1. How to
Develop an
Executive
Compensation
Philosophy
A Guide to Defining Your
Bank’s Mission Statement
for Compensation

2. How to Develop an Executive Compensation Philosophy - A Guide to Defining Your Bank’s Mission Statement for Compensation | 1
How to Develop an Executive
Compensation Philosophy:
A Guide to Defining Your
Bank’s Mission Statement for
Compensation
Your community bank already knows that it’s crucial
to attract and retain top executive talent and that
you have a lot of competition from other banks and
even other industries. If you’ve been having difficulty
with recruitment and retention, you may want to look
to your compensation practices in order to address
the issue. To ensure that your bank’s practices are
competitive, use a holistic perspective relative to
market observations.
A properly designed compensation philosophy
accomplishes 3 things. It should:
1. Drive the pay culture of your bank
2. Bring consistency and clarity to pay
practices
3. Convey to executives the specific reasons
for the way they are compensated, which
limits conflict and confusion
In this guide, we’ll explain what a compensation
philosophy is and how to define your bank’s.
What is a compensation
philosophy?
Before we delve into the steps you need to develop
your philosophy, it’s important to define exactly
what we mean when we refer to a compensation
philosophy and why it’s so important. Your pay
philosophy is not your pay policy. It doesn’t lay out
the specifics of exact compensation plans. Instead,
it functions more as a mission statement that drives
how you approach compensation.
Think of the mission statement for your organization
and how it defines your bank’s values. Similarly, a
compensation philosophy influences the way you
compensate your employees. For the purposes
of this guide, we’ll be discussing compensation
philosophies with respect to your executives.
Your compensation
philosophy is not your
pay policy. Instead, it
functions more as a
mission statement that
drives how you approach
compensation.

3. How to Develop an Executive Compensation Philosophy - A Guide to Defining Your Bank’s Mission Statement for Compensation | 2
The 3 C’s of Compensation
Philosophies
Your philosophy needs to be clearly defined,
comprehensive, and consistent: these are what
we call the 3 C’s of a successful compensation
philosophy.
Clearly Defined
Your executive compensation philosophy should
bring clarity to your compensation practices; having
a vague idea of that philosophy will not generate a
competitive advantage in the retention or recruitment
process. Your philosophy needs to be in writing, and
your executives, directors, and HR personnel should
be able to understand its main points with ease.
Comprehensive
Your philosophy needs to consider all aspects
of executive compensation through a holistic
approach. Successful compensation strategies
incorporate a balanced compensation approach,
leveraging various types of compensation to
accomplish your stated goals.
Consistent
Your compensation philosophy needs to support the
vision and fit the culture of your bank. Organizations
that simply follow a standard template may find
inconsistencies related to the bank’s values, internal
culture, and true needs.
Assembling your compensation
committee
How do you create a philosophy that is clearly
defined, comprehensive, and consistent? A great
compensation committee is behind every great
executive compensation philosophy.
Who should be on your team?
You need to determine who will work together in
your organization to define your philosophy. Your
compensation committee should include:
Executives
Executives are involved in influencing and leading
the direction of your organization, and they therefore
play a role in determining philosophies that tie into
your bank’s mission.
HR personnel
It goes without saying that HR personnel should
be involved as they are the ones responsible for
recruiting talent, letting recruits know of available
compensation packages and why they should work
with your bank. Having an understanding of the
bank’s direction with regards to compensation is
crucial for conveying this information.
Board members
Board members need to understand how the
philosophy will drive shareholder value relative
to compensation strategies. If your bank has a
compensation committee, it is the committee who
will drive this process; if not, it may be appropriate to
put together a few directors to head this process.

4. How to Develop an Executive Compensation Philosophy - A Guide to Defining Your Bank’s Mission Statement for Compensation | 3
Creating your philosophy
There are many factors you’ll need to consider, from
aligning your goals with your company’s overall
mission statement to how you’ll approach the types
of compensation you offer. Let’s examine some key
factors.
What are your competitors up to?
Yes, your compensation philosophy is something
unique to your organization, but don’t forget why
compensation is so important: you need to remain
competitive. Thus, you should be aware of what
your competitors are doing with their compensation
philosophies. Although some may publish their
philosophies on their websites, SEC Proxy Filings
(DEF 14A, under the CD&A) provides the most
comprehensive examples regarding the activities of
the Wells Fargo compensation committees.
You should also look to other industries to garner
additional perspectives. In some cases, you may
want to attract top executives from those fields.
Understanding what other industries are doing may
help your organization attract the talent necessary
to elevate your performance.
Take the holistic approach to compensation
All areas of compensation should complement
one another rather than each component being
viewed independently. Implementing this holistic
approach to compensation provides the bank with
the flexibility to design compensation strategies for
all ages and life stages, a must when recruiting and
retaining talent.
Cover all areas of compensation, including the
cultural elements.
The compensation philosophy goes beyond pay
structure. It is important to establish the cultural
tone, and your philosophy should address or
support the following:
• Do you take a pay-for-performance
approach?
• Do you have a culture of stable leadership?
• Are you establishing a culture of top
performers?
If you factor these considerations into your
philosophy, it’s more likely to represent your bank’s
culture and values.
When looking for
what your competitors
are doing, SEC Proxy
Filings provide the most
comprehensive examples.

5. How to Develop an Executive Compensation Philosophy - A Guide to Defining Your Bank’s Mission Statement for Compensation | 4
Make your philosophy as
consistent as possible
Consistency is key
The purpose for creating a defined philosophy is to
develop a consistent approach to compensation.
Your plans should be tailored to the individual
executives, but your philosophy exists to set a
framework. The philosophy’s purpose is to drive
a practice that can be relied upon and leveraged
time and time again. Review your bank’s mission
statement, and make sure your compensation
philosophy is designed to support what your
organization is trying to accomplish. Remember,
your people’s talents are your greatest assets.
Compensation Philosophy
Checklist
Review your compensation philosophy to identify if
there are any inconsistencies or contradictions to
your company. Below are a few question to help
with the process:
• Is your philosophy in line with your
organization’s values and culture?
• Was your philosophy crafted with input from
the appropriate sources?
• Is your philosophy aligned with the interests
of your shareholders?
• Does your philosophy take the holistic
approach to compensation?
• Will your philosophy make your organization
competitive?
• Do you have a written compensation
philosophy?
• Do the key executives, HR personnel, and
directors understand the philosophy’s key
points?
To align your
compensation strategy
with your bank’s overall
values, have a look at your
organization’s mission
statement.

6. How to Develop an Executive Compensation Philosophy - A Guide to Defining Your Bank’s Mission Statement for Compensation | 5
Need help developing your compensation strategy?
The experts at Compensation Advisors possess over fifty years of compensation experience at the
community bank level. We leverage that experience to design and implement relevant, innovative
solutions that relate to current regulatory environments. Having worked with over six hundred financial
institutions, the firm has the knowledge and expertise to navigate the obstacles associated with
compensation practices. Our primary goal is helping our clients attract and retain key executives and top
performers. Compensation Advisors is a member of the Meyer-Chatfield Group.
Contact us today to get started.
(866) 796-6222
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