PSB EXECUTIVE BONUS COMPENSATION
2007
OVERVIEW
The goal of the PSB executive compensation program is to reward strong
performance and align the interests of senior management and shareholders. A
properly structured compensation program should foster above average financial
returns and should lead to the ability to attract and retain executive
management.
The incentive program will have three current year elements - bonus awards
payable in cash, restricted stock and stock options. All three components will
be performance based and will vary based upon our performance relative to our
peer group. Performance below the peer group will lead to bonuses below the
industry average, and performance above the peer group will lead to bonuses
above the industry average. Senior officers managing business units will earn a
portion of their incentive on the business unit results and a portion on the
results of the bank.
A long term performance package will be incorporated for the first time in 2007.
The long term incentive will be based upon PSB performance relative to two
indexes over a three year term: Michigan community bank stock returns, and
national community bank stock returns (NASDAQ Bank Index).
ANNUAL INCENTIVE AWARDS
The current year incentive plan will be based on three elements: ROA relative to
peers, growth in core deposits, and a discretionary component which measures how
well participants perform their jobs.
The percentage of bonus awarded based on the bank's overall performance will
vary by individual based upon their role in the company. Managers of P&L units
will be rewarded for delivering results above plan targets in their business
unit. They will also be heavily tied to the performance of the overall company.
The following table identifies the percentage of the annual bonus that will be
based on the Bank's performance, the performance of the executive's business
unit and the executive's individual performance:
Bus.
Bank Unit Discretionary.
---- ---- --------------
President 80% 0 20%
CFO 60% 20% 20%
Commercial Lending 30% 50% 20%
Retail Banking 40% 40% 20%
UMC 30% 50% 20%
Credit Officer 40% 40% 20%
SVP Staff units 40% 40% 20%
The President does not have a business unit component and therefore the ROA
awards will be increased 100% to equalize the awards. The maximum percentage of
base pay if all business unit targets are met for each executive are:
Commercial Lending/Retail 50%
CFO/CCO/UMC/SVP PM/SVP Sales 35%
SVP Staff Units 20%
ANNUAL PAYOUT COMPONENTS
Bonus Component
This component will be payable in cash.
ROA Level 1 80% to 90% of MI peer group 15% of base pay
Level 2 90% to 105% of MI peer group 25% of base pay
Level 3 105% or more of MI peer group 35% of base pay
Core Deposit DDA and savings 4% or more 5% of base pay
Growth MMIA 10% or more and DDA/Sav 5% of base pay
target attained
Discretionary Compliance
Components Quality - service and credit
Teamwork/effort/diversity
Community involvement
Restricted Stock:
Level 1 Level 2 Level 3
------- ------- -------
President Bank targets attained 10 20 30
SVP Bank & business unit/individual
targets met shares per $1,000 of base salary
Except in the case of the President, payout will be dependent on bank and
business unit/individual performance. In the case of the President, only bank
and individual performance will be used as criteria. Business unit/individual
performance equals up to 50%, bank performance up to 50%. Restricted stock
awards are discretionary and are subject to the consent of the President and the
board for each individual. The individual must have met or exceeded their
performance targets, contributed to the overall success of the company and be
rated satisfactory or higher. Restricted Stock awards shall be subject to the
terms and conditions of the PSB Group Inc. 2004 Stock Compensation Plan.
Stock Options:
Level 1 Level 2 Level 3
------- ------- -------
President Bank targets attained 30 40 50
SVP Bank and business unit targets met shares per $1,000 of base salary
Except in the case of the President, payout will be dependant on bank and
business unit/individual performance. In the case of the President, only bank
and individual performance will be used as criteria. Business unit/individual
performance equals up to 50%, bank performance up to 50%. Restricted stock
awards are discretionary and are subject to the consent of the President and the
board for each individual. The individual must have met or exceeded their
performance targets, contributed to the overall success of the company and be
rated satisfactory or higher. Stock Option awards shall be subject to the terms
and conditions of the PSB Group Inc. 2004 Stock Compensation Plan.
GENERAL PROVISIONS OF ANNUAL INCENTIVE PLAN
Base Pay
All references in this plan to "base salary" or "base pay" shall refer to the
executive's annual rate of pay in effect on the last day of the performance
period.
Discretionary Nature of Awards and Employment Requirement
Although Board of Directors of PSB Group, Inc. intends to follow the guidelines
established above, all awards under this plan, all determinations of whether the
Bank or an executive has satisfied performance criteria and performance measures
shall be determined by the Board, in its sole discretion. All awards under the
annual plan will be payable only if both the President and the Board of
Directors approves the award and the executive is employed in good standing on
the date the Board approves the award. If the executive's employment with the
Bank has terminated for any reason prior to that date, the executive shall
forfeit the bonus award. Notwithstanding the foregoing general rule, the Board
may waive the employment requirement in the case of an executive whose
employment terminates due to death or permanent and total disability or in such
other circumstances deemed extraordinary by the Board of Directors.
Participation in Plan
An executive shall participate in the plan only if his or her participation is
approved by the Board of Directors.
Pro-rata Awards
The Board may approve participation in the annual plan by an executive hired
after the first day of the calendar year. In such cases, the Board shall
determine in its sole discretion the percentage of the annual bonus award for
which the executive will be eligible.
LONG TERM INCENTIVE AWARDS
The long term incentive plan is designed to reward the executive officers (SVP &
above) and the board members for delivering long term shareholder value in
excess of industry benchmarks. The increase in market capitalization relative to
Michigan and national peer groups will trigger a payout in the long term plan.
The total return to PSB shareholders over a three year period will be compared
to the Michigan community bank peer group and the NASDAQ bank index. Performance
over either benchmark will trigger a payout under the long term plan. If earned,
payouts would occur only following the end of the three year period, subject to
the approval of the Bank's President and the Board of Directors. Payouts would
be in the form of restricted stock.
Payout Formula
MI Bank Stock Index Up to 9.99% 50% of base pay or fees
10% or more 100% of base pay or fees
NASDAQ Bank Stock Index Up to 9.99% 25% of base pay or fees
10% or more 50% of base pay or fees
Performance above the NASDAQ bank stock index would be added to any awards
generated from beating the Michigan (MI) bank stock index for community banks.
Performance above the MI bank stock index for community banks would be added to
any awards generated from beating the NASDAQ bank stock index. Notwithstanding
the foregoing general principles, the total amount payable to executives will
not exceed10% of the increase in PSB Group, Inc.'s market capitalization during
the incentive period. If a reduction in bonus payments is required pursuant to
the preceding sentence, the reduction of each executive's bonus shall equal the
unreduced value of the executive's award times a fraction, the numerator of
which is the reduced award of all executives and the denominator of which is the
unreduced awards of all executives.
The Board of Directors may adjust market capitalization for any stock issuances
or stock repurchase transactions. The MI bank stock index for community banks
shall be determined by reference to the index published by the Michigan Bankers
Association or such other publication selected by the Board of Directors and the
NASDAQ Bank index will be measured by reference to the index published by
Oppenheimer or such other publication selected by the Board of Directors. The
fair market value of PSB Group, Inc. common stock and the number of shares of
restricted stock and to be awarded pursuant to the Long Term Incentive Plan
shall be determined by the Board of Directors, in its sole discretion.
Restricted Stock awards shall be subject to the terms and conditions of the PSB
Group Inc. 2004 Stock Compensation Plan.
GENERAL PROVISIONS OF LONG TERM INCENTIVE PLAN
Base Pay
All references in this plan to "base salary" or "base pay" shall refer to the
executive's annual rate of pay in effect on the last day of the performance
period.
Discretionary Nature of Awards and Employment Requirement
Although Board of Directors of PSB Group, Inc. intends to follow the guidelines
established above, all awards under this plan, all determinations of whether the
Bank or an executive has satisfied performance criteria and performance measures
shall be determined by the Board, in its sole discretion. All awards under the
annual plan will be payable only if both the President and the Board of
Directors approves the award and the executive is employed in good standing on
the date the Board approves the award. If the executive's employment with the
Bank has terminated for any reason prior to that date, the executive shall
forfeit the bonus award. Notwithstanding the foregoing general rule, the Board
may waive the employment requirement in the case of an executive whose
employment terminates due to death or permanent and total disability or in such
other circumstances deemed extraordinary by the Board of Directors.
Participation in Plan
An executive shall participate in the plan only if his or her participation is
approved by the Board of Directors.
Pro-rata Awards
The Board may approve participation in the annual plan by an executive hired
after the first day of the calendar year. In such cases, the Board shall
determine in its sole discretion the percentage of the annual bonus award for
which the executive will be eligible.