Bank Compensation Corner: October Insights

Bank Compensation Corner: October Insights

Welcome to the October edition of Bank Compensation Corner. This month, we’re highlighting three developments shaping the compensation landscape for financial institutions and beyond — from short-term incentive design to evolving equity practices and the digitization of 83(b) elections.

Rethinking Short-Term Incentive Programs

1. Maintaining Motivation in 2025: Rethinking Short-Term Incentive Programs

As organizations finalize 2025 compensation plans, many are reevaluating their short-term incentive (STI) programs to maintain motivation amid uncertainty. According to Semler Brossy’s recent piece, “Maintaining Motivation in 2025: Short-Term Incentive Programs,” many companies are facing challenges around target-setting and payout credibility as market volatility continues.

Key trends include:

• More dynamic targets: Rather than fixed goals, some organizations are using performance bands or “stretch” ranges to provide flexibility when forecasting is difficult.

• Blended metrics: Incorporating strategic or behavioral measures alongside traditional financial metrics helps maintain focus even when external conditions shift.

• More frequent feedback: Some companies are introducing quarterly progress reviews or “mini-bonus” payouts to sustain engagement throughout the year.

Takeaway: Firms should ensure their STI structures remain motivating under both base and stress scenarios. Reviewing metric weightings, communication cadence, and how goals link to overall strategy can help keep incentive programs meaningful in a fluctuating environment.

Option Regain Interest Among the "Stock Option Curious"

2. Compensation Insights into Equity Awards: Options Regain Interest Among the “Stock Option Curious”

While restricted stock and performance shares continue to dominate long-term incentive (LTI) design, some organizations are revisiting stock options as a potential differentiator. In “Equity Awards: Considerations for the Stock Option Curious,” Compensation Standards explores how a balanced mix of equity vehicles can align risk, reward, and retention.

Highlights:

• Upside potential: Options still offer a leveraged return that can enhance motivation when stock prices rise.

• Investor expectations: Time-based options may not qualify as performance-based under proxy advisor guidelines, but layering in performance hurdles or combining with long-vesting RSUs can help address those concerns.

• Market conditions: In volatile environments, options can be a cost-effective way to maintain incentive value — though accounting and share usage implications must be weighed carefully.

  
  

Takeaway: For financial institutions evaluating a shift in LTI design, modeling dilution, accounting costs, and executive outcomes across different equity vehicles can provide clarity. Hybrid structures, such as pairing options with RSUs, may offer a strategic balance of flexibility and accountability.

83(b) Elections Go Digital

3. 83(b) Elections Go Digital: Streamlining a Critical Step

In another notable development, the IRS has introduced an online filing option for Section 83(b) elections, a move highlighted in “83(b) Elections Go Digital.” Participants can now complete and submit the election electronically through the IRS’s ID.me portal using the new Form 15620.

Key points:

• E-filing convenience: The digital submission process simplifies what was once a strictly paper-based step.

• Form limitations: The current system caps submissions at 999,999 securities and allows only two decimal places for per-share valuations — potentially problematic for large or fractional grants.

• Fallback planning: Where precision is critical, companies may still need to rely on traditional paper filings to ensure accuracy.

Takeaway: Companies should update participant communications, internal procedures, and administrative workflows to reflect the digital option. Coordination between HR, legal, and tax teams will help avoid compliance risks as these new systems roll out.

Strategic Themes for 2025

Theme	What It Means for Compensation Leaders
Sustaining Engagement	Refresh STI programs to ensure motivation even when performance visibility is limited.
Evolving Equity Design	Consider revisiting stock options — but balance investor expectations and accounting implications.
Modernizing Administration	Embrace new IRS digital tools while maintaining oversight for compliance accuracy.

Final Thoughts

As 2025 planning continues, compensation committees and HR leaders have an opportunity to modernize incentive strategies while keeping executives engaged and compliant. Whether through more flexible short-term goals, a renewed look at equity mix, or streamlined processes, the common thread is adaptability, a key to staying competitive in today’s evolving financial landscape. Make sure to stay updated and read our monthly Bank Compensation Corner Insights.