Bank Compensation Corner: August Insights

Welcome to the August edition of Bank Compensation Corner. Here, we provide sharp and timely compensation insights tailored for banks. This month’s focus includes shifts in pay-for-performance evaluation, legal twists affecting equity forfeiture contracts, and compensation differences between public and private bank directors. This information is essential for compensation committees and bank leadership.

Pay-For-Performance Model Updates

Glass Lewis Previews Major Overhaul to Pay-for-Performance Model

Glass Lewis is introducing sweeping changes to its pay-for-performance (P4P) framework starting with the 2026 proxy season. They will drop the traditional A–F grading system in favor of a 0–100 numeric scorecard. Additionally, the P4P evaluation window will extend from three to five years. Coverage will also expand to companies in the UK, EU, and Australia. These updates reflect institutional demand for deeper, longer-term performance alignment.

Compensation committees should proactively consider how incentive metrics and peer groups may perform under the upcoming model. This proactive approach will help ensure that banks remain competitive and compliant with the new standards.

Court Strikes Down Equity Forfeiture Clauses Without Adequate Consideration

A recent Delaware Chancery Court ruling determined that an equity forfeiture clause tied to restrictive covenants is unenforceable if the equity itself was the only consideration for those covenants. In this case, without any additional compensation, promotion, or value exchange, enforcement failed on basic contract law grounds.

This ruling serves as a vital reminder for banks. They must ensure that equity-based agreements are legally sound and include sufficient, valid consideration. Legal compliance is crucial in maintaining trust and integrity within the banking sector.

Public vs Private Directors

Public Bank Directors Earn ~55–60% More Than Private Peers

Our latest data shows that public bank directors consistently receive significantly higher compensation than those at private banks of comparable size—about 55% more in institutions under $1B and 60% more for those over $1B. The pay premium reflects heightened regulatory visibility, shareholder pressures, and public accountability faced by directors at publicly traded banks.

This context is crucial when advising boards on director compensation strategy and benchmarking. Understanding these differences can help banks attract and retain top talent in an increasingly competitive environment.

Conclusion: The Importance of Staying Informed

As we navigate the complexities of bank compensation, staying informed is essential. The landscape is continually evolving, and understanding these shifts can provide a competitive edge.

Stay tuned for next month’s Bank Compensation Corner. We will continue to unpack the evolving landscape of pay trends, legal developments, and governance expectations for the banking industry.

In the meantime, consider how these insights can impact your bank's compensation strategy. Embracing these changes will help ensure that your institution remains compliant and competitive in the market.