Provident Bank
Executive Officer Incentive Plan
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November 29, 2005
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Introduction
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An integral part of the Provident Bank's total compensation policy is Provident
Bank's Executive Officer Incentive Plan. This plan is designed to reward the
Bank's Executive Officers for business achievements beyond normal position
responsibilities to the extent that those efforts contribute measurably to the
Bank's attainment of its financial goals and business strategies.
Program Description
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It is the policy of Provident Bank to provide the Bank's Executive Officers with
an incentive plan consisting of two components:
o A group incentive component that provides an award to Executive
Officers based on the Bank's attainment of stated annual financial
targets;
and,
o An individual business incentive component that provides an award to
Executive Officers for the fulfillment of specific business strategies
and initiatives.
The Bank's Executive Compensation Committee (the "Committee") is responsible for
reviewing Executive Officer salaries and all aspects of executive compensation
annually. The Committee periodically engages external consultants to review
overall compensation levels (including Executive Officer Incentive Awards) for
competitiveness and reasonableness as compared to industry peers and
competitors. The specific authorities and responsibilities of the Committee are
delineated later in this document.
The Director of Human Resources is responsible for the administration of the
Bank's Executive Officer Incentive Plan. The Director may periodically recommend
changes to the program and its implementation to enhance its effectiveness and
ensure compliance with applicable law.
Plan Eligibility
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The Bank's President and CEO participates in the Executive Officer Incentive
Plan each year and recommends to the Executive Compensation Committee other
executive officers for participation in the Plan. Based on these
recommendations, the Executive Compensation Committee approves the participants
in the plan and reports on their decisions to the full Board of Directors.
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Defining and Determining Executive Officer Incentive Plan - Goals and Objectives
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Annual financial and non-financial objectives and targets are determined as a
result of the Bank's annual business planning process.
o Executive Officers contribute to the annual planning process; an
integral part of that annual plan process includes identification of
Bank-wide financial and non-financial business initiative targets,
including short-term and long-term strategies.
o The Provident Bank annual business plan is presented to and approved by
the Board of Directors.
o As a derivative of the Bank's "Annual Plan", the Executive
Compensation Committee, after receiving a recommendation from the
President and Chief Executive Officer, annually establishes the
financial and business criteria for the Executive Officer Inventive
plan. The Executive Compensation Committee reviews and approves
these targets and criteria and informs the full Board of Directors
about the targets and criteria at the next regularly scheduled
board meeting.
Executive Officer Incentive Plan - Award Amounts
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President and CEO
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The President and CEO's Executive Officer Incentive Award is granted annually
based on a review of the Bank's achievement of its overall business results,
including financial targets, short-term and long-term business strategies and
goals as identified as the plan criteria for that fiscal year.
o The President and CEO award level is 40% of the base salary upon
successful attainment of the financial targets and business strategies
and initiatives established for the President and CEO.
o The President and CEO's award level may reach a level of 125% and 150%
of target incentive of 40% of the base salary if the targets are
exceeded by an amount approved under the authorities granted by this
policy to the Executive Compensation Committee.
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Executive Officers
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Awards to other Executive Officer participants in this program are granted by
the Executive Compensation Committee based on a review of the executive's
performance by the President and CEO, who recommends the awards based on this
performance assessment. The incentive-based performance assessment is based on
the Bank's achievement of its overall business results including financial
targets, short-term and long-term business strategies and business initiative
targets as identified for that fiscal year. These targets and business
strategies and initiatives are determined and approved by the Committee as part
of the Bank's annual planning process.
o An Executive Officer award level is 25% of the individual's base salary
upon successful attainment of the financial targets and business
strategies and initiatives established for the Executive Officer.
o An Executive Officer award level could reach a level of 125% and 150%
of target incentive of 25% of base salary if the targets established
for the Executive Officer are exceeded by an amount approved under the
authorities granted by this policy to the Executive Compensation
Committee.
Executive Officer Incentive Award for Significant Performance
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In an unpredictable, fast-changing business climate, there might be significant
events and/or extraordinary factors, particularly those that will have a long
term benefit to the Bank that should be considered when determining potential
awards for Executive Officers.
In such circumstances, the Board of Directors, at its discretion, may, following
receipt of proposed awards by the Executive Compensation Committee, may elect to
grant an incentive award to Executive Officer participants based on the Bank's
overall performance in light of these significant events and/or extraordinary
factors.
Process for Determining Executive Officer Plan Incentive Goals
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Timing:
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Fiscal year financial and operating goals are determined as a result of the
Bank's annual planning process.
o Management will present to the Board of Directors a fiscal year
business plan in September of each year for review and consideration.
Within 30 days of the presentation to the Board of the annual business
plan, the President and Chief Executive Officer will provide the
Executive Compensation Committee the proposed Executive Officer
Incentive Award group and individual targets.
o The group and individual targets for each Executive Officer will be
approved by the Executive Compensation Committee.
o Upon approval of the group and individual targets by the Executive
Compensation Committee, the Committee will inform the Board of
Directors about these targets at the next scheduled board meeting.
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Payout of Executive Officer Incentive Awards
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Precondition for Eligibility to Receive Awards
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All Executive Officers who participate in the plan must have received a
satisfactory performance appraisal in the prior year and be considered to be
employees in good standing in the sole discretion of the Executive Compensation
Committee. The President and Chief Executive Officer will make a recommendation
to the Executive Compensation Committee on the performance of the other
participants.
Approval and Authorization of Awards for the President and CEO
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o The amount of award for which the President and CEO is eligible is
presented to the Executive Compensation Committee by the Chairman of
the Executive Compensation Committee.
o The Executive Compensation Committee will review and determine whether
the amount of the award(s) should be adjusted based on extraordinary
circumstances that might have occurred and which might have affected in
a significant way the Bank's overall performance. The Executive
Compensation Committee is authorized to pay out awards based on the
incentive targets approved for the fiscal year.
o The Executive Compensation Committee has the authority to adjust the
amount of the award as it deems appropriate and present the proposed
award to the Board of Directors for approval.
Approval & Authorization for Executive Officers
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o The amount of award for which the other Executive Officers are eligible
is presented by the President and CEO to the Executive Compensation
Committee.
o The President and CEO will recommend to the Executive Compensation
Committee whether the amount of the award(s) should be adjusted based
on extraordinary circumstances that might have occurred and which might
have affected in a significant way the Bank's overall performance.
o Following the recommendation and assessment by the President and CEO,
the Executive Compensation Committee has the authority to award payouts
based on the original incentive targets. If adjustments to the awards
are deemed appropriate, the Executive Compensation Committee will
present proposed adjusted awards to the Board of Directors for
approval.
Time for Payment of Awards
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Executive Officer Incentive Plan participants will receive their incentive
awards within 30 days of approval, but in any event no later than 75 days after
the close of the fiscal year.
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Participants' Vested Rights
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o Eligible Executive Officers employed throughout the full incentive plan
year have a vested right to receive any incentive awards they have
earned as provided for in the Executive Officer Management Incentive
Plan.
o Executive Officer participants who die, become disabled or retire on a
satisfactory basis prior to the end of the incentive year are eligible
for a prorated award.
o Incentive payments for financial results will be pro rated to the
number of months worked within the incentive year before termination
for any of the reasons stated above.
o Incentive payments for results related to business strategies and/or
initiatives will be evaluated and assessed and awarded as they would
have been at the end of the incentive year.
o In the event of the death of an eligible Executive Officer, any earned
incentive awards will be paid to the Executive Officer's estate.
o Executive Officer participants who voluntarily or involuntarily
terminate employment prior to the end of the incentive year forfeit
their eligibility for any incentive awards.
On occasion, upon the recommendation of the President and CEO, the Board of
Directors may authorize an incentive payment, pro-rated as described above.
o Executive Officers who become employed by the Bank during the incentive
year may become participants in that year's incentive plan. This
action will require recommendation from the President & CEO to the
Executive Compensation Committee, who will then inform the full Board
of Directors of their approval at the next scheduled board meeting.
In such instances, the Executive Officer will be eligible for a
pro-rated award as described above.