This excerpt taken from the PBKS DEF 14A filed Apr 13, 2005.
Report of the Compensation Committee
Committee Report on Executive Compensation. Recommendations regarding all of the components of the compensation of Providents Chairman and Chief Executive Officer are made by the board of directors four-member Compensation Committee to, and are approved by, the board of directors. The board of directors did not reject or modify in any material way any of the recommendations of the Compensation Committee during fiscal year 2004. Each member of the Compensation Committee is a non-employee director and independent under the corporate governance listing standards of the Nasdaq Stock Market. The following report has been prepared by the Compensation Committee and addresses the compensation policies of Provident for 2004 as they affected Providents named executive officers.
Executive Officer Compensation Policies and Objectives. The policies and objectives of the Compensation Committee are designed to assist Provident and its subsidiaries in attracting and retaining qualified executives, to recognize individual contributions toward the achievement of short and long-term performance goals and to align closely the financial interests of the senior managers of Provident and its subsidiaries with those of Providents shareholders. In furtherance of these objectives, Provident maintains a compensation program for executive officers that consists of both cash and equity-based compensation. The Compensation Committee retains independent compensation consultants to work with it on executive compensation matters. The Compensation Committee also uses and relies upon competitive data regarding executive compensation levels and practices.
Salary levels for all employees, including executive officers, are set so as to reflect the duties and levels of responsibilities inherent in the specific position and to reflect competitive conditions in the banking business in Providents market area. Comparative salaries paid by other financial institutions are considered in establishing the salary for a given position. Salary ranges for all employees, including the executive officers, are reviewed annually by the Compensation Committee, taking into account the competitive level of pay as reflected in the surveys consulted.
Executive Compensation Programs and Relationship to Performance. The annual cash compensation of Providents named executive officers consists of a base salary and an annual incentive bonus. In the case of Messrs. Geisel and Byrnes, this annual incentive bonus is determined under the terms of the Executive Incentive Plan (EIP) and, in the case of Messrs. Starliper and Oppitz, the Executive Vice Presidents Incentive Plan (EVIP). The Compensation Committee establishes, on an annual basis, the base salary of the Chief Executive Officer, generally based upon a review of the performance of the Chief Executive Officer during the prior year and competitive data for that position. The Chief Executive Officer recommends to the Compensation Committee a salary level for the other named executive officers based upon a performance review of each executive officer.
Executive Incentive Plan and Executive Vice Presidents Incentive Plan. Under the EIP and EVIP, an annual incentive bonus may be paid to eligible executives in part based upon the financial performance of Provident and in part based upon the performance of the individual eligible to be awarded a bonus under the EIP and EVIP. The corporate performance-based goals are dependent upon the achievement of earnings per share (EPS) and return on equity (ROE) targets established by the Compensation Committee, each of which represents 50% of the available corporate performance-based award. For the corporate performance-based portion of an annual incentive bonus award, after-tax EPS and ROE targets for the upcoming year are established: threshold, budget and maximum. The Compensation Committee sets or approves a percentage of base salary eligible to be received as annual
incentive compensation at each of the threshold, budget and maximum targets. The percentage of base salary eligible to be received by an individual under the EIP or EVIP ranges from 30% to 90% of the individuals salary at the end of the fiscal year for which the annual incentive compensation is to be paid. If EPS and ROE reach the threshold, budget or maximum targets, participants will automatically receive 75% of the designated percentage of base salary as corporate performance-based annual incentive compensation. In the event that EPS and ROE are less than the threshold, no corporate performance-based annual incentive compensation is payable. If only after-tax EPS or after-tax ROE reaches its respective threshold, budget or maximum target, then participants will automatically receive 37.5% of the designated percentage of base salary as corporate performance-based annual incentive compensation. The remaining 25% of the annual incentive bonus award is discretionary based on individual performance as compared to established goals, namely: management of Provident with emphasis on development and retention of key personnel; implementation of new initiatives; financial progress in addition to net earnings; and risk management. The Compensation Committee reviews the terms of the EIP and EVIP each year to assure that, in operation, they are furthering the Committees compensation policy objectives. Payment of all or any part of the annual incentive compensation earned under the EIP and the EVIP may be deferred.
Stock Option Plan. Long-term incentives for the named executive officers have been provided through the Stock Option Plan. Providents ability to grant additional awards under the Stock Option Plan terminated when shareholders approved the 2004 Equity Compensation Plan. However, awards outstanding under the Stock Option Plan continue in effect in accordance with their terms.
2004 Equity Compensation Plan. The purposes of the 2004 Equity Compensation Plan are to provide incentives and rewards to those employees and directors largely responsible for the success and growth of Provident and its affiliates, and to assist in attracting and retaining directors, executives and other key employees with relevant experience and ability. The Compensation Committee of the board of directors administers the 2004 Equity Compensation Plan. The board of directors or the Compensation Committee may also delegate some or all of its authority with respect to the 2004 Equity Compensation Plan to certain officers of Provident to provide them with limited authority to grant awards to employees, provided that no officer may designate himself or herself as an award recipient. (The appropriate acting body, be it the board, the Committee or an officer, is herein referred to as the Administrator). The Administrator has broad authority under the 2004 Equity Compensation Plan with respect to awards granted under the 2004 Equity Compensation Plan, including, without limitation, the authority to:
Each award granted under the 2004 Equity Compensation Plan is evidenced by a written award agreement that sets forth the terms and conditions of the award and may include additional provisions and restrictions as determined by the Administrator. Persons eligible to receive awards under the 2004 Equity Compensation Plan include directors, officers and employees of Provident and its affiliates. All of Providents directors, officers and employees (including all of the named executive officers of Provident) are presently considered eligible for awards under the 2004 Equity Compensation Plan.
Other Compensation Plans. The named executive officers participate in Providents health and welfare and qualified retirement plans on the same terms as non-executive employees who meet the applicable eligibility criteria, subject to any legal limitations on the amounts that may be contributed or the benefits that may be payable under these plans.
In addition to the qualified retirement plans, Provident also has supplemental retirement income agreements with Messrs. Geisel, Byrnes and Starliper. These supplemental retirement agreements are unfunded, so that amounts payable represent unsecured liabilities of the Bank, subject to the claims of secured creditors. The Bank has purchased one corporate-owned life insurance policy on the life of Mr. Geisel.
Chief Executive Officer Compensation. The Compensation Committee set Mr. Geisels annual base compensation for fiscal year 2004 at $450,000, such base compensation being set in a manner consistent with the base salary guidelines applied to executive officers of Provident as described above. For Mr. Geisels 2004 bonus, the Compensation Committee recognized, among other accomplishments, the Banks net income, earnings per share, return on assets, return on equity and the successful acquisition and integration of Southern Financial Bank. The threshold target set under the EIP for 2004 was met, resulting in a formula and performance-driven pay out of $112,500 to Mr. Geisel. See Executive Compensation Programs and Relationship to Performance and Executive Incentive Plan and Executive Vice Presidents Incentive Plan.
Compensation of Other Named Executive Officers. Decisions regarding the base salaries of the other named executive officers are communicated to the Compensation Committee by the Chief Executive Officer. These decisions are based upon a review of their individual performance during the prior year by the Chief Executive Officer. The Compensation Committee did not reject or modify in any material way any of the decisions of the Chief Executive Officer concerning the base salaries of the other named executive officers for 2004.