In accordance with Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the changes to Section
14A of the Securities Exchange Act of 1934, we are providing CTBI’s shareholders the opportunity to vote on an advisory (nonbinding) resolution to approve the compensation of our Named Executive Officers. At our 2017 Annual Meeting of Shareholders,
shareholders approved the annual submission of our Named Executive Officer compensation to shareholders for approval on an advisory (nonbinding) basis. Accordingly, the following resolution will be submitted for a shareholder vote at the Annual
Meeting to be held on April 27, 2021:
“RESOLVED, that the shareholders of Community Trust Bancorp, Inc. (“CTBI”) approve, on an advisory basis, the overall
compensation of CTBI’s Named Executive Officers, as described in the Compensation Discussion and Analysis and Executive Compensation sections set forth in the Proxy Statement for this Annual Meeting.”
This advisory vote, commonly referred to as a “say-on-pay” advisory vote, is nonbinding on CTBI and the Board. However,
the Board values constructive dialogue on executive compensation and other important governance topics with CTBI’s shareholders and encourages all shareholders to vote their shares on this matter.
In August 2015, pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd – Frank Act”), the
Securities and Exchange Commission adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer (‟PEO”). CTBI’s PEO is Ms. Jean Hale.
The purpose of the required disclosure is to provide a measure of the equitability of pay within the organization. CTBI believes its compensation philosophy and process yield an equitable result and is presenting such information as follows:
In determining the median employee, a listing was prepared of all employees (other than the PEO) as of December 31, 2019, ordered based on
total compensation. Wages and salaries were annualized for those employees who were not employed for the full year of 2019, other than temporary or seasonal employees. The median employee was selected from the annualized list. Included in the
calculation of total compensation were the employee earnings paid by CTBI, cash bonuses received, the grant date fair value of any equity grants by the employer, employer paid ESOP contributions, employer matching of 401(k) contributions, employer
paid life insurance premiums, and dividends paid on restricted stock held by the employee.
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In the ordinary course of business, CTBI, through its wholly-owned commercial bank subsidiary, Community Trust Bank, Inc. (the “Bank”),
has had in the past and expects to have in the future banking transactions, including lending to its directors, officers, principal shareholders, and their associates. When these banking transactions are credit transactions, they are made in the
ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. None of the credits are disclosed as nonaccrual, past due, restructured,
or potential problem credits. In the opinion of CTBI’s Board of Directors, such transactions do not involve more than the normal risk of collectability or present any other unfavorable features.
Mr. Charles J. Baird, a director of CTBI, is a shareholder in Baird and Baird, P.S.C., a law firm that provided services to CTBI and its
subsidiaries during 2020 and is being retained by CTBI and its subsidiaries during the fiscal year 2021. Approximately $0.8 million in legal fees and $0.1 million in expenses paid on behalf of CTBI, $0.9 million total, were paid to Baird and Baird,
P.S.C. during 2020. A refund was issued for several years of adjustments reducing the total paid in 2020 to $0.6 million.
The Board of Directors has determined that the Compensation Committee of the Board should review and approve related party transactions.
Accordingly, management recommends to the Compensation Committee related party transactions to be entered into by CTBI, including the proposed aggregate value of such transactions if applicable. After review, the Compensation Committee recommends
approval or disapproval of such transactions and at each subsequently scheduled meeting, management updates the Compensation Committee as to any material change to those proposed transactions. The Compensation Committee provides a report to the
Board of Directors at each regularly scheduled meeting of the related party transactions approved by the Compensation Committee since the date of its previous report to the Board.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the “Act”) requires CTBI’s executive officers and directors and persons who own more
than ten percent (10%) of the Common Stock to file initial reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”), as well as to furnish CTBI with a copy of such report. Additionally, SEC regulations
require CTBI to identify in its Proxy Statement those individuals for whom one of the referenced reports was not filed on a timely basis during the most recent fiscal year. Based upon a review of Forms 3, 4, and 5 furnished to CTBI, there were no
late filings in the year 2020.
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis is intended to provide shareholders with an understanding of our executive compensation
philosophy, our decision making process, the key compensation-related decisions made by the Compensation Committee (“Committee”) in 2020, and any changes approved for 2021. It also describes the key components of compensation provided to CTBI’s
executive officers, including our Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated executive officers (“Named Executive Officers” or
“NEOs”). Our Named Executive Officers consist of Jean R. Hale (Chairman, President, and Chief Executive Officer), Kevin J. Stumbo (Executive Vice President, Chief Financial Officer, and Treasurer), Mark A. Gooch (Executive Vice President
and Secretary), James B. Draughn (Executive Vice President), and Larry W. Jones (Executive Vice President).
Executive Summary
During 2020, the Committee continued its oversight of the compensation program for executive officers and monitored the impact of certain
changes initiated in 2012 continuing through 2020, especially in regard to the executive incentive plans. As described below, the changes made from 2012 through 2020 were intended to increase performance-based compensation and accomplish four
significant objectives: (i) improve the alignment of executive pay with CTBI performance; (ii) provide executives a pay opportunity that is competitive with industry practices; (iii) attract and retain qualified management; and (iv) maintain
enterprise wide risk management.
Beginning in 2012, the Committee adopted, and the Board of Directors approved, the following strategy for managing executive compensation:
•
|
Manage executive officer salaries toward the median of market values (i.e., the middle of the range of competitive practices), contingent on the
executives meeting or exceeding performance standards.
|
•
|
Increase the cash incentive opportunity under the Senior Management Incentive Compensation Plan (“Incentive Plan”).
|
•
|
Slightly reduce the stock-based incentive opportunity under the Incentive Plan in order to offset some of the increase in cash incentives and
control the potential dilution to shareholders that could result from the use of stock-based incentives.
|
•
|
Introduce a performance-based long-term incentive plan.
|
During 2020, the Committee continued the executive compensation strategy described above and the actions taken to implement it since
2012. The Committee believes this compensation strategy improves the competitiveness of the compensation opportunity provided to executive officers as well as the alignment of executive pay with CTBI performance. Therefore, the Committee continued
managing pay in accordance with the executive compensation strategy in 2020 and into 2021.
In January of 2020, the Committee established the performance measures under the 2020 Incentive Plan and the required minimum level of
performance under the Plan was not achieved by CTBI. However, the Committee recommended and the Board of Directors approved a discretionary payment to employees (including the Named Executive Officers) due to the unique circumstances of 2020 created
by the COVID-19 pandemic, the difficult conditions under which everyone worked, and the extraordinary performance of the management team. CTBI’s Named Executive Officers were also participants in CTBI’s 2018 Executive Committee Long-Term Incentive
Compensation Plan (“2018 Long-Term Incentive Plan”) for the three year period ending December 31, 2020. The Committee previously established the performance measures under the 2018 Long-Term Incentive Plan and the required level of performance was
achieved by CTBI under the Plan to award payouts at 75% of the target level. Accordingly, the Named Executive Officers were entitled to cash incentive awards paid in early 2021.
In addition to the incentive payments earned for performance through the end of 2020, the Committee approved base salary increases for
each of the Named Executive Officers in early 2021; the base salary increases ranged from 3.00% to 3.70% over 2020 base salaries. The Committee determined these salary increases were in keeping with the executive compensation strategy and the
philosophy of managing executive base salaries toward the market median value for each position. See “Base Salaries” below for additional information about executive salary increases. Total compensation paid to the Named Executive Officers with
respect to 2020 was just below the amounts paid to the Named Executive Officers with respect to 2019 primarily due to lower performance-based incentive payments under both the annual and long-term incentive plans for periods ending December 31, 2020.
Role of the Compensation Committee
The principal duties of the Committee are to establish the executive compensation strategy of CTBI; approve compensation plans that
support the implementation of the strategy; assess and monitor the potential risks associated with various compensation arrangements, especially incentive compensation plans; approve the compensation of the CEO; review the recommendations of the CEO
and approve the compensation of the other executive officers of CTBI; and make recommendations to the Board of Directors concerning executive officer and outside director compensation. The Committee is responsible for establishing, implementing, and
continually monitoring adherence with CTBI’s executive compensation philosophy.
To accomplish these responsibilities, the Committee reviews and approves corporate goals and objectives relevant to the compensation of
CTBI’s CEO, and it evaluates the performance of the CEO relative to the approved goals and objectives. The Committee considers this evaluation of performance when it determines and approves the CEO’s compensation. Additionally, the Committee
reviews compensation levels for CTBI’s other executive officers relative to goals and objectives relevant to their responsibilities, considers the CEO’s evaluation of their achievements, and approves their compensation based on this evaluation.
The Committee strives to establish and maintain compensation plans that are: (i) focused on rewarding performance; (ii) aligned with the
interests of shareholders; (iii) competitive with the practices of peer companies; (iv) sufficient to enable CTBI to attract and retain a strong management team; and (v) designed to avoid creation of undue risk for CTBI.
The Committee has followed certain guiding principles to ensure the effectiveness of CTBI’s executive compensation strategy. The
Committee recognizes the importance of perceived fairness of compensation practices, both internally and externally, and believes that the long-term success of CTBI and its ability to create value for shareholders is dependent on attracting,
motivating, rewarding, and retaining skilled executives. Significant time is devoted by the Committee to monitoring the relationship between executive pay and CTBI performance, and adjusting compensation plans and practices as needed from year to
year to maintain an appropriate alignment of pay with performance. The Committee recognizes that the competition for talented executives among financial institutions similar to CTBI is intense, and it considers compensation data and other labor
market indicators as it reviews CTBI’s compensation plans. Current economic and industry environments are considered when reviewing executive compensation. Full disclosure is made to the independent members of the Board of Directors of CTBI’s
executive compensation policies, practices, and issues to ensure that all directors understand the implications of the Committee’s decisions. Likewise, the Committee works with management to ensure that public filings related to executive
compensation are transparent and comply with applicable regulations.
The Committee has established various processes to assist it in ensuring CTBI’s executive compensation program is achieving its
objectives. Among these are:
•
|
Assessment of Company Performance – The Committee considers various measures of company and industry
performance, including but not limited to asset growth, asset quality, earnings per share, return on assets, return on equity, total shareholder return, and execution of CTBI’s growth strategy and annual business plan. In addition, the
Committee considers general economic conditions within CTBI’s primary markets, as well as CTBI’s relationships with its regulators and the results of any recent exams. The Committee does not apply a formula or assign relative weights to
these measures. Instead it makes a subjective determination after considering such measures individually and collectively.
|
•
|
Assessment of Individual Performance – Individual performance assessments impact the compensation of all
CTBI employees, including the CEO and other Named Executive Officers. The Committee evaluates CEO performance relative to company performance and other factors, such as leadership, strategic planning, board relations, and relationships
with customers, regulators and others outside the company. As with its assessments of company performance, the Committee does not apply a formula or assign relative weights to any of these measures, and the measures deemed most important
by the Committee may vary from year to year. The process is subjective, but it results in an informed judgment of CEO performance. The Committee reviews the performance of other executive officers and considers the CEO’s recommendations
concerning the officers’ achievements. Additionally, the Committee applies its own judgment based on the interactions of the Board and/or the Committee with each executive officer, their contributions to CTBI’s performance and other
leadership accomplishments.
|
•
|
Total Compensation Review – The Committee annually reviews each executive’s base salary, annual incentive
compensation, and stock-based incentives. In addition to these primary compensation elements, the Committee reviews other executive compensation arrangements, including, for example, payments that could be required under various severance
and change in control scenarios. This “holistic” review process ensures that the Committee considers the executive’s total compensation prior to changing any single component.
|
•
|
Risk Management – The Committee reviews all incentive plans and compensation programs to insure the plans
do not create any risks that are reasonably likely to have a material adverse impact on CTBI.
|
The Committee meets in executive session without management or guests present when making decisions about the compensation arrangements
for Named Executive Officers and at other times as needed.
In addition to its responsibilities for executive compensation, the Committee periodically reviews the compensation provided to the CTBI
Board of Directors to ensure that the compensation provided for service on the Board and its committees is commensurate to the amount of work required from the individual directors as well as from the Board in aggregate. The Committee periodically
compares the pay arrangements for the Board and the actual amounts earned by individual directors to amounts paid to outside directors of banking companies in a custom peer group and to survey data for director compensation. The Committee did not
review compensation for outside directors in 2020. In late 2018, the Committee reviewed the existing compensation program for outside directors of CTBI. The 2018 director compensation analysis prepared by Pearl Meyer, the Committee’s independent
compensation consultant, revealed that CTBI’s director compensation was significantly below the market median pay for outside directors of other similar financial institutions. To maintain competitive compensation of our outside directors, CTBI made
appropriate increases to director compensation in 2019. Adjustments to director compensation in 2020 was delayed to 2021 due to economic conditions related to COVID-19.
Executive Compensation Philosophy
The Committee believes that executive officer compensation is an integral component of CTBI’s business and human resources strategies. It
is important to CTBI’s success that highly talented and experienced individuals serve as executive officers. The Committee strives to provide compensation which is sufficient to attract and retain such executives. The Committee seeks to establish
executive compensation at fair, reasonable, and competitive levels. The Committee also believes that executive compensation should be strategy-focused and recognize individual achievements as well as group contributions and CTBI results. Therefore,
the Committee desires to offer a competitive, market-driven executive officer compensation package which provides for a meaningful portion of compensation to be based upon performance. As a result, CTBI’s executive compensation package includes
incentive-based cash and equity compensation in addition to base salary and employee benefits.
The goal of the Committee is to offer market competitive compensation, without being the highest or lowest provider. Total compensation
packages, including base salaries plus cash- and stock-based incentives, are set at levels the Committee believes are sufficient to attract and retain qualified executives whose performance and success should contribute to shareholder value.
Compensation Consultant
As stated in the Compensation Committee Charter, the Committee may engage outside advisors as necessary to assist with its oversight of
executive compensation. Pearl Meyer & Partners, LLC (“Pearl Meyer” or “Consultant”) was again retained in 2020 to advise the Committee on compensation matters and governance as it has been since 2012. The role of the Consultant is to provide
analyses, information, and advice to assist the Committee in making decisions related to compensation of executive officers and outside directors. Due to the market uncertainty and stress on the economy in many industries caused by the COVID-19
pandemic, the Committee decided not to do a market study of peer executive and director compensation in 2020. The Committee believes that the Consultant is independent, and no conflicts of interest are raised by the work of the Consultant under the
criteria specified in SEC and Nasdaq rules.
Executive Compensation Components
CTBI’s executive compensation program includes the following major components, each of which are described further below.
•
|
Long-Term Incentive Plan
|
•
|
Benefits and Perquisites
|
•
|
Employment Contracts, Termination of Employment, and Change in Control Arrangements
|
Base Salaries
Salaries for CTBI’s executives are established based upon the scope of their responsibilities, taking into account competitive market
compensation paid by other similarly situated companies for comparable positions. The Committee sets the CEO’s base salary, subject to approval of the Board of Directors. Any salary increase for the CEO is determined based on the Committee’s review
of the CEO’s leadership and contributions to the achievement of performance objectives for CTBI, which for 2020 included asset and revenue growth, asset quality, core earnings performance, identification of strategic opportunities, and execution of
the current business strategy and operating plan. The Committee also considers how the CEO’s salary compares to salaries of CEO’s within the Peer Group. Base salaries for other executive officers, including the other Named Executive Officers, are
approved by the Committee after considering recommendations from the CEO. In approving any salary increases for Named Executive Officers, the Committee considers performance for the prior year, responsibilities for the upcoming year, how the current
salaries compare to those paid by peer companies to executives with similar responsibilities, and CTBI’s budget for salary increases for employees other than executive officers. The Committee’s objective is to pay base salaries which will be
sufficient to attract, retain, motivate, and reward management for successful performance while maintaining affordability within CTBI’s business plan.
The Committee has established a policy of managing executive officer salaries to the market median, recognizing that a series of increases
over several years may be required to adjust salaries to the desired level for any executive whose current salary is significantly below the market (contingent upon the executive sustaining the required level of performance). After considering the
performance of both CTBI and each executive, as well as how individual officer salaries compared to the market median, the Committee determined that it was appropriate to increase executive salaries for 2021. The salary increases for 2021 reflect
the Committee’s desire to balance (i) the need to compensate our Named Executive Officers at levels that are competitive with the market and recognize their performance and value to CTBI with (ii) the need to control expenses in an economic and
regulatory environment that continues to be challenging for CTBI and other financial institutions. The salary increases approved for the Named Executive Officers for 2021 ranged from 3.00% to 3.70%. The following table shows the 2020 and 2021 base
salary for each Named Executive Officer and the percentage increase over 2020.
|
|
Base Salary
|
|
|
Base Salary
|
|
|
% Increase
|
|
|
|
2020
|
|
|
2021
|
|
|
2020 to 2021
|
|
Jean R. Hale
Chairman, President, and Chief Executive Officer
|
|
$
|
675,000
|
|
|
$
|
700,000
|
|
|
|
3.70
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin J. Stumbo
Executive Vice President, Chief Financial Officer and Treasurer
|
|
$
|
315,000
|
|
|
$
|
325,000
|
|
|
|
3.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Gooch
Executive Vice President and Secretary
|
|
$
|
475,000
|
|
|
$
|
490,000
|
|
|
|
3.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James B. Draughn
Executive Vice President
|
|
$
|
302,000
|
|
|
$
|
312,000
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry W. Jones
Executive Vice President
|
|
$
|
300,000
|
|
|
$
|
309,000
|
|
|
|
3.00
|
%
|
Annual Incentive Plan
The Named Executive Officers, other executive officers, and other members of senior management may earn annual cash incentive bonuses as
well as stock-based awards under the Senior Management Incentive Compensation Plan. Bonuses and stock awards are earned for achieving targets set for earnings per share (“EPS”) and return on average assets (“ROAA”) of CTBI. The Incentive Plan is
designed to reward participants for meeting or exceeding annual profit goals, and it is intended to achieve the following objectives:
•
|
Increase the profitability and growth of CTBI in a manner which is consistent with other goals of the company.
|
•
|
Provide an incentive opportunity which is competitive with other financial institutions in the Peer Group.
|
•
|
Attract and retain executive officers and other key employees and encourage excellence in the performance of individual responsibilities.
|
•
|
Motivate and appropriately reward those members of senior management who contribute to the success of CTBI.
|
At the beginning of each year, the Committee establishes a target (base) level of performance for EPS and ROAA. The Committee also
establishes a performance range relative to the base level and an associated payment scale which defines the percent of salary that participants may earn as a cash bonus for a given level of performance. In addition, the Committee establishes a
separate payment scale which defines the percentage of salary that participants may receive as a stock award for a given level of performance. Stock awards under the Incentive Plan may be granted as either restricted shares or stock options.
2020 Annual Incentive Plan
For 2020, the target (base) level of ROAA was 1.40%, and the target (base) level of EPS was $3.50 for payout under the Incentive Plan.
The Committee believed the target (base) levels of performance were challenging, but appropriate given the expectations at the beginning of 2020. As provided in the 2020 Incentive Plan, in order to ensure that executive pay varies with company
performance, executives earn less than target for results above the minimum required level but below the target (base) level. The minimum level of ROAA was 1.37%, and the minimum level of EPS was $3.33 for payout under the Incentive Plan.
As a result of the health concerns relating to the COVID-19 outbreak and related governmental actions taken to reduce the spread of the
virus, the global economy (including the states and local economies in which we operate) was significantly impacted, as unemployment rose sharply and consumer and business spending decreased significantly. In response, the Federal Open Market
Committee reduced the target federal funds rate range to 0% to 0.25%, resulting in downward pressure on our net interest income and noninterest income. As COVID-19 spread, we took many steps to protect the safety of our employees including adjusting
branch operations and having employees work remotely when possible. We also put a policy in place to continue to pay employees when they were required to be quarantined due to a positive COVID-19 test or exposure to COVID-19, and we approved
discretionary payments to employees due to the unique circumstances created by the pandemic, the difficult conditions under which everyone worked, and the extraordinary performance by the entire CTBI team. As a result of the impact of COVID-19, the
demand for CTBI’s products and services was negatively impacted and our minimum performance measures under the 2020 Incentive Plan were not achieved by CTBI.
While the minimum performance measures were not achieved by CTBI, the Committee elected to reward the extraordinary performance by the
executive team, in addressing the challenges of COVID-19, with certain discretionary awards as described below.
•
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Cash Payments. Based upon a recommendation of the Committee and approval by the Board of Directors, cash
payments were made to the Named Executive Officers (as shown in the chart below) due to the unique circumstances of 2020, the difficult conditions under which everyone worked, and the extraordinary performance of the executive team,
although CTBI did not achieve the minimum level of performance under the 2020 Incentive Plan. Such payments were made in reliance on the discretionary provisions set forth in the Plan’s governance
documentation.
|
|
Discretionary Cash Payments Awarded under the 2020 Annual Incentive Plan ($)
|
Jean R. Hale – Chairman, President and Chief Executive Officer
|
85,006
|
Kevin J. Stumbo – Executive Vice President, Chief Financial Officer, and Treasurer
|
23,801
|
Mark A. Gooch – Executive Vice President and Secretary
|
47,855
|
James B. Draughn– Executive Vice President
|
22,819
|
Larry W. Jones – Executive Vice President
|
22,668
|
•
|
Restricted Stock Awards. Based upon a recommendation of the Committee and approval by the Board of
Directors, restricted stock was also granted to the Named Executive Officers (as shown in the chart below) due to the unique circumstances of 2020, the difficult conditions under which everyone worked,
and the extraordinary performance of the management team, although CTBI did not achieve the minimum level of performance under the 2020 Incentive Plan. Using its discretion as defined in the Plan’s governance
documentation, the restricted stock was granted pursuant to the terms of CTBI’s 2015 Stock Ownership Incentive Plan. The restrictions on the restricted stock will lapse ratably over four years.
|
|
Discretionary Restricted Stock Grants Awarded under the 2020
Annual Incentive Plan (Shares)
|
Jean R. Hale – Chairman, President and Chief Executive Officer
|
728
|
Kevin J. Stumbo – Executive Vice President, Chief Financial Officer, and Treasurer
|
248
|
Mark A. Gooch – Executive Vice President and Secretary
|
451
|
James B. Draughn – Executive Vice President
|
244
|
Larry W. Jones – Executive Vice President
|
244
|
2021 Annual Incentive Plan
Prior to setting the terms of the Incentive Plan for 2021, the Committee considered the outcomes for 2020, the adjustments made to the
Incentive Plan since 2012, and the executive compensation strategy adopted in January 2012.
As a result of these discussions, the Committee recommended, and the Board approved, the Incentive Plan for 2021. The key features of the
2021 Incentive Plan are listed below:
•
|
Maintain the cash incentives payable at the same levels as 2020 if results are within the performance ranges established by the Committee for ROAA
and EPS.
|
•
|
Maintain the stock-based incentives payable to Named Executive Officers at the same levels of the 2020 plan if results are within the performance
ranges established by the Committee for ROAA and EPS.
|
•
|
Maintain the continued service period of four years for executive officers to fully vest in stock awards made under the Incentive Plan, which vest
in 25% increments each year.
|
•
|
Continue to allow executives to earn modest cash and stock incentives if results are slightly below the target (base) level, so long as performance
meets or exceeds minimum levels of performance approved by the Committee; the minimum required level of ROAA performance was set at 98% of the target (base) level, and the minimum required level of EPS performance was also set at 98% of the
target (base) level; the portion of the cash and stock incentives earned for minimum levels of performance remain at 50% of the target (base) incentive award.
|
•
|
Continue to allow executives to earn target (base) level incentives if the goal for net income (about $68.5 million) is achieved.
|
•
|
Maintain the maximum incentive potential provided by the plan at 200% of the target (base) award, the same percentage applicable in the 2020 Plan.
|
This approach is consistent with the Committee’s strategy of shifting the mix of executive compensation so that a larger portion of
executive pay is contingent upon performance while controlling the cost of the plan.
The following table shows the target (base) level of ROAA performance and the cash incentive awards that may be earned by the CTBI CEO,
the CTB CEO, and other Named Executive Officers (“Other NEOs”) for various levels of performance in 2021:
Target*
|
|
|
|
|
|
Cash Incentive Award as a % of Salary
|
|
ROAA
|
|
|
EPS
|
|
|
% of Target Award Earned
|
|
|
CTBI CEO
|
|
|
CTB CEO
|
|
|
Other NEOs
|
|
|
|
|
1.29
|
%
|
|
$
|
3.76
|
|
|
|
50
|
%
|
|
|
25
|
%
|
|
|
20
|
%
|
|
|
15
|
%
|
Base
|
|
|
1.32
|
%
|
|
$
|
3.84
|
|
|
|
100
|
%
|
|
|
50
|
%
|
|
|
40
|
%
|
|
|
30
|
%
|
|
|
|
1.35
|
%
|
|
$
|
3.93
|
|
|
|
150
|
%
|
|
|
75
|
%
|
|
|
60
|
%
|
|
|
45
|
%
|
|
|
|
1.38
|
%
|
|
$
|
4.02
|
|
|
|
200
|
%
|
|
|
100
|
%
|
|
|
80
|
%
|
|
|
60
|
%
|
*These results are after accrual of the incentive.
The CTB officers responsible for various consolidated functions as selected by the CTB CEO, the market presidents, and the Community Trust
and Investment Company officers responsible for various departments as selected by the CTIC CEO (“Group II Participants”) may receive awards for the year ended December 30, 2021 based on the same performance measures and targets applicable to the
Named Executive Officers. Potential cash incentive awards for Group II Participants expressed as a percentage of salary ranges from a minimum award of 3.50% of salary and maximum award of 8.75% of salary; and (v) Group III Participants ranges from a
minimum award of 2.75% of salary and maximum award of 6.71% of salary.
As shown in the table above, executives would earn no incentives for performance below the minimum required levels of ROAA and EPS. To
ensure that executive pay varies with company performance, executives earn less than target for results above the minimum required level but below the target (base) level, and they may earn larger incentives if results exceed the target (base)
level. Payments are “capped” at a maximum level to preclude overpayment and control the cost of the plan. The maximum payment provided under the 2021 plan, as well as prior versions of the plan from 2015 through 2020, is 200% of the target (base)
opportunity, which was reduced from the maximum 450% of target applicable to the 2014 plan, in recognition of actions taken in prior years, including salary adjustments and increases to the target (base) amounts.
The following table shows the target (base) level of ROAA and EPS performance and the stock awards that may be earned by the CTBI CEO, the
CTB CEO, and other executive officers, including the Other NEOs, for 2021 performance. The stock awards shown below as percentages of salaries are the same as those used in the 2020 Incentive Plan. Beginning in 2016, the Committee reduced the
percentage of the target (base) award earned for performance at the minimum level from 90% to 50% for cash and stock awards. In keeping with the changes made to the cash portion of the Incentive Plan in 2015, the maximum potential stock award is
115% of the target award, reduced from 150% of the target (base) award in 2014:
Target
|
|
|
|
|
|
Stock Award as a % of Salary
|
|
|
|
ROAA*
|
|
|
EPS*
|
|
|
% of Target Award Earned
|
|
|
CTBI CEO
|
|
|
CTB CEO
|
|
|
Other NEOs
|
|
|
|
|
1.29
|
%
|
|
$
|
3.76
|
|
|
|
50
|
%
|
|
|
10
|
%
|
|
|
8.757
|
%
|
|
|
7.50
|
%
|
Base
|
|
|
1.32
|
%
|
|
$
|
3.84
|
|
|
|
100
|
%
|
|
|
20
|
%
|
|
|
17.515
|
%
|
|
|
15.00
|
%
|
|
|
|
1.35
|
%
|
|
$
|
3.93
|
|
|
|
105
|
%
|
|
|
21
|
%
|
|
|
18.375
|
%
|
|
|
15.75
|
%
|
|
|
|
1.38
|
%
|
|
$
|
4.02
|
|
|
|
115
|
%
|
|
|
23
|
%
|
|
|
20.125
|
%
|
|
|
17.25
|
%
|
*These results are after accrual of the incentive.
Group II Participants may receive stock awards for the year ending December 31, 2020 based on the same performance targets applicable to executive officers,
ranging from 5.0% to 11.5% of salary. Group III Participants may receive stock awards for the year ending December 31, 2021 based on the same performance targets applicable to executive officers, ranging from 2.25% to 5.00% of salary.
The Committee at its sole discretion may choose to issue restricted stock, stock options, or a combination of options and restricted stock
in the proportion recommended by the Committee and approved by the Board of Directors of Community Trust Bancorp, Inc. subject to any limitations of the 2015 Stock Ownership Incentive Plan. For the last several years, the Committee has determined
that any stock awards earned under the Incentive Plan would be granted as restricted shares, and the restrictions would lapse pro-rata over four years from the date of grant, contingent upon the executive’s continued service with CTBI. In the event
of certain participant employee termination events occurring within 24 months of a change in control of CTBI or the death of a participant, the restrictions will lapse on any unvested restricted shares on the date employment is terminated. In the
event the participant becomes disabled, restrictions will lapse on a pro-rata basis, dependent on time served from the date of grant through the date of termination due to disability. In the event of a participant’s retirement prior to the lapse of
all restrictions, the Committee will have discretion to review and revise any restrictions. The actual number of any restricted shares granted will be determined based on the stock price on the date of grant (which would be in early 2022, after the
Committee has the opportunity to review the achievement of performance goals for 2021).
Long-Term Incentive Plan
A key component of the executive compensation strategy approved by the Committee in 2012 was the implementation of a forward-looking,
performance-based long-term incentive compensation plan. The long-term incentive plan is intended to balance the other, more short-term components of pay (such as base salaries and annual cash incentives), and increase the portion of total pay that
is contingent upon performance.
After considering several potential plan designs, the Committee recommended, and the Board approved the use of performance units beginning
in 2012. Performance units are long-term incentives which are earned for achieving one or more financial performance goals over a multi-year period and paid in cash rather than shares. Awards of performance units are permitted under CTBI’s
shareholder-approved 2015 Stock Ownership Incentive Plan. Only executive officers of CTBI (including the CEO and the other NEOs) participate in the performance unit plan, as they are the individuals who are held accountable for creating shareholder
value. In early 2021, the Committee approved long-term awards to the CEO and other NEOs, as further described below.
The Committee believes that earnings growth, when sustained over a period of time, will create value for CTBI shareholders. For this
reason, the Committee approved awards of performance units that require executives to achieve a target for cumulative net income over a three-year period. In early 2021, the Committee approved grants for a three-year period covering 2021, 2022,
and 2023. The Committee believes the cumulative net income performance requirement is achievable but challenging, given the relatively low growth rate in the U.S. economy, the regulatory environment of the banking industry and the challenges to the
local economy in some of the markets served by CTBI. Targets for cumulative net income growth were set after giving consideration to CTBI’s results in prior years, CTBI’s forecasts of future results within its strategic plan, local economic
conditions, and industry performance.
The Committee believes the performance units will focus the executive officers on creating shareholder value through sustained growth in
earnings, improve the alignment of pay with performance for all executive officers, and create a more balanced incentive compensation program. The use of cash-based performance units avoids any potential dilution to existing shareholders (as might
occur if awards were stock-based). The Committee gradually adjusted the target incentive percentages of salary associated with the awards of performance units in 2012, 2013, and 2014 in order to change the mix of executive compensation, resulting
in a greater portion of executive compensation being contingent on performance.
The table below shows the percentage of salary that may be earned by the CTBI CEO, the CTB CEO, and the Other NEOs, based on achievement
of the cumulative net income goal for 2021 through 2023. Any earned performance units will be paid in early 2024, after the Committee evaluates actual results for 2021 through 2023 versus the cumulative net income goal.
|
Award as a %
|
Award as a % of Salary
|
Cumulative Net Income vs. Target
|
of Target
|
CTBI CEO
|
CTB CEO
|
Other NEOs
|
90% of Target (Minimum)
|
25%
|
10.0%
|
7.5%
|
5.0%
|
93% of Target
|
50%
|
20.0%
|
15.0%
|
10.0%
|
96% of Target
|
75%
|
30.0%
|
22.5%
|
15.0%
|
100% of Target Cumulative
Net Income (Target)
|
100%
|
40.0%
|
30.0%
|
20.0%
|
103% of Target
|
120%
|
48.0%
|
36.0%
|
24.0%
|
107% of Target
|
135%
|
54.0%
|
40.5%
|
27.0%
|
110% of Target (Maximum)
|
150%
|
60.0%
|
45.0%
|
30.0%
|
For reference, the 2021 performance unit awards for the CTBI CEO, the CTB CEO, and the Other NEOs (expressed as percentages of salary at
target performance) are the same as in 2020. In addition, beginning in 2018, the Committee set the minimum potential payment for the Other NEOs at 5.0%, which reflected an increase from 2.50% in the 2017 plan, in order to provide a payment at
minimum levels of performance that is consistent with the minimum payments that may be earned by the CTBI CEO and the CTB CEO. The cumulative net income target for the 2021 Long-Term Incentive Plan is $216.0 million.
Voluntary or involuntary termination of employment prior to the end of the performance period and/or prior to the payment of any earned
performance units will result in forfeiture of any outstanding performance units, except as noted below. In the case of termination of employment by reason of death, disability, or retirement prior to the expiration of the performance period, any
outstanding performance units will be deemed to have been earned in an amount equal to the amount payable at the maximum amount payable under the performance unit at the target (base) level multiplied by the percentage that would have been earned,
assuming that the rate at which the performance goal has been achieved as of the date of such termination of employment would have continued until the end of the performance period. Upon the occurrence of certain termination events within the 24
month period beginning on the date of a change in control, any outstanding performance units granted under the 2015 Stock Ownership Incentive Plan will become fully vested and payable in an amount which is equal to the greater of (a) the maximum
amount payable under the performance unit at the target level multiplied by the percentage that would have been earned, assuming that the rate at which the performance goal has been achieved as of the date of such change in control termination event
would have continued until the end of the performance period or (b) the maximum amount payable under the performance unit at target level multiplied by the percentage of the performance period completed at the time of the change in control
termination event.
Long-Term Incentive Plan – Incentives Earned for 2018-2020 Performance Period
In early 2021, the Committee reviewed performance for the three-year period ended December 31, 2020. The cumulative net income goal for
2018-2020 was $184.0 million. Previously, the Committee determined it would be appropriate to adjust the calculation of results for the three-year period ending December 31, 2020 by excluding the additional accrual in 2018 required for the Federal
Reserve Consent Order. The adjusted cumulative net income for the 2018-2020 period was $179.1 million resulting in a payout equal to 75% of the target amount. Accordingly, the Committee approved incentive payments to the CEO and other Named
Executive Officers equal to 75% of their target incentive potentials under the Long-Term Incentive Compensation Plan for the 2018-2020 performance period. Amounts earned under the plan and paid to executives in early 2021 are shown below and
included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
CTBI’s policy is to minimize the use of executive benefits and perquisites. The Named Executive Officers participate in the same benefit
plans as other CTBI employees, with the few exceptions described below. During 2020, there were no changes to the benefits and perquisites provided to Named Executive Officers, and none have been approved for 2021.
To align the interests of all employees, including Named Executive Officers, with those of shareholders, CTBI has implemented an Employee
Stock Ownership Plan (“ESOP”) which provides awards of CTBI stock subject to vesting requirements. Participation in the ESOP is available to any employee of CTBI or its subsidiaries who has been employed for one year, completed 1,000 hours of
service, and attained the age of 21. CTBI currently contributes 4.0% of covered employees’ gross wages to the ESOP. ESOP contributions are used to acquire shares of CTBI stock on the open market.
CTBI has established a 401(k) Plan under which employees can contribute from 1.0% to 20.0% of their annual salary, up to applicable
limits. CTBI provides a matching contribution equal to 50% of the first 8.0% of salary contributed by the employee. CTBI also provides health insurance, life insurance, and other benefit programs that are usual and customary within the banking
industry in order to attract and retain employees. Named Executive Officers are eligible to participate in these plans on the same basis as other employees, subject to IRS limits.
CTBI provides supplemental life insurance to its Named Executive Officers, as well as other senior and key management. The plan provides
a split-dollar share of death benefits at an amount necessary to provide the Named Executive Officers with a total company-provided death benefit of three times their annual salary. This amount is consistent with the death benefit provided to other
eligible employees. Additionally, each Named Executive Officer and other senior and key employees are provided a post-retirement death benefit equal to one times his or her annual salary at the time of retirement. The benefits are funded with
bank-owned life insurance policies. CTBI will recover its plan costs upon the death of the covered individual, and the executive’s beneficiary will receive a portion of the insurance proceeds. The Committee believes the supplemental life insurance
program is common within the banking industry and provides an incentive for long-term employment with CTBI.
CTBI does not provide significant perquisites or personal benefits to executive officers. The Named Executive Officers, as well as other
executive officers, members of senior management, and key employees, are provided country club memberships and other perquisites with an aggregate individual annual value of less than $10,000.
Unlike some other banks in its Peer Group, CTBI does not provide any supplemental executive retirement plan. CTBI allows executives to
voluntarily defer receipt of any cash bonuses earned under the annual Incentive Plan.
Employment Contracts, Termination of Employment, and Change in Control Arrangements
CTBI does not provide employment agreements to executives. Due to ongoing industry consolidation, CTBI has established termination of
employment and change in control agreements (“Severance Agreements”) with each of its Named Executive Officers, other executive officers, and certain other senior officers. Severance Agreements are provided in order to attract and retain key
executives by protecting them in the event of a change in control. The Severance Agreements are effective for a term equal to the longer of three years or the covered period should a change in control of CTBI occur during such three-year
period. These agreements are automatically renewable for additional one-year periods. The covered period during which the terms and conditions of the Severance Agreements are effective is the period of time following a change in control equal to:
(i) two years following the occurrence of the change in control in the event of an involuntary termination or a voluntary termination following a change in duties or (ii) the thirteenth month following the change in control in the event of a
voluntary termination not preceded by a change in duties.
The Severance Agreements require the payment to a Named Executive Officer, other executive officer, or senior officer of a severance
amount in the event of an involuntary or voluntary termination of employment after a change in control of CTBI during the covered period. The severance amount payable under the Severance Agreements is equal to: (i) 2.99 times the Named Executive
Officer’s or other executive officer’s base annual salary in the event of involuntary termination or in the event of a voluntary termination of employment preceded by a change in duties subsequent to a change in control of CTBI, or (ii) 2.00 times
the Named Executive Officer’s or other executive officer’s annual base salary in the event of a voluntary termination of employment not preceded by a change in duties subsequent to a change in control of CTBI.
For purposes of the Severance Agreements, a change in control occurs when: (i) any person, including a group under Section 13(d)(3) of the
Securities Exchange Act of 1934 is or becomes the owner of 30% or more of the combined voting power of CTBI’s outstanding securities; (ii) as a result of, or in connection with, any tender offer, exchange offer, merger or other combination, sale of
assets or contested election, the persons who were directors of CTBI before such transaction(s) cease to constitute a majority of the Board of Directors of CTBI or successor of CTBI; (iii) a tender or exchange offer is made and consummated for the
ownership of 30% or more of the combined voting power of CTBI’s outstanding voting securities; or (iv) CTBI transfers substantially all of its assets to another corporation that is not a wholly-owned subsidiary of CTBI.
The Committee believes the use and structure of the Severance Agreements are consistent with CTBI’s compensation objectives to attract,
motivate, and retain highly qualified executives. The Committee also believes that the Severance Agreements promote job stability, provide a measure of financial security, preserve morale and productivity, and encourage retention during the period
of uncertainty that accompanies an actual or potential change in control. The Committee periodically reviews the terms of the Severance Agreements in the context of CTBI’s other executive compensation arrangements, changes in government regulations
and trends in competitive practices.
No termination of employment or change in control payments were made under the Severance Agreements in 2020, and there were no changes
made to the terms of the Severance Agreements during 2020 or to date in 2021.
The Committee is responsible for the oversight of compensation risk. The Committee annually reviews the Senior Management Incentive
Compensation Plan, the Long-Term Incentive Compensation Plan, and the Employee Incentive Compensation Plan, as well as other compensation arrangements, to evaluate their potential for creating or increasing risk to CTBI. During 2020, the Committee
reviewed the compensation risk assessment performed by management and concluded that CTBI’s compensation plans do not motivate or reward management for taking inappropriate risks and do not create any risks that are reasonably likely to have a
material adverse impact on CTBI.
The Committee has adopted a recoupment policy applicable to members of CTBI’s Executive Committee. The policy provides, in general, that
in the event any such person’s fraud, dishonesty or recklessness substantially contributes to CTBI’s material noncompliance with financial reporting requirements under securities laws resulting in CTBI’s obligation to prepare an accounting
restatement, the Committee will direct CTBI to use prompt and reasonable efforts to recover from such person the amount of specified performance-based compensation determined by the Committee to have been materially affected by the restatement that
is in excess of the amount of performance-based compensation which would have otherwise been received by such person, assuming the financial statements had originally been prepared as restated. The Committee may approve amendments to the recoupment
policy at any time, including amendments to conform to regulations adopted by the Securities and Exchange Commission or applicable listing requirements.
Federal income tax law caps at $1,000,000 the deductible compensation per year for each of the NEOs, subject to certain
exceptions. In developing and implementing executive compensation policies and programs, the Committee considers whether particular payments and awards are deductible for federal income tax purposes, along with other relevant factors. The Committee
has taken what it believes to be appropriate steps to maximize the deductibility of executive compensation. It is the general intention of the Committee to meet the requirements for deductibility whenever possible. However, considering the repeal
of the performance-based compensation exception under Tax Code Section 162(m), the Compensation Committee expects in the future to approve compensation that is not deductible for income tax purposes. The Committee will continue to review and monitor
the deductibility of compensation.
In 2020, we submitted our executive compensation program to an advisory, nonbinding vote of shareholders (i.e., “say on pay”). At the
2020 annual shareholders meeting, approximately 97% of votes cast were voted in favor of a resolution approving our executive compensation program. Based on these results, the Committee concluded that shareholders supported CTBI’s approach to
executive compensation. In addition, at the 2017 annual shareholders meeting, more than 80% of votes cast were in favor of having an annual say on pay vote. Accordingly, at the 2021 Annual Meeting, shareholders are being asked to approve an
advisory, nonbinding resolution in favor of CTBI’s executive compensation arrangements. Although the results of annual say on pay resolutions are not binding on CTBI, the Committee welcomes feedback from shareholders, and it will consider the
outcome of each year’s say on pay vote as part of its ongoing review of the executive compensation program.