Large and small banks have something in common – the need to attract and retain top level management talent and to create incentives to maximize performance. In troubled times, perhaps the need is even greater.

Long-term incentives, such as deferred compensation, performance unit plans, and stock options, are important compensation components for managerial talent. Programs can be tailored and weighted to address, in varying degrees, attracting and retaining talent and creating incentives. Candidates for executive positions can be attracted by the design and magnitude of the program. Talent can be retained by techniques such as vesting — traditional lapsed time vesting or more results driven performance vesting — and by the prospect of future additions to the amount of the benefit. Program design can tie the benefit to organizational performance such as stock price or achieving performance measures as a way to align the reward with meeting benchmarks or objectives that provide stability and increased shareholder value.

Key employees typically have a need to accumulate much more retirement savings than qualified retirement plans, such as a 401(k), can provide, and have a desire to do so on a tax efficient basis. A variety of plan designs from supplemental employee deferral plans to plans that mirror increases in the value of the bank can be utilized to fulfill this important long-term goal that is high on almost every executive’s list.

Often, we see banks identify a product, like BOLI, and then try to craft a plan design that utilizes the product. Banks will be further ahead by considering goals, needs, performance benchmarks, and key employee values in crafting a program design, and then identifying a product or funding vehicle that fits the program.

A program can be more than a plan. Large organizations typically use several plans to target specific desired results and provide a balanced compensation package. This decade has shown a trend where the proportion of the program devoted to stock options has shrunk, performance unit plans which target specific identifiable and quantifiable benchmarks have grown, restricted stock is a bigger piece of the pie, and in general more components make up the program so that all of an executive’s eggs are not in one basket.

Currently, the stock price of many banks is unprecedentedly low. At the same time, individual workloads have grown. Directly or indirectly, key employees want the psychological and monetary benefit that ownership can provide and want something to show for their hard work. This may be a good time to consider granting restricted stock or stock options with performance vesting to key employees. Rather than having vesting occur with the mere passage of time, performance vesting only occurs if pre-established benchmarks are met. In the past, performance vesting of stock options created unfavorable “variable accounting” treatment, however, this is no longer the case and the accounting charge will correspond to the charge for passage of time vesting.

Long-term incentive programs should be built to last, but like everything in life, need frequent tune-ups and occasional overhauls. Goals change over time, different individuals become key players, and executives’ needs and priorities change too. A meaningful review of every program should occur every three to five years, or perhaps more frequently in volatile times.