Executive Compensation
Challenge
The Board of a specialized regional lender came to McLagan seeking counsel on competitive compensation and structure of total remuneration for its CEO as he approached retirement age.
The CEO was covered under the same incentive plans as other executives, a significant qualified defined benefit pension plan and a generous non-qualified-Supplemental Executive Retirement Plan (SERP).
The Board's concerns/goals included:
- Ensuring competitive total remuneration while being cognizant of increases in compensation being magnified through inclusion in retirement formulas
- Leadership stability through uncertain economic times
- An orderly succession plan
- Desire to avoid "negotiating" CEO compensation on an annual basis
The CEO's concerns/goals included:
- Potential volatility of compensation and a subsequent negative impact on retirement value
- Potential regulatory changes and resulting risk of non-payment of accrued retirement value
Solution
McLagan met with the Board and the CEO to understand their respective positions and mediated a solution that reduced uncertainty of outcome for both the Board and CEO.
The agreement encompassed a two-year employment contract that provided stable cash compensation subject to new performance standards for the CEO focusing on risk management, operational goal achievement and implementation of a succession plan.
The CEO's concerns were addressed by termination and replacement of the expected SERP payments with reduced accelerated contractual payments.
Results
The Board and the CEO achieved a market competitive agreement that reduced uncertainty for both parties so that they could focus on the strategic and operational objectives of the bank while ensuring an orderly succession of management.
