equity awardsPay Mix. Our compensation program for executive officers in 2021.2022 (other than with respect to Mr. O’Brien) consisted of three (3) primary components: (i) base salary; (ii) cash-based annual bonuses; and (iii) equity-based long-term incentive awards. We also offer retirement and other benefits. This is designed to reward executive officers consistent with the goals in the immediately preceding paragraph.
Mr. O’Brien’s Compensation. Mr. O’Brien’s compensation is as set forth in his employment agreement, first entered into when he was hired by the Company in 2020, including a fixed annual salary which has not increased. See “Executive Compensation—Employment Arrangements—Thomas M. O’Brien” below. The Compensation Committee noted, however,can recommend to the Board that Mr. O’Brien receive cash and/or equity-based incentive awards. Mr. O’Brien was not awarded any incentive compensation awards in 2022. The Committee did not revisit granting Mr. O’Brien a time based restrictive stock award in 2022 since Mr. O’Brien had refused such an award in the prior year due to the ongoing government investigations and circumstances leading to such refusal had not changed at the time such awards were granted to the other NEOs. In addition, Mr. O’Brien waived his right to payment for his accrued vacation time through December 31, 2022, valued at $404,000. The Compensation Committee has taken note of the fact that Mr. O’Brien invested $1.5 million in the purchase of common stock from the Company in 2021, pursuant to the terms of his employment agreement and related stock purchase agreement, thus creating a financial alignment with other shareholders.
Executive Compensation Process
Role of Compensation Committee. The Compensation Committee is ultimately responsible for all compensation decisions for the NEOs after considering input from management and reviewing peer group compensation. The Compensation Committee, among other things, oversees the Company’s incentive compensation and equity-based plans and policies and fulfills other responsibilities delegated to the Committee by the Board of Directors.
The Compensation Committee has the authority to select, retain and obtain the advice of a compensation consultant, as necessary, to assist with the execution of its duties and responsibilities set forth in the Compensation Committee Charter. The Compensation Committee did not retain a compensation consultant in 2022.
Role of CEO in Compensation Decisions. The CEO does not attend portions of the Compensation Committee and Board meetings during which his performance is being evaluated and his compensation determined. The CEO does provide recommendations to the Compensation Committee and Board as to the other NEOs’ compensation based on May 19, 2021, Mr. O’Brien purchased 300,000his evaluation of shareseach NEO’s performance and of common stock directly fromeach NEO’s respective contributions to the remediation of the Company’s and Bank’s outstanding legal and regulatory issues, and his understanding of the compensation of NEOs at similarly sized peer banks.
Key elements of compensation
Base Salary. The Company seeks to pay a competitive base salary at levels that reflect each executive’s position, individual performance, experience and expertise. Such base salaries are reviewed annually by the Compensation Committee in comparison to the peer group and adjusted as appropriate, with no guarantee of annual increases. Other than with respect to the current CEO, base salaries had historically been lower at the Company as compared to those in its peer group and had been targeted to be near the 25th percentile of its peer group. In order to attract and retain qualified executive management, the Compensation Committee, in 2020 and 2021, increased salaries in order to be closer to the 50th percentile of its peer group. In 2022, the Compensation Committee continued to make modest adjustments to base salary, reflected below, consistent with this viewpoint.
Thomas M. O’Brien | | | $3,000,000 | | | $3,000,000 | | | 0% |
Karen Knott | | | $250,000 | | | $300,000 | | | 20% |
Elizabeth M. Keogh | | | N/A | | | $325,000 | | | N/A |
Colleen Kimmel | | | $270,000 | | | $280,000 | | | 3.7% |
Christine Meredith | | | $270,000 | | | $290,000 | | | 7.4% |
Mr. O’Brien’s base salary was as set forth in his employment agreement and remained unchanged at $3,000,000 for cash consideration of $1,350,000 or $4.50 per share,2022. See “Executive Compensation—Employment Arrangements—Thomas M. O’Brien” below. Ms. Knott received an increase in annual base salary in 2022 to $300,000, effective May 22, 2022 which serveswas designed to align his interestsbring her compensation closer to being in line with that of the shareholders. The Compensation Committee wanted to rely more heavily on long term executive grants for the executive officers as opposed to cash incentives. The goal was to grant awards that would properly compensate the NEOs for their effortsCFOs at financial institutions in difficult conditions while also serving as a retention tool. The amount of restricted stock awards for the NEOs (other than Mr. O’Brien) was significantly higher than in the prior year which reflects the Compensation Committee’s decision to rely more heavily on stock awards in the total compensation package for executive officers. The table below sets forth the restricted stock awards for the NEOs for 2021. The restricted stock awards to the NEOs vest ratably over three (3) years (one-third (1/3) per year) after the date of grant. No option awards were granted to the NEOs in 2021.
2021 Long Term Incentive Grants
O’Brien | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Huber | | | 0% | | | 100% | | | 4-23-21 | | | — | | | — | | | 19,881 | | | $100,001 |
Meredith | | | 0% | | | 100% | | | 4-23-21 | | | — | | | — | | | 19,881 | | | $100,001 |
Kimmel | | | 0% | | | 100% | | | 4-23-21 | | | — | | | — | | | 19,881 | | | $100,001 |
Knott | | | 0% | | | 100% | | | 4-23-21 | | | — | | | — | | | 7,952 | | | $39,999 |
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Upon Mr. Huber’s separation of service, he forfeited all his restricted stock, and his vested options expired unexercised. On account of his separation of service, Mr. Huber received a payment under the severance plan and certain payments under his executive incentive retirement plan agreement, both as described below.
Payments Upon Termination of Service or Change of Control. The Bank has entered into an individual executive incentive retirement plan (“EIRP”) agreement with Mr. Huber. This agreement is described in more detail in “Executive Compensation—Executive Incentive Retirement Agreements” and “Executive Compensation—Potential Payments Upon Termination or Change in Control” below. Under the terms of this agreement, prior to 2021, Mr. Huber was credited with an additional amount to his book-entry “incentive award account” under his agreement based on a monthly crediting formula. These amounts would be generally payable upon a separation from service or certain “change of control” events, if payable in accordance with their termsits peer group and in accordance with applicable law and provide for death benefits in the event of death in active service to the Bank. The EIRP agreement was terminated effective January 1, 2021, which eliminated any further crediting to Mr. Huber’s book-entry incentive award account but allowed for interest crediting in accordance with the EIRP agreements. None of Mr. O’Brien, Ms. Meredith, Ms. Kimmel or Ms. Knott was a party to an EIRP agreement. Upon Mr. Huber’s separation of service, effective October 1, 2021, he became entitled to receive $218,718 payable on or about May 1, 2022.
Severance Agreements. Pursuant to the terms of a Change of Control Agreement between the Bank and Ms. Meredith, Ms. Meredith may be entitled to certain payments in the event of a change of control of the Bank. See “Executive Compensation—Potential Payments Upon Termination or Change in Control” and “Executive Compensation—Employment Arrangements—Christine Meredith” below.
The Bank has a nondiscriminatory severance payment plan (the “Severance Plan”) applicable to all employees, including the NEOs, that provides for payment of severance benefits upon the occurrence of certain involuntary termination events. Under the Severance Plan, Mr. O’Brien, Mr. Huber, Ms. Kimmel and Ms. Knott would be entitled to payments thereunder upon the occurrence of certain involuntary termination events. These payments would be on the same terms and conditions as for all other eligible employees. Ms. Meredith would be entitled to similar benefits but for the operation of her Change of Control Agreement. Mr. Huber became eligible to receive a severance payment of $125,000 upon his separation of service on October 1, 2021 which was subsequently paid on November 4, 2021. See “Executive Compensation—Potential Payments Upon Termination or Change in Control” and “Executive Compensation—Employment Arrangements—Severance Plan” below.
Mr. O’Brien is not a party to a change of control or severance agreement with the Bank, but the terms of his employment agreement provide that the parties will negotiate in good faith for a severance and change of control agreement to be entered into after first receiving approval under the FDIC’s “golden parachute” rules. Seerecognition