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Banknorth Group, Inc.
Management Incentive Compensation Plan
1998
CONFIDENTIAL
BANKNORTH GROUP, INC.
Management Incentive Compensation Plan
OBJECTIVES
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* Increase executive focus on implementation of strategic plans to
further (1) growth in earnings, (2) return on assets and equity and
(3) increase total return to shareholders.
* Increase executive focus on decisions to improve earnings and returns
in their subsidiary.
* Improve executive focus in decision-making on what is in the best
interests of Banknorth Group, Inc. and reward for continuously
improving relative performance against peer banks.
* Provide a reasonable opportunity for payout consistent with
stockholder expectations and Company performance.
* Facilitate attracting, retaining and motivating the highest caliber
of management employees.
PRIMARY PROVISIONS
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I. THRESHOLD LEVEL
There will be no awards made under the Incentive Compensation Plan
("the Plan") unless Banknorth Group, Inc. performs at a minimum of
75% of plan overall for the Return on Average Assets (ROAA), Return
on Average Equity (ROAE), Efficiency Ratio and the ratio of Non
Performing Assets to Total Assets (NPA/TA) targets, after accruing
for all plan awards.
II. CORPORATE PERFORMANCE AWARDS
Corporate performance awards will be based on (1) ROAA, (2) ROAE, (3)
Efficiency Ratio, and (4) the NPA/TA measured against performance
targets. The Net Income used will be before accounting changes.
Accounting changes, for the purposes of this Plan, will mean changes
to Generally Accepted Accounting Principles (FASB) and one-time,
publicly disclosed merger related expenses. Refer to Exhibit 1 for
1998 corporate performance targets.
III. SUBSIDIARY UNIT PERFORMANCE AWARDS
Subsidiary bank unit performance awards will be based on subsidiary
(1) ROAA, (2) Efficiency Ratio and (3) NPA/TA measured against
performance targets. Subsidiary Mortgage and Stratevest Group unit
performance awards will be based on subsidiary (1) Net Income and (2)
Profit Margin as measured against performance targets. Refer to
Exhibit 2 for 1998 subsidiary performance targets.
IV. INTERNAL PERFORMANCE MODIFICATION
Participants' target awards will be modified based on actual
corporate and/or subsidiary performance against annual performance
targets. Awards modifications range from 50% to 150% of a
participant's target award, based on performance level. Please refer
to Exhibit 3 for details on the internal performance modifier.
V. RELATIVE EXTERNAL PERFORMANCE MODIFICATION
Participants' target awards will be further modified by comparing
Banknorth Group, Inc.'s performance against a peer group of similar
sized banks. The relative performance to peers will be determined by
the ranking of a weighted average percentile for ROAE, weighted at
two, and relative total return to shareholders weighted at one. The
modification factor for relative performance is listed in Exhibit 4.
VI. GRADE LEVELS AND TARGET AWARDS
Grade levels and the corresponding targets for 1998 are as follows:
Grade 36 - 50% of base salary
Grades 33 & 34 - 35% of base salary
Grades 31 & 32 - 25% of base salary
Grade 30 - 20% of base salary
Grade 29 - 15% of base salary
Base salary for each participant will equal the regular base salary
(does not include incentive pay, bonuses or disability pay) earned in
1998 during the period they were employed in the grade level.
VII. INDIVIDUAL PERFORMANCE
Performance awards may be modified at the discretion of the CEO and
by approval of the Compensation Committee of the Board. Any
modification of an individual executive's awards will be based upon
that executive's performance against key performance objectives, not
measured otherwise in the corporate and subsidiary unit performance
awards.
VIII. ELIGIBILITY
An eligible participant must be employed in grade 29 or above prior
to July 1 of the plan year. Persons hired or promoted into eligible
positions prior to July 1 of the plan year will have their potential
award pro-rated. Eligible participants may be assigned by the CEO to
alternate compensation levels during the year due to changes in pay
grade or job responsibilities. In such cases, their award will be
pro-rated based on time employed in differing levels. When managers
participate in an incentive plan targeted to their function, they
will not be eligible to participate in this plan. An eligible
participant must be an active employee at the end of the plan year to
receive any award.
IX. INDIVIDUAL TARGET AWARDS
Parent Company Executives:
Incentive compensation awards are determined for participants based
100% on corporate performance.
Bank/Subsidiary Presidents:
Incentive compensation awards are determined for participants based
75% on corporate performance and 25% on respective subsidiary unit
performance.
Subsidiary Executives:
Incentive compensation awards are determined for participants based
50% on corporate performance and 50% on respective subsidiary unit
performance.
Eligible participants may be assigned by the CEO to alternate
categories based on transfers, reorganization, or other factors.
Awards may either be pro-rated based on time in the business unit or
given based on the business unit in which the participants spent the
most time, at the discretion of the CEO.
X. OTHER PROVISIONS
All plan calculations will be made based upon the audited year end
financial statement. No awards will be made until the date of the
audit opinion and adjustments, if any, have been approved by the
Banknorth Group, Inc. Compensation Committee. The Board reserves the
right to adjust performance targets and/or payouts under this plan in
cases of significant non-recurring events.
EXAMPLE OF INCENTIVE COMPENSATION AWARD
Assumptions:
* Parent Company Executive
* Grade level 31
* Base salary $100,000
* Performance Level against Performance Targets: 105% (refer to
Exhibit 3)
* Banknorth Group, Inc. %ile against peer banks: 50th percentile
(refer to Exhibit 4)
TARGET AWARD: $100,000 X 25% = $25,000
INDIVIDUAL MODIFIER: $25,000 X 110% = $27,500
EXTERNAL MODIFIER: $27,500 X 120% = $33,000
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INCENTIVE COMPENSATION AWARD: $33,000
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A GLOSSARY OF TERMS
Earning assets
Interest-bearing deposits with banks, securities available for sale,
investment securities, loans (net of unearned income), federal funds sold
and securities purchased under agreements to resell.
Efficiency ratio
Total other operating expenses, excluding goodwill amortization,
OREO/repossession expense and other non-recurring expenses, as a percentage
of net interest income, on a fully taxable equivalent basis, and total
other operating income, excluding securities gains/losses and non-recurring
items.
Non-performing assets
When other real estate owned (OREO) and repossessed assets is added to non-
performing loans, the result is defined as non-performing assets.
Relative total shareholder return
The relative appreciation of Banknorth Group stock plus dividends paid over
the plan year compared to the peer group banks.
Return on average assets (ROA)
Net income as a percentage of average total assets.
Return on average shareholders' equity (ROE)
Net income as a percentage of average shareholders' equity.
EXHIBIT 3
Internal Performance Modifier
Performance Level as % % of Target Award
of Performance Targets
125% 150%
120% 140%
115% 130%
110% 120%
105% 110%
100% 100%
95% 90%
90% 80%
85% 70%
80% 60%
75% 50%
NOTE: No awards will be paid if performance falls below 75% of target.
Exhibit 4
External Performance Modifier
Banknorth %ile External
Performance Against Performance
The Peer Banks Modifier
70-100%ile 150%
50-69%ile 120%
40-49%ile 100%
30-39%ile 85%
10-29%ile 75%
Less than 10%ile 0%