Short-Term Deferred Incentives
Deferred Cash Incentive Plan
While annual cash incentives address an immediate reward to employees and retirement plans help with long-term retention, many banks struggle with strategies for short-term “golden handcuffs.” Deferred Cash Incentive Plans (DCIP) are structured to address short-term turn over, while still providing long-term benefits to selected employees. This popular retention plan is designed to provide benefits that are significant to the employee while insignificant in cost to the shareholders.
An annual award is given if performance targets, set by the bank, are met. Participants have the potential to earn 100% of their award or receive a partial award based on the percentage completion of targets. The targets are defined at the beginning of each fiscal year and communicated to the participant. The criteria may be based on bank, branch and/or individual participant goals.
The award earns interest at a rate determined by the bank. For example, a bank may choose to credit interest based on the bank’s after-tax ROE. At the end of a deferral period, which is pre-determined by the bank, the initial award plus interest earned is paid to the participant.