Industry Analysis: Do Pay-for-Performance Plans Work?
- Jul 14
- 4 min read
Annually, Blanchard Consulting Group has conversations with clients related to their incentive plan designs and payouts. As banks continue to grow and become more profitable, many pay-for-performance plans provide target and above target payout levels. Blanchard Consulting Group conducted an analysis of cash incentive payouts to the CEO and CFO positions over the past three years to assess how incentive payouts for these two executive positions compare to median ROAA and ROAE performance within this group.
In 2026, we conducted an analysis of 190 CEO and 123 CFO positions from banks under $10B in assets from our internal database over a three-year period, similar to the study we conducted in 2024. For each bank, we reviewed the actual cash incentive/bonus payments over the past three years for each of these positions to see if there was a significant difference on a year-to-year basis. In addition, we examined the year-end ROAA and ROAE for all of these banks to evaluate their annual performance.
What did we find out about the CEO and CFO's cash incentives/bonuses paid in 2025, 2024, and 2023?
We found that the median value of cash incentive/bonus payouts in 2025 increased by just over 30% for both the CEO and CFO positions as compared to 2024 payouts (2024 payouts versus 2023 were just under a 30% increase).
**We examined various asset size ranges and found no significant differences in the summary results.
What did we find out about ROAA and ROAE in 2025, 2024, and 2023?
We also conducted an analysis of year-end ROAA and ROAE performance for each bank associated with the CEO and CFO position incumbents. The median 2025 ROAA for these banks increased by approximately 20% as compared to 2024. For ROAE, we found an increase of approximately 11% in 2025 as compared to 2024.
*Of note, the ROAE and ROAA ratios decreased from 2024 compared to 2023. However, cash incentives still increased from 2023 to 2024. This increase may be since many of these banks experienced significant growth in 2024 and many executives were rewarded for this growth versus solely financial performance.
We validated this growth trend when we reviewed our analysis from two years ago and the number of banks in the analysis with assets between $3B to $10B almost doubled (from 64 up to 108 banks). Since banks with larger assets typically have higher bonus/incentive potential, the median bonus for these banks would likely increase independent of performance.
CEO and CFO Banks Median ROAA and ROAE in 2025, 2024, and 2023*
* Includes banks under $10B in assets in Blanchard Consulting Group’s database.
Current Trends in Annual Incentive Plan Designs
Due to economic uncertainty over the past five years, some banks have modified the goals in their annual cash-based incentive plan scorecards. Examples of these modifications are listed below.
Widen Performance/Goal Ranges:
Since it has become more difficult to predict annual budgets, many banks have increased their performance/goal ranges in their annual incentive plan, especially at the lower end of the range. Historically, banks would set their threshold levels (i.e. performance level below target where an incentive is still paid) at 90-95% of budgeted or target performance. This might result in a payout of approximately 50% of the target payout level. Some banks have recently lowered this threshold performance level to 80-85% of budget or target and have decreased the associated payout to approximately 25% of the target payout amount.
Use of Strategic/Department Goals:
Banks have started to incorporate strategic or department goals (i.e., core deposit growth, loan growth, and credit quality) into their annual incentive plan design. These goals typically have a 10-25% weighting in the executive performance scorecard. This allows the bank to provide a portion of the incentive award based on a goal that is not solely based on annual profitability metrics (net income, ROA, etc.). This methodology is considered the best practice in the Sound Incentive Compensation Guidelines that were released by all the regulatory agencies in 2010.
Use of Discretion:
Banks have also incorporated a discretionary component into their annual performance-based cash incentive plan. This is where a portion of the cash incentive/bonus is determined based on Board or CEO discretion (typically capped at 10% to 15% of the total incentive award available). This discretionary portion of the incentive plan can be used to reward an executive or key officer based on performance goals that are difficult to measure or linked to an individual’s performance versus overall company performance. Discretion could also be used to reduce or eliminate an incentive if certain performance qualifiers are not met (i.e. satisfactory regulatory ratings, credit quality issues, or unsatisfactory performance).
Cash incentives continue to remain very prevalent in the banking industry as our 2026 Compensation Trends & Lender Incentive Practices Survey showed that approximately 96% of banks paid a cash incentive or bonus for 2025 performance. It appears that performance-based plans are showing a solid pay versus performance link. Our analysis showed that as profitability increased in 2025, this resulted in higher cash incentives/bonuses being paid for the CEO and CFO positions. In addition, strategic growth initiatives appear to have contributed to the increase in incentive payouts in 2024 as compared to 2023. Overall, the purpose of performance-based annual incentive plans is to increase or decrease variable pay levels based on both profitability and strategic growth goals. This reality appears to be playing out in banks in recent years.
Please contact Blanchard Consulting Group at info@blanchardc.com with any detailed questions about this study or to assist with compensation consulting needs at your bank.
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