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Bank CEOs made more in total compensation in 2014 than in any year since the beginning of the financial crisis, but striking the right balance between the often-conflicting demands of regulators and shareholders has never been more challenging.
The composition of that pay has changed quite a bit. Perquisites are way down, and big-money deferred-pay schemes, including supplemental executive retirement plans, are out of favor. Provisions that allow companies to “claw back” bonuses from previous years if long-term goals aren’t met are hot. Long-term performance is more in vogue than ever—one thing that is accepted by both shareholders and regulatory agencies—with performance shares and restricted stock more liked than stock options. Performance-based shares are only awarded if performance metrics such as profitability and asset quality are met. Restricted stock is awarded as a grant, but only vests after conditions are met or after a certain time period.
“Investors want base salary to cover the duties of the position, but think the rest should be at-risk, so the executive only receives an award when shareholders do well,” explains Laura Hay, managing director at Pearl Meyer.
“If you want to use compensation as a competitive advantage to drive value, it has to be tied to the business strategy and culture of the organization,” Hay says.