Upper Saddle River, NJ - November 21, 2007 - Recently, Clifton Savings Bank in New Jersey was in the news regarding shareholder issues relative to executive and board compensation. Battling with dissident shareholders for three (3) years, excessive pay claims were dismissed by the court. Dissident shareholders claimed that annual compensation for the Bank's Chairman, John A. Seidman, was excessive, as were a shareholder-approved stock plan and consulting deal with a director. The Board of Directors was under a significant amount of scrutiny, and although the Bank prevailed, we can learn a valuable lesson from its experience. Lesson #1: Ensure that pay programs are properly documented. Proper pay plan documentation assists with effective and objective administration, and enables its administrators to justify decisions under the program. Documentation should also include detailed minutes from Board meetings relative to executive compensation. Lesson #2: Examine the compensation package for executives, particularly the Chairman, CEO, and CFO positions, against the marketplace. With SEC disclosure rules in full swing and requirements for transparency, ensuring that executives are compensated appropriately is of paramount importance. Not only should the compensation package of executives be compared to like executives within the industry from a job perspective, compensation should also be evaluated against the performance of its peers relative to its own performance. Therefore, appropriate peer selections are critical. There is a tremendous push to align target pay against the market with target performance against the market. Competitive market assessments should be conducted at least every two (2) years, and in more fluid markets and industries, at least annually. Results of the market assessment should not be put on a shelf; action should be taken to adjust pay levels so that they coincide with peers, both from a compensation and Bank-performance standpoint. Lesson #3: Periodically assess the compensation programs. Boards should examine their executive compensation programs every two (2) years to ensure that they: 1) continue to meet the objectives for which the plan was originally designed; 2) provide appropriate rewards to the level of performance achieved by the Bank and its executives; and 3) achieve the main objectives of compensation (attract, retain, focus, and motivate). This assessment process leads to the next lesson…. Lesson #4: Ensure that the goal-setting process is relevant and defensible. Are your short- and long-term goals associated with compensation programs too aggressive? Are they too easy to achieve? Do they provide the "line of sight" necessary to motivate executives to perform? Answers to these questions will help to determine if an overhaul of your goal-setting process is necessary. In light of the SEC disclosure rules, Boards are required to justify compensation rewards annually in the proxy statement, and a poorly designed and executed goal-setting program will open the Bank up to criticism and can lead to possible shareholder discontent. Remember, the best defense is a strong offense; these lessons can be easily remembered if you "READ": Review current compensation Examine peer/industry data Adjust compensation levels Document everything
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