and new Chief Financial Officer upon commencement of their employment with the Company in 2019 and 2020. Those agreements are discussed in greater detail below.
Process for Making Compensation Decisions
Roles of the Compensation Committee. The Compensation Committee reviews executive compensation and makes recommendations to the Board with regard to appropriate target compensation levels and compensation component weightings for all of the Named Executive Officers in alignment with our compensation philosophy and consistent with employment agreements. Compensation includes the primary components listed in the previous paragraph, as well as any perquisites, or special or supplemental benefits. In making its recommendations to the Board, the Compensation Committee evaluates compensation arrangements and mix of short-term and long-term compensation for comparable positions at peer institutions (where such data is publicly available), the relative financial performance of the Company, recommendations of the CEO (in the case of the other Named Executive Officers), internal fairness, the past performance and future goals of the CEO, and independent analysis performed by the committee. The specific factors considered are detailed below under “Targeted Compensation” and “Elements of Executive Compensation.” The Compensation Committee has the authority to engage consultants and request other information as needed to fairly measure and evaluate the overall compensation of the Named Executive Officers. The Compensation Committee did not retain a consultant in 2020; rather, it directed Company personnel to utilize publicly available data to update a peer compensation study completed for the Company in the past by a professional compensation consulting firm.
Role of the Chief Executive Officer. The CEO annually reviews the performance of the Named Executive Officers other than himself, and presents his conclusions and recommendations based on those reviews to the Compensation Committee. In 2020, the CEO considered the updated peer compensation study and the stated objectives of the Compensation Committee and the Board in formulating his recommendations for base salary adjustments, target bonus amounts, and equity awards. The Compensation Committee can exercise its discretion in modifying the CEO’s recommendations before making its recommendations to the Board, but generally accepts them as presented. The CEO is not a member of the Compensation Committee but is invited to attend meetings of the Committee as necessary to provide input and recommendations on compensation for the other Named Executive Officers. The CEO leaves the meeting prior to the Committee’s discussion and determination of the components of his own amount and mix of compensation.
Targeted Compensation
As noted, a peer compensation study is used to assist in establishing targeted compensation levels for all Named Executive Officers. As in the past, the peer group criteria is subject to modification for future studies if the Peer Group does not continue to provide a representation of similarly sized banks within our geography. The intention is to use a peer group consisting of banks approximately half the asset size of the Company to twice the size of the Company and located either in Western states or are located in communities of similar size. For the most recently completed study, the peer group was comprised of 20 publicly-traded bank holding companies or banks headquartered primarily in Western states, with total assets ranging from approximately $1.5 billion to $7.0 billion, with a median asset size of $3.3 billion (the “Peer Group”).1 In 2020, peers that were smaller reporting companies were removed from the list and a few banks above $5.0 billion in assets were added to the group. This resulted in nine new peers being added to the group in 2020 consisting of four new banks and replacing five smaller banks that had total market capitalization of less than half of the Company’s market capitalization at 3/31/2020. The peer study provides an analysis of peer base salary, short-term incentives (including discretionary bonuses), and long-term incentives (including the value of restricted stock, stock option awards, and increases in pension values) (collectively, “Total Direct Compensation”), for Peer Group officers with similar positions
1 The Peer Group consists of the following banks and bank holding companies: Altabancorp, American Fork, UT; Bank of Marin Bancorp, Novato, California; Baycom Corp, Walnut Creek, California; CBTX, Inc., Houston, TX; Central Valley Community Bancorp, Fresno, California; Equity Bancshares, Inc., Wichita, KS; Farmers & Merchants Bancorp, Lodi, California; First Choice Bancorp, Cerritos, CA; FS Bancorp, Inc., Terrace, WA; Guaranty Bancshares, Inc., Addison, TX; Heritage Commerce Corp, San Jose, California; Heritage Financial Corporation, Olympia, WA; National Bank Holdings Corporation, Greenwood Village, CO; Nicolet Bankshares, Inc., Green Bay, WI; Northrim Bancorp, Inc., Anchorage, AK; PCB Bancorp, Los Angeles, CA; Preferred Bank, Los Angeles, California; RBB Bancorp, Los Angeles, California; South Plains Financial, Inc., Lubbock, TX; and TriCo Bancshares, Chico, CA.