Pub. 5 2010-2011 Issue 2

www.nebankers.org 20 Extraordinary Service for Extraordinary Members. measures serve a purpose but are not suitable for incentive design due to the unintended consequences they create, such as a tendency to shrink profitable (on a risk-adjusted basis) business. Only after the performance metrics have been prop- erly designed should the focus turn to the time horizon parameters in the compensation program. These include considerations of the time horizon for payouts and meth- ods for establishing the amounts. The “draft” program as designed then should be tested through scenario analysis and revised as needed. Once it has received all sign-offs, including board accep- tance, clear communications materials should be distributed to staff along with meetings to discuss the changes. (In ad- vance of this, the bank may want to conduct metrics training so the staff is better prepared to absorb the compensation changes when they occur.) The board should ensure the integrity of the process from metrics through design and establish mechanisms to ensure the integrity throughout the reporting cycles. When implemented properly, the bankwill gain benefits in both the short and long term. It may be a bit trying for banks during implementation, but the structure recommended will strengthen our banking system. Before that happens, one outcome that will probably happen quickly will be changes in pricing for bank services, as more banks revise and update their risk management capabilities and outlooks. Z Eleanor Bloxham, CEO of The Value Alliance (www.thevaluealliance. com), an advisory firm, is a former banker who has experience in implementing programs now required by the Fed guidance. She has authored two books and numerous articles. Bloxham welcomes your questions and comments at ebloxham@thevaluealliance.com. GENERAL CORPORATE - REGULATORY COMPLIANCE COMMERCIAL LOANS - TIF/BOND FINANCING DIP FINANCING - BANKRUPTCY/CREDITORS’ RIGHTS 1125 South 103rd Street Omaha, NE 68124 koleyjessen .com PRACTICAL ADVICE. EFFECTIVE SOLUTIONS. RESULTS DRIVEN Q Compensation Policies When implemented properly, the bank will gain benefits in both the short and long term. It may be a bit trying for banks during implementation, but the structure recommended will strengthen our banking system.