goal achievements (16%) and corporate goal achievements (15%).

Ranking the Incentive Compensation Plan

Over Seventy Five percent indicated their plan was average or above.  Most indicated that their plan was average (46%) with those following stating that their plan was above average (29%). Only 14% thought their plan was below average and 11% were unsure.

Milynco Financial