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LIFE INSURANCE SETTLEMENTS
Regulatory Environment
The enactment of the Sarbanes-Oxley Act of 2002 and the slew of
headline grabbing corporate downfalls due to fraud and chicanery have placed
executive compensation under scrutiny. In the community bank marketplace, BOLI
is often used as a financing mechanism for new director and officer benefit
obligations. Media coverage regarding BOLI (as well as COLI) in the Wall
Street Journal, U.S. News & World Report, and major television
networks has been incomplete and somewhat misinformed. The positive value of
life insurance has received limited editorial coverage. BOLI is a responsible
and reasonable approach for banks to defray the escalating costs of employee
benefit programs. With media attacks targeting BOLI and COLI programs referred
to as “janitor insurance” - those programs that insure all employees from the
CEO to the tellers, it is more important than ever for a bank buying BOLI to be
able to assure itself that its BOLI program will be properly structured under
regulatory guidelines, tax law, and state insurance laws.
Purchase by banks of bank-owned life insurance (“BOLI”) as a
method to informally finance benefit expenses is a subject that has been
addressed repeatedly by federal bank regulators. Most notably, the Office of the
Comptroller of the Currency (the “OCC”) issued Banking Circular 249 in 1991 on
the subject, establishing quantifiable standards a bank could employ to
determine whether an investment in BOLI would be permissible for that bank. The
other federal financial institution supervisory agencies, including the Federal
Reserve Board (the “FRB”), the Federal Deposit Insurance Corporation (the
“FDIC”), and the Office of Thrift Supervision (the “OTS”), thereafter followed
the lead of the OCC on the subject of BOLI, essentially applying Banking
Circular 249 to BOLI investments by financial institutions subject to these
agencies’ respective jurisdictions. Banking Circular 249 was replaced by the OCC
in 1996 with issuance of OCC Bulletin 96-51, and in July 2000 with issuance of
OCC Bulletin 2000-23.
On December 7, 2004, the OCC, the FRB, the FDIC, and the OTS
issued the “Interagency Statement on the Purchase and Risk Management of Life
Insurance.” The Interagency Statement on the Purchase and Risk Management of
Life Insurance may be found in OCC Bulletin 2004-56 for national banks, OTS
Thrift Bulletin 84 for state- and federally chartered thrifts, Supervisory
Letter SR 04-19 for state-chartered, FRB-regulated commercial banks, and
FIL-127-2004 for state-chartered, FDIC-regulated commercial banks and savings
banks. Thirty pages long, the interagency BOLI guidance is very comprehensive
and clarifies the federal bank regulatory agencies’ expectations regarding BOLI
program implementation, operation, and ongoing risk assessment. For new BOLI
purchases, the interagency BOLI guidance requires that financial institutions
have a comprehensive risk management process for purchasing and holding BOLI.
Moreover, financial institutions that currently hold BOLI must complete an
annual assessment of their BOLI investments as described in the “Risk Management
of BOLI” section of the interagency BOLI guidance.
The interagency BOLI guidance states that “before entering
into a BOLI contract, institutions should have a
comprehensive risk management process for purchasing and holding BOLI.” This
process necessarily entails development of a detailed BOLI investment policy
describing, at a minimum – (1) senior management and board oversight of the BOLI
investment; (2) the single insurer and aggregate insurer BOLI investment limits
established by the institution; (3) the institution’s pre-purchase analysis of
BOLI products and alternatives; and (4) the institution’s risk assessment,
management, monitoring, and internal control processes, as well as the
appropriate internal audit and compliance functions. A detailed BOLI investment
policy will assist a financial institution’s board in documenting the complex
risk characteristics of the BOLI investment and in explaining the role BOLI is
intended to play in the institution’s overall business strategy.
In addition to conducting a risk assessment as part of a
thorough pre-purchase analysis, financial institutions must also monitor BOLI
risks on an ongoing basis. The interagency BOLI guidance provides that an
institution should review the performance of its BOLI assets with the board of
directors at least annually. More frequent reviews are appropriate if there are
significant changes to the BOLI program, such as additional purchases, a decline
in the financial condition of the insurance carrier(s), anticipated policy
surrenders, or changes in tax laws or interpretations that could have an impact
on the BOLI’s performance.
Each institution must also establish internal policies and
procedures that limit the aggregate cash surrender value of policies from any
one life insurance company, as well as the aggregate cash surrender value of
life insurance policies from all life insurance companies. When establishing
these internal BOLI limits, an institution must consider its legal lending
limit, the capital concentration threshold, and, in the case of state-chartered
bank and thrift institutions, any applicable state restrictions on BOLI
holdings. The federal bank regulatory agencies expect management to be able to
justify an institution’s aggregate BOLI holdings above 25% of capital. The
guidance notes that institutions approaching or exceeding the 25% of capital
threshold can expect examiners to “more closely scrutinize the risk management
policies and controls associated with the BOLI assets and, where deficient, to
require corrective action.” Parenthetically, it is interesting to note that the
OTS Northeast Regional Director stated in a Fall 2004 letter to the 274 OTS-chartered
thrifts in the 12-state OTS Northeast Region that “as a rule of thumb,” thrifts
intending to purchase BOLI at or above 20% of capital should discuss such
purchases with the OTS prior to consummation of the transaction. Alone among the
four federal bank and thrift regulatory agencies in its supervisory approach
regarding the rigidity of BOLI investment limits, the OTS has since July, 2002,
required thrifts to request permission before investing more than 25% of total
capital in BOLI.
Grady & Associates offers a full menu of legal services that
would permit any bank to make a prudent BOLI
investment and not be exposed to challenge from bank regulatory agencies, the
IRS, or even shareholders alleging excessive compensation obligations. BOLI
vendors estimate that nearly one fourth of the nation’s 11,500 banks and thrifts
have BOLI programs. With BOLI transactions having become common in the community
bank marketplace only within the last several years, community banks should
remember the age-old paradigm: there is a “right way” to do a BOLI financing and
a “wrong way” to do a BOLI financing. Regulators are not on a quest to preclude
banks’ use of BOLI. No doubt, the vast majority of banks that purchase BOLI are
in compliance. The essence of regulation is to search for those few banks that
push the envelope.
As a boutique law firm exclusively devoted to the
representation of financial institutions, Grady & Associates routinely works as
special counsel to financial institutions contemplating the adoption of BOLI-financed
bank compensation benefit programs.
Documenting BOLI Bank Regulatory
Compliance
Grady & Associates has developed a BOLI compliance practice
niche. Over the years, we have become familiar with BOLI bank regulatory issues
affecting state-chartered commercial banks, savings associations, and savings
banks under the laws of nearly 40 states. This is noteworthy because a number of
states’ banking laws contain more restrictive BOLI purchase standards than those
enunciated in the interagency BOLI guidance. As an example, depository
institutions chartered under the laws of Iowa, Nevada, and New Jersey, among
others, face more restrictive limitations under state law than banks regulated
solely under the standards of the interagency BOLI guidance.
Our BOLI knowledge under state banking laws accumulated in
client engagements beginning in 1997. Our collective client engagement
experience in this area makes Grady & Associates the most cost effective
resource in the legal marketplace to determine the legal authority, standards,
and limitations for the purchase of BOLI by depository institutions chartered in
any state jurisdiction.
We find that new benefit plans are typically established at
the time a community bank decides to invest in BOLI. BOLI is the “pay for” that
facilitates new benefits at no cost to the employer. Our firm is intimately
familiar with the bank regulatory issues associated with a financial
institution’s purchase of BOLI used to finance a compensation benefit obligation
such as a Supplemental Executive Retirement Plan (“SERP”). We furnish bank
clients undertaking a BOLI financing with sample board resolutions to evidence
board approval of (i) the BOLI investment and (ii) the BOLI-financed
compensation obligation. These board resolutions are a critical part of BOLI
documentation because they memorialize the bank's compliance with the
interagency BOLI guidance and any state law equivalent.
As with most financial instruments, BOLI can be complicated
and is not without risk. Furthermore, BOLI transactions are unique and represent
activities that differ greatly from the main business activities of most
financial institutions. Grady & Associates addresses federal bank regulatory
agency policy governing everything from pre-purchase analyses to the applicable
risks associated with BOLI relative to its impact on capital and earnings. Grady
& Associates’ experience and familiarity with BOLI transactions can assist
depository institutions by ensuring that purchases of BOLI are consistent with
safe and sound banking practices. The interagency BOLI guidance recommends that
banks fully understand the nature and associated risks of BOLI prior to any
purchase decision.
Documenting Insurable Interest Compliance:
Avoiding IRS Scrutiny
An essential element in all BOLI programs is that there is an
underlying business purpose to the transaction. The business purpose for a BOLI
transaction generally involves protecting the bank employer against the
costs/loss due to the death of key employees, and offsetting the bank's future
obligations to its employees under retirement and benefit plans. Adoption of a
group term carve out plan is a tool often used by banks to establish a
legitimate business purpose for a BOLI financing. An executive group term
carve-out split dollar life insurance plan is a replacement for executives'
participation in a bank's group term life insurance program (except for the
non-taxable $50,000 group term life insurance death benefit). The executive
group term carve-out split dollar life insurance plan provides comparable life
insurance coverage to what the executives have under a bank's group term life
insurance program for all employees, while reducing the annual increasing
expense of group term life insurance and replacing it with an earning asset.
Grady & Associates issues legal memoranda for client
depository institutions regarding BOLI compliance with applicable state
insurable interest law. Given the heightened interest of the IRS in BOLI
programs, including insurable interest, the method by which an institution
determines both the existence and extent of insurable interest in its employees
should be thoroughly reviewed, understood, documented, and capable of clear
articulation by bank management. As a law firm with over 250 some bank and
thrift clients and having represented countless more banks and thrifts in our
professional careers, we find few, if any, boards that document the basis upon
which the board determined the validity of an insurable interest in the
individuals covered by the BOLI financing prior to the purchase of the
insurance, thus making these institutions susceptible to (i) an IRS BOLI tax
audit initiative and (ii) bank regulatory criticism that the BOLI financing does
not comply with the interagency BOLI guidance standards.
Insurable interest laws vary widely state to state. Insurable
interest laws can be established by statute, regulation, or through common law.
While most states have formal insurable interest statutes for corporations,
including banks, other states have no such provisions. Some states simply grant
an insurable interest to employers in all of their employees, while other state
statutes differentiate between employees and more senior-level management
personnel, like directors and officers. Many states also have notice and consent
requirements that a bank must fulfill before obtaining coverage on any employee.
Soliciting the participation of an employee in a BOLI program
also may implicate state insurable interest law. The
written language used to obtain consent, as well as the solicitation approach
initiated by management, may be prescribed by statute. Additionally, other
procedural requirements may be mandated by state insurable interest law
requiring close monitoring of a BOLI program for continued compliance with state
law. For example, New York has an insurable interest statute that addresses
procedures for when an insured employee leaves the company.
Perhaps the most critical consideration a state insurable
interest statute may address is the extent of an institution’s insurable
interest in the employee pool. Policy coverage far in excess of the risk of loss
of the bank may belie the intended business purpose for purchasing the life
insurance policies. Several state insurable interest statutes provide that a
company has an insurable interest in its officers and directors, but limit the
insurable interest in other employees to the extent of the company’s projected,
unfunded benefit obligations for such employees.
Some corporations consider establishing out-of-state trusts
for the purpose of purchasing BOLI policies under more favorable provisions of
state insurable interest law. Many times the state where the trust is located
will provide the employer with a larger insurable interest in its employees than
the corporation's “home state” insurable interest law might provide, and relax
the notice and/or consent requirements. In this situation, the insured employees
usually reside in one state, with the trust located in a different state with no
nexus to the employees who are the subject of the BOLI policies. This practice,
however, is subject to ongoing challenge from plaintiff's bar.
There are still good tax reasons and sound insurance law
reasons to make certain that a bank buying BOLI has an insurable interest under
“home state” law in the lives of the people covered by BOLI, that the amount of
the insurance bears a substantial relation to the risk being insured, and that
consent of the insured be obtained in those cases in which counsel concludes
consent is necessary. The stakes are too high for a bank to ignore home state
insurable interest law or to ignore the tax consequences if the insurance bought
by the bank is recharacterized by the IRS as something else.
Recognizing the existence and extent of state insurable
interest law will help a bank or BOLI sales organization document a clearly
articulated BOLI program in full compliance with applicable state laws.
Executive Compensation
Planning
Supplemental executive retirement plans or SERPs are now
essential to compete for talent within the banking industry. Qualified plans
simply do not provide top executives with benefits that are in line with final
pay or reflect the shareholder value top executives create. Caps on qualified
plan contributions and distributions, as well as Social Security, often limit
executives' retirement benefits to 30% to 50% of final pay, while lower-paid
bank staff retire at 70% to 90% of final pay. A SERP can help your bank deliver
retirement benefits commensurate with executive pay. The 2005 SNL Bank
Executive Compensation Review notes that for the 510 “public company”
(SEC-reporting) banks and thrifts with assets greater than $500 million, 58.3%
provide a SERP benefit for senior management. For the 381 “public company” banks
and thrifts in America with assets less than $500 million, the 2005 SNL Bank
Executive Compensation Review notes 36.3% of these companies provide a SERP
benefit for senior management.
As a bank adopts SERP or split dollar arrangements, it is
essential that one advisor consider the “big picture” and review
change-in-control issues incident to these compensation benefit programs. Grady
& Associates advises clients concerning strategies to lessen the impact of §280G
of the Internal Revenue Code (a provision which denies deductions to
corporations for the payment of any excess “parachute payments” and imposes a
nondeductible 20% excise tax on the recipient of any excess “parachute
payments’) and positions executive SERP recipients for optimal contractual
rights vis-à-vis any acquirer. Ensuring that senior management
compensation issues are satisfactorily addressed in any merger and acquisition
scenario requires foresight and planning long before any acquisition offer
arrives. With our §280G assessment of executive contract rights, management will
be able to make certain that a bank's SERP agreements, in conjunction with
existing employment agreements and stock option plan grants, are well conceived
and well informed.
A snapshot assessment of an executive's compliance posture
vis-à-vis the limitations of Internal Revenue Code §280G is a routine
component of Grady & Associates' executive compensation planning services that
provides a client with ideas for possible improvement in the design of the SERPs
to position proposed SERP recipients for optimal standing vis-à-vis §280G
challenges. Obtaining the optimum SERP change-in-control benefit, along with
other favorable contractual provisions, is a once in a lifetime opportunity, and
our firm has considerable experience with successfully convincing boards to
approve management-friendly SERP design, particularly in the change-in-control
context. If the proposed recipients of a SERP receive the optimum SERP
change-in-control benefit, that contractual entitlement probably results in a
larger monetary benefit than the severance benefit received under an employment
contract, making it worthwhile from an executive's personal perspective to
strive for the best SERP change-in-control benefit possible. Adequate §280G
planning is not the only thing that makes for a well-crafted SERP. These are
other features of a good SERP that we routinely incorporate into a company's
SERP arrangement.
Application of §409A to Deferred Compensation Arrangements
On October 22, 2004, §409A of
the Internal Revenue Code became law. §409A applies to compensation that is
earned and vested in one tax year but paid in another, specifically so-called
nonqualified deferred compensation plans such as ––
- Salary Continuation Agreements,
- Director and Executive Elective
Income Deferral Agreements, and
- the severance provisions of
Employment Agreements and Change of Control Agreements.
§409A
initially applied to amounts deferred after 2004 (as well as previously deferred
amounts that were not yet earned and vested before the end of 2004). The IRS
first issued guidance under §409A in
Notice 2005-1 released on December 20, 2004.
Notice 2005-1 provided
transitional relief during 2005 and generally gave taxpayers until December 31,
2005, to bring their written plan documents into compliance with §409A. The notice also provided that
“good faith compliance” was adequate under the standards set forth in the
notice.
However, the most thorough guidance with respect to §409A is contained in the proposed and
final regulations.
On September
29, 2005, the Internal Revenue Service and the U.S. Department of Treasury
issued proposed regulations on the treatment of nonqualified deferred
compensation plans and arrangements under §409A.
On April 10, 2007, final regulations under §409A
were issued.
The final regulations generally follow the proposed regulations,
although there are some significant differences.
The final regulations generally are effective January 1, 2008.
On September
10, 2007, the Internal Revenue Service issued Notice 2007-78, which provided limited
relief from the January 1, 2008 compliance deadline for plan sponsors to bring their
plan documents into compliance with §409A and the related Treasury regulations. In response to concerns by tax and benefit
practitioners that Notice 2007-78 failed to provide plan sponsors sufficient relief,
the IRS issued Notice 2007-86 on October 22, 2007. Under Notice 2007-86, employers have until December 31, 2008, to amend nonqualified
deferred compensation plans and arrangements for compliance with §409A and the final
regulations, including the specification of time and form of payment. Nonqualified deferred compensation arrangements subject to §409A must continue
to comply in operation with §409A on a reasonable, good faith basis based on compliance
with Notice 2005-1 or the final regulations through December 31, 2008.
Beginning January 1, 2009, full compliance with the final regulations is
required. A “savings clause,” alone,
i.e., a
plan provision that says the plan is to be construed in accordance with §409A, will not be enough to override
specific noncompliant terms or missing terms in the plan.
The text of §409A itself states
not only that a nonqualified deferred compensation arrangement must actually be
operated in compliance with the various requirements of §409A but also that the
plan document itself must by its terms provide for deferrals and payments and
other plan transactions that in all cases would comply with §409A. The tax
consequences are severe for a nonqualified deferred compensation plan that does
not comply with §409A both in terms of the plan’s operation and in terms of the
plan’s form. If a nonqualified deferred compensation plan fails to comply with
§409A, the tax consequences are immediate inclusion in income of amounts
previously deferred, plus an interest penalty, plus a 20% excise tax penalty.
There are six circumstances in
which §409A allows distributions from a nonqualified deferred compensation plan
such as a SERP.
Distributions in all other cases would not comply with §409A. The six circumstances are ––
1) separation from service, 2)
disability, 3) death, 4) at a time or according to a schedule specified in the
nonqualified deferred compensation plan or agreement when the compensation is
deferred, 5) a change in control, and 6) unforeseeable emergency.
In one and only one of these six cases –– separation-from-service
–– a six-month delay must be imposed
before a nonqualified deferred compensation plan distribution may occur. But
the six-month delay applies if and only if two further conditions are satisfied. First, the six-month delay applies solely to an executive who is a so-called
specified employee.
In summary, the term specified employee means a key
employee as defined in Internal Revenue Code §416(i) for purposes of the
top-heavy nondiscrimination testing rules. According to §416(i), a company’s
key employees are ––
- officers (up to 50 officers)
with annual compensation over $150,000 (for 2008),
- employees who are 5% owners of
the employer, and
- employees who are 1% owners of
the employer with annual compensation over $150,000.
The $150,000 compensation
threshold for officers is indexed for inflation.
Second, the six-month delay
applies solely in the case of officers whose employer’s stock (or the holding
company’s stock) is, to use the language of §409A –– “publicly traded on an
established securities market or otherwise.”
As a consequence, the six-month
delay imposed by §409A applies in any case in which SERP or other nonqualified
deferred compensation benefits can be characterized as separation-from service
benefits.
In every case in which a six-month
delay applies (whether for normal retirement, early termination, or disability
benefits), the §409A rules demand that the nonqualified deferred compensation
agreement itself specify whether the monthly installment benefits shall simply
be delayed by six months, on one hand, or on the other hand whether the six
months of delayed payments shall be made in a single lump sum at the end of the
six-month delay period.
If a nonqualified deferred
compensation arrangement specifies a precise date for distribution of benefits
–– as opposed to making distributions conditional on separation from service ––
the six-month delay imposed by §409A does not apply. For example, if a SERP
normal retirement benefit is payable precisely when an executive attains age 65,
even if retirement does not actually occur at that time, the six-month delay
would not be necessary, although it would continue to be necessary in the case
of early termination benefits and benefits because of termination resulting from
disability.
Likewise, the six-month delay is unnecessary if a SERP
change-in-control benefit is a single-trigger benefit payable merely because a
change in control occurs, even if employment termination does not occur
simultaneously or within a fixed number of months thereafter. This is because a
single-trigger change-in-control benefit is not a separation-from-service
benefit.
However, the single-trigger change-in-control benefit distribution
would be permissible under §409A if and only if the event making the
distribution payable qualifies as a change in control for purposes of §409A’s
definition of the term change in control. In contrast, a double-trigger
change-in-control benefit (a change-in control benefit payable because of
employment termination occurring within a fixed number of months after a change
in control) is considered a separation-from-service benefit and the six-month
delay would apply.
We have been advising many bank
managements regarding revisions to existing employment and traditional
nonqualified deferred compensation agreements that will be necessary by December
31, 2008, if the employment and traditional nonqualified deferred compensation
agreements are to comply in form with the requirements of IRC §409A and the final
regulations.
We can
offer fixed fee pricing for §409A-necessary amended nonqualified deferred
compensation documentation.
SEC
Disclosure of BOLI-Financed Arrangements
Compensation of officers is one of many things stockholders
care deeply about. But compensation of officers is a traditional board function.
Stockholders generally are not entitled to exercise direct control over
compensation issues under corporate law (leaving aside for the moment stock
exchange and NASDAQ listing standards or tax laws that can, in some cases,
require submission of compensation plans and arrangements to a stockholder
vote), but it is a principle of long standing that stockholders exercise
indirect control through their power to elect directors. Officer compensation is
one of the things directors are evaluated on when stockholders consider and vote
upon election of directors. That is the single most important reason - if not
the only reason - proxy statements include elaborate executive compensation
disclosures. Therefore, management should be sensitive to placing a favorable
SEC gloss on new BOLI-financed compensation arrangements.
There is no universally employed standard for disclosures of
BOLI-financed SERP and split dollar benefits. Executive compensation disclosures
are governed by the SEC's Regulation S-K, Item 402. Careful examination of Item
402 reveals that it addresses a variety of compensation and other benefits, but
it really does not squarely address how to disclose group-term carve-out plans,
SERPs, and split-dollar life insurance. One therefore has to cobble together
appropriate disclosures, drawing upon as much of Item 402 as applies and looking
to common sense and industry practice for guidance. Having prepared numerous
disclosures of these benefit arrangements for a number of our public company
clients, Grady & Associates is uniquely positioned to assist with SEC proxy
disclosure of BOLI-financed compensation benefits.
On February 8, 2006, the SEC proposed major changes in how
corporations disclose executive compensation in proxy statements. Among other
things, the SEC proposed that public companies be required to disclose the
aggregate increase in actuarial value accrued during the fiscal year in defined
benefit and actuarial plans, including SERPs. Disclosure rules were last
overhauled in 1992, during a time when SERPs and deferred compensation plans
accounted for a smaller portion of executive pay than such plans do today.
BOLI programs also merit mention in a company's Form 10-Q and
Form 10-K SEC filings. Typically a bank will purchase single premium BOLI
policies whose cash values grow at the stated or current crediting rates. Banks
book their cash values as "other assets". Increases in cash value are tax-free
and are recognized as non-interest income. For a bank, the relevant issue
concerning crediting rates is its margin to the cost of funds. Margins for BOLI
products range between 150 basis points and 400 basis points, after tax. The
bank books this increase in cash value in the current period as after-tax
income. The BOLI asset is a non-mark-to-market asset that also lowers a bank's
overall tax rate. In addition to substantial positive margins to their cost of
funds, banks receive death benefits which may add approximately 50 basis points
more to their total return. Upon the death of the insured, the carrier will pay
benefits (accumulated cash plus death benefits) to the bank as the policy
beneficiary. Cash flows back to the bank only with a death event. As BOLI
programs continue to grow in popularity and size, the SEC and the investment
community will expect improved disclosure. Grady & Associates can assist a bank
or thrift with SEC compliance by preparing Form 10-K or 10-Q filings describing
the BOLI investment and its contribution to non-interest income.
Benchmarking Peer Group
Compensation for SEC-Regulated "Public Company" Banks and Thrifts
Another aspect of our services involves benchmarking peer
group BOLI-financed compensation. We summarize the executive compensation
practices of “public company” banking organizations identifying certain key
compensation practices: the incidence of SERPs, benefit level, and number of
senior executives covered; the incidence of split dollar insurance agreements
along with information on the amount of BOLI purchased (if available) and the
insurance coverage benefit for the executive; and the incidence of employment
and severance agreements with related information on the incidence of §280G
gross-up/mitigation provisions in employment, severance and SERP agreements.
Our analysis of senior management compensation practices at
public company banks and thrifts is derived solely from a review of these
organizations' proxy statements, annual reports to shareholders, and Form 10-K's
filed with the SEC. Grady & Associates' analysis of senior management
compensation practices at public company banks and thrifts enables depository
institutions to hire and retain competent management by providing the depository
institution's board of directors with information concerning the suitability of
compensation and benefit packages vis à vis the institution's competition. The
peer group compensation analysis benchmarks compensation practices at similar
institutions based upon such factors as asset size, geographic location, and the
complexity of the bank's business activities.
Board Retirement Plan Survey
Grady & Associates also prepares surveys showing the incidence
of director retirement plans and director split dollar agreements. Like our
other BOLI-financed compensation surveys, the director retirement plan/director
split dollar agreement survey would be based on review of proxy statement and
Form 10-K filings with the SEC. The SNL Executive Compensation Review is
the most widely used compensation survey in the banking industry. While the
SNL Executive Compensation Review identifies director and executive officer
participation for a number of standard compensation arrangements, insofar as its
compilation of director benefits, the SNL Executive Compensation Review
only identifies the incidence of director stock options and director restricted
stock grants. Armed with knowledge regarding whether or not directors
participate in a director retirement plan or receive split dollar death
benefits, a bank can design and finance competitive compensation benefits for
directors which will attract, retain, and recruit quality directors.
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