Western Independent Banker - March/April 2009 - (Page 18)

must implement a policy to recover any bonus or incentive compensation paid to senior executives if such payments are based on materially inaccurate financial statements or other materially inaccurate performance metric criteria. This is the case whether or not the executive was at fault, any misconduct occurred, or the financials were restated. For institutions, this means new standards and new rules; for compensation committees, this translates into new issues to be aware of, monitor, and adhere to. This also requires certifications during the institution’s participation in the program. This all boils down to additional complexity, workload, liability and risk for directors. For publicly traded organizations filing 2009 proxy statements, participation in CAP will impact the content of the Compensation Discussion and Analysis (CD&A). CD&As for participants are expected to vary significantly from those of non-participating institutions. Participating companies will need to address whether or not compensation programs are in compliance with the Act’s required standards, changes that have been made to compensation programs and differences over prior years. The compensation committee’s annual assessment of the incentive compensation plans for senior officers should be discussed, including the process used as well as identifying items that could potentially encourage taking unnecessary or excessive risks. If an institution previously had any of these standards in place (e.g., clawback or recovery policy), this should be noted. In the area of golden parachutes, it is recommended that the CD&A discuss the purpose for severance and change-incontrol agreements and how they fit into the institution’s overall compensation philosophy and compensation program. In other words, participation in this program requires disclosure of many more issues than for non-participants. As with any new legislation, best practices are evolving in response to EESA. Early signs indicate that organizations are amending plans to adhere to the required standards, at least while Treasury holds an equity or debt position in the institution. Clawback and recovery policies are being evaluated and adopted. Employment and change-in-control agreements remain prevalent within the banking industry but are being modified, where appropriate, to adhere to the golden parachute requirements. Gross-ups and double gross-ups are going by the wayside at banks that are TARP participants. As of this writing, specific definitions of “unnecessary and excessive risk” have not been provided; institutions are reviewing incentive compensation plans and attempting to adhere to this yet undefined standard. Additional best practices are expected as TARP money is distributed and the program is fully in place. Participants need to watch for future program modifications that could necessitate additional requirements. Gayle J. Appelbaum is managing director and founder of Amalfi Consulting in Bloomington, Minn. She can be reached at 952-893-6795 or gayle.appelbaum@ amalficonsulting.com. 18 415611_TIB.indd 1 www.wib.org Western Independent Banker 1/15/09 4:04:17 PM http://www.mybankersbank.com http://www.wib.org

Table of Contents Feed for the Digital Edition of Western Independent Banker - March/April 2009

Western Independent Banker - March/April 2009 Contents A Message from the President & CEO Profitable Liquidity: Yes, You Can Non-Performing Assets: The Keep Versus Sell Decision Is BOLI the Way to Go? The Troubled Asset Relief Program and Its Eff ect on Executive Compensation TARP Money or Not, Secondary Offerings Belong in Your Plan 52nd Annual Conference Private Equity: Another Capital Option Strengthening Your Bank’s Bottom Line by Adapting to Difficult Times Managing Your Branch Network Capital Dealing with a Hard Insurance Market WIB Service Corporation Report WIB Calendar New Members Index of Advertisers Advertiser.com

Western Independent Banker - March/April 2009

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