Beyond Paychecks: Executive Compensation
Duclaux, Denise, ABA Banking Journal
In the face of restrictions on executive compensation, banks are using "SERPs" and other types of non-traditional deferred compensation to hold onto and recruit top managers
You might not think so given the rash of mergers acquisitions and the wave of corporate downsizings, but there has been a surge in recruitment at banks and other financial institutions, according to the Association of Executive Search Consultants, New York. In fact, among financial institutions search activity in the second quarter of 1996 was 53% above the first quarter's pace and 36% ahead of the second quarter of 1995. In addition, banks and other financial service businesses represented 54% of the highest paying ($500,000 and above) executive searches. Demand for financial executives also ran 74% ahead of the first quarter of 1996 and 37% above the second quarter one year ago.
Clearly, banks are actively seeking out the perfect employees. But encouraging those employees, especially the top-most executives, to remain with the bank for the long haul is another matter.
"The banks that don't find and retain good management are getting bought, they are not surviving," says Richard C. Chapman, president of Bank
Compensation Strategies Group, Minneapolis, Minn. "Boards of directors have got to be more educated on compensation opportunities, because they have got to retain management. It's a survival thing. That is what is driving compensation. It isn't just a way to retain people, it is a way to survive."
Throwing stones of "fat cats"
In the past few years outcry over the widening salary gap between top-level employees and those at the bottom rung has intensified. Executives have been accused of enriching themselves at the expense of other employees and in spite of the sometimes mediocre performance of their companies.
"There has been a whole uproar that has occurred over executive compensation, the perception being that executives are feathering their nest while Corporate America is going through downsizing and layoffs," says Tom Wamberg, chairman of the board of Clark/Bardes, Inc., North Barrington, Ill. "These are valid concerns and there are examples of companies that have enriched their executives at tremendous cost to the rank and file." Bill Clinton and Pat Buchanan have made it a political issue, says Wamberg. And, of course, it makes for good press: "Look at the big, fat cats stuffing their pockets while the rank and file are taking it on the chin."
"On the balance," says Wamberg, "executive compensation is not bad, but nobody wants to hear that."
Negative publicity has spurred changes in tax laws that pare down executive benefits to a point that many experts say discriminates against top-tier employees. In 1994 the General Agreement on Tariffs and Trade Act (GATT) curtailed inflation adjustments on the maximum amount of money that employees could contribute to, and receive from, qualified compensation plans.
As part of the federal tax package of 1993, the considered compensation limit--the maximum eligible compensation on which benefits can be received from a qualified retirement program--was decreased by 36% from $235,840 to $150,000.
Other tax acts, including the Tax Reform Act of 1986 and the Tax Equity and Fiscal Responsibility Act of 1982, also took a bite out of the benefits that executives can receive from qualified plans. For instance, the 1986 act imposed a limit of $200,000 on contribution amounts that could be considered when calculating benefit and contribution amounts for profit sharing, pension, 403(b), and 401(k) plans.
Responding to the same concerns, the Securities and Exchange Commission in 1992 issued new rules for disclosure of executive compensation on SEC-mandated registration statements, proxy statements, and other mandated filings. The SEC currently requires that companies disclose compensation information on the CEO and the four highest-paid executives other than the CEO in tabular form rather than through the previous plan descriptions. …