Strategies for Funding Executive Compensation for Banks

Providing powerful compensation incentives can set you apart in the hiring and retention game. But how will you fund those benefits?

At Newcleus, we design deferred compensation packages that help you retain your top talent and incentivize them to help your bank grow and thrive.

Here are two strategies for funding executive compensation for banks, but first, a brief overview of executive compensation plans.

Executive Compensation Plans: An Overview

No two compensation plans are the same. When it comes to compensation design, there are a variety of benefits that can be bundled together—all with varying effectiveness. Finding the right balance is not a one-size-fits-all process.

Most commonly, however, executive compensation plans, at the least, consist of these elements:

  • Base salary (cash compensation)
  • Short-term incentive or incentive compensation (immediate objectives – i.e. an annual bonus)
  • Long-term incentive (deferred compensation)
  • Supplemental Employee Retirement Plan (SERP)
  • Additional benefits and perquisites

The Three Rs of Properly Designed Executive Compensation

There are many reasons why banks structure executive compensation plans; namely, the three Rs, which are:

  • Recruit: A competitive executive compensation plan can be a significant element of attracting new talent. To remain competitive and hire the best people, you need to be offering a well-balanced executive compensation package.
  • Reward: Reward your key talent for high performance. Incentives placed at strategic points in a leader’s tenure can revitalize their commitment to growth and innovation.
  • Retain: Retain key talent and help them perform into the future by incentivizing them to stay with the bank. Deferred compensation is a strong incentive for key employees to stay, even in the face of recruitment to other positions.

Executive Compensation

Deferred Compensation

Deferred compensation is a key element to a well-designed executive compensation plan. Ensuring your key people stay on for the long haul means you save money in hiring and onboarding, build expertise and experience through tenure, and create loyalty through your commitment to the long-term financial investment in your executives.

What is Deferred Compensation?

Deferred compensation, often reserved for company executives, is defined as a portion of an employee’s compensation that is set aside to be paid at a later date. Forms of deferred compensation include retirement plans, pension plans, and stock-option plans as well as the leveraging of life insurance options.

Why Deferred Compensation?

CEOs of banks with over $10 billion in assets earned a median of $3.5 million, including salary, incentives, equity compensation, and benefits and perks. And 68% of all sizes of banks increased their executive compensation in the years since the start of the pandemic, namely 2019, 2020, and 2021 leading into 2022.

Deferred compensation plans play an integral part in allowing banks to retain top talent and senior executives. The cost of losing a key executive or top employee is high—estimates place the cost of replacing a key executive at nearly two times the executive’s compensation. Deferred compensation plans are a great way to positively incentivize your leadership to stay with your bank. 

Read more about deferred compensation design here.

Bank-Owned Life Insurance

What is BOLI?

Bank-owned life insurance is a form of life insurance purchased by banks where the bank is both the owner and beneficiary of the policy.


There are various benefits when it comes to bank-owned life insurance. BOLI allows banks to:

  • Generate tax-advantaged income to offset and recover the costs of employee benefit plans (including healthcare, group term life insurance, retirement benefits, and deferred compensation)
  • Generate stable revenue from non-loan sources and enhance the other non-interest income component of the income statement
  • Allow for competitive recruitment and retention by sharing a portion of returns with key executives

We focus on ways that we can leverage tools like BOLI to make your bank’s investments work to support the executive compensation packages that inspire growth, ensure retention, and pave the way forward to a bright future.

Read on at the link to learn more about BOLI from Brian McCracken, VP and Account Executive Director at Newcleus.

A Final Word on Executive Compensation

One of the most attractive features of properly designed compensation plans is that they can be highly customized and tailored to an individual or bank. In fact, multiple designs and plans can be used for a single executive.

How We Create Value at Newcleus

Using bank-owned life insurance (BOLI) as a tool to fund executive compensation plans that keep your best people is how we can leverage bank assets to drive retention. BOLI and SERPs work together to pay executives top dollar while also providing benefits to your bank.

Understanding all of the complexities of deferred compensation plan design can be challenging. Start with the objective of your plan and keep coming back to what you hope to achieve by offering each element included. We specialize in designing deferred earnings packages to retain your top‐tier people, making sure they’re paid appropriately while maximizing the use of funds and minimizing tax burdens. 

Contact us today to learn more.