Like everyone else in the industry these days, Bay State bank board members are feeling the pain of increased risk to their institutions – and the potential that they’ll be personally liable for errors or poor bank performance in today’s turbulent economic times.
It should come as no surprise that concurrently, their compensation is going up.
During the height of the real estate-fueled economic boom a few years ago, the average Massachusetts bank board member earned anywhere from $4,000 to $20,000 in total compensation per year, bankers and industry consultants said.
Today, the range has increased and now stands between $6,000 and $25,000, with directors at banks over $1 billion on the upper end.
Nationally, according to Tennessee-based Bank Director Magazine, bank directors earned a median annual retainer fee of $8,400 in 2006. It rose 14 percent, to $9,600, this year.
Median monthly board meeting fees rose from $550 to $700 – a 27 percent increase – during the same period.
The magazine’s numbers don’t count retirement or equity compensation benefits that are part of some director pay packages, notes Susan O’Donnell, managing director of Southborough-based Pearl Meyer & Partners, a compensation consultant who works with the Massachusetts Bankers Association on annual compensation surveys. MBA declined to discuss its board surveys with Banker & Tradesman.
They also don’t apply to every bank, every year.
Directors Due
Anthony Paciulli, president and CEO of $56 million Meetinghouse Bank in Dorchester, said since the economy began leveling off a year or two ago, board member salaries at smaller banks like his have remained flat.
But there’s definitely an upward trend.
O’Donnell said even if salaries have gone up, directors deserve more.
“All those weekend hours, work and worry. It’s a lot,” she said.
The cares are compounded for public bank directors, who have the interests of shareholders and the Securities and Exchange Commission to worry about in addition to those of regulators.
Public bank director responsibilities increased exponentially with the passage of Sarbanes-Oxley, a federal law enacted in 2002 in the wake of accounting scandals at now-defunct corporate titans Enron, WorldCom and others, O’Donnell said.
The far-reaching law, nicknamed SOX, requires publicly-owned companies to have a financial expert on their boards and obtain annual audits of their financial statements from an approved independent firm, and makes their officers personally liable for the accuracy of their finances.
It also imposes criminal penalties including fines and imprisonment on public company officers who knowingly or willfully sign off on false financials.
Sarbanes-Oxley effectively put teeth in board governance expectations imposed by the 1991 Federal Deposit Insurance Corp. Improvement Act (FDICIA), said Joseph F. Casey, chief financial officer at HarborOne Credit Union in Brockton.
Volunteer Compliance
Casey said $1.6 billion HarborOne chooses to comply with many SOX provisions even though its reagulator, the National Credit Union Administration, doesn’t enforce them.
More and more non-public institutions are implementing SOX-like provisions these days since regulators consider them a good way to manage risk, another industry observer said.
Thomas Venables, president and chief executive officer at publicly-owned, $981 million Benjamin Franklin Bank, said bank boards are required to have ever-increasing understanding of an ever-increasing number of bank regulations these days.
They must be even more familiar with risk management, the latest financial information technologies, and the intricacies of complicated regulations including the Bank Secrecy Act and Sarbanes-Oxley, than they were before, he said.
Today’s financial crisis imposes additional concerns such as how to manage or reverse losses if the bank invested in Fannie Mae or Freddie Mac, or what public perceptions of the bank could be if it takes advantage of the U.S. Treasury’s offer to invest capital in their banks.
Paciulli, of Meetinghouse Bank, says the added burdens and risks should be rewarded.
“I think in a lot of cases board members are underpaid,” he said. “With the sacrifices they make, when the economy improves, they should be compensated more fairly.”
Responsibilities have “increased tremendously,” agreed Venables, and compensation increases associated with them are appropriate.
But ask one long-time board member why he serves, and you won’t hear much about them.
William Bissonnette, a board member at Ben Franklin Bank since 1997 and its compensation committee chair, says the time commitment required for board service quadrupled when the bank went public in 2005.
But what motivates him are the service and networking opportunities he gets from his membership.
“I really enjoy this,” he said. “[When the bank was a mutual] I was a corporator for ten years. I enjoy trying to add something to the bank. I don’t think you have anyone sitting on a community bank board for any length of time who doesn’t.”
