What's Market: A Snapshot of the Compensation and Select Severance Provisions in the Employment Agreements of Chief Operating Officer in the Financial Services Industry | Practical Law

What's Market: A Snapshot of the Compensation and Select Severance Provisions in the Employment Agreements of Chief Operating Officer in the Financial Services Industry | Practical Law

An Article comparing select compensation and severance provisions found in the employment agreements of three individuals currently in the position of chief operating officer (COO) at three businesses in the financial services industry, including Northrim BanCorp, Inc., Timberland Bancorp, Inc., and Orrstown Financial Services, Inc., using the What's Market, Executive Employment Agreements: Detailed Analysis database. The COO is a senior executive responsible for overseeing the day-to-day operational and administrative functions of an organization and has become increasingly important in recent years.

What's Market: A Snapshot of the Compensation and Select Severance Provisions in the Employment Agreements of Chief Operating Officer in the Financial Services Industry

by Practical Law Employee Benefits & Executive Compensation
Published on 29 Mar 2024 • USA (National/Federal)
An Article comparing select compensation and severance provisions found in the employment agreements of three individuals currently in the position of chief operating officer (COO) at three businesses in the financial services industry, including Northrim BanCorp, Inc., Timberland Bancorp, Inc., and Orrstown Financial Services, Inc., using the What's Market, Executive Employment Agreements: Detailed Analysis database. The COO is a senior executive responsible for overseeing the day-to-day operational and administrative functions of an organization and has become increasingly important in recent years.
Many businesses employ a chief operating officer (COO) to create value, strengthen organizational resilience, and propel growth. A COO is a senior executive in the C-suite who reports directly to the chief executive officer (CEO). A CEO is responsible for establishing the organization's strategic goals and vision. A COO, on the other hand, is responsible for overseeing the organization's day-to-day administration and operations.
A COO typically interacts with all facets of the business to ensure it is running smoothly. A COO must understand how a business's core departments, such as production, finance, sales, and marketing, work together to meet customer demand and fulfill other crucial business objectives. Some other duties and responsibilities of the COO typically include:
  • Translating the CEO's strategic goals and vision into an executable business plan.
  • Managing internal functions to ensure the organization operates properly.
  • Managing capital investments and expenses to ensure profitability targets are achieved.
Supply chains, geopolitics, climate change, digitalization, and consumer behavior are evolving quickly, which has had a significant impact on the business sector. These changes have made the COO's role more complex and important, which has led to the expansion of the role's duties and responsibilities beyond day-to-day operations and administration. In addition to the usual tasks of the role, today's COO must be able to:
  • Anticipate material shifts in its business, industry, marketplace, and regulatory environment.
  • Leverage technological innovations like AI to provide competitive advantages.
  • Liaise with customer-facing business units to improve the customer experience.
  • Attract, retain, and motivate a qualified workforce.
A good COO is someone who can adapt to today's ever-changing business environment and learn new skills on the fly. Businesses can attract and retain good COOs by, among other things, offering appropriate severance and change-in-control (CIC) protection. This protection can provide COOs with some level of security against unplanned income loss from terminations without cause or terminations following a CIC. With less concern about unplanned income loss, a COO can focus on growing and strengthening the business.
Use the chart below to compare compensation and severance provisions of the employment agreements of three COOs in the banking industry. For a complete summary of these and other employment arrangements, see the What's Market, Executive Employment Agreements: Detailed Analysis database. Capitalized terms not defined in the chart are defined in the relevant employment agreement.
EMPLOYMENT AGREEMENT
Orrstown Financial Services, Inc.
Chief Operating Officer
December 12, 2023 (effective on the closing date of the contemplated merger between Codorus Valley Bancorp, Inc. and Orrstown)
Timberland Bancorp, Inc.
Chief Operating Officer 
December 19, 2023
Northrim BanCorp, Inc.
Chairman, President, Chief Executive Officer and Chief Operating Officer
January 1, 2024 
MARKET CAPITALIZATION AT FILING
Approximately $238.8 million.
Approximately $255.5 million.
Approximately $314 million.
ANNUAL RATE OF BASE SALARY
At least $600,000, subject to annual review by the board. 
Section 3.1
An amount equal to at least the aggregate amount of base salary in effect on the Effective date, subject to review by the board annually for increase but not decrease.
Section 4(a)
$580,639, subject to annual review and adjustment by the board based on the executive's performance.
Section 4.a.
ANNUAL BONUS AND CASH INCENTIVES
Eligible to participate as a Tier 1* participant in any cash bonus plan the employer may implement from time to time, in a form and an amount determined annually by the employer.
*The employment agreement uses but does not define the term Tier 1.
Section 3.1
Entitled to participate in the employer's performance-based and discretionary bonuses as authorized and declared by the board for executive officers.
Section 4(b)
Eligible to receive an annual profit share award under the employer's profit-sharing plan payable based on performance as defined by the board.
Section 4.b.
SEVERANCE ON TERMINATION WITHOUT CAUSE
Payment of an amount equal to base salary plus the average annual cash bonus awarded to the executive over the 3 calendar years before the executive's calendar year of termination, payable over a period lasting the longer of six months following termination or until the end of the Employment Period.

Accelerated vesting of all outstanding and unvested awards.

Continued eligibility to participate in the employer's employee benefit plans for six months, with the executive continuing to pay the employee portion of the premiums at the active rate.

An amount equal to 150% of the employer's actual group term life insurance premiums for the three-year period following the executive's termination, payable in a lump sum if the executive's termination is after the second anniversary of the Effective date, or payable in substantially equal monthly installments over the three years following the executive's termination date if the executive's termination is on or before the second anniversary of the Effective date.

If the executive is unable to continue to participate in any employee benefit plan of the employer, then for six months, the employer shall pay the executive an amount equal to the employer portion of the premium that it would have incurred if the executive had been able to participate in the employer's employee benefit plan, plus a gross-up amount to address the executive's tax liability applicable to the payments.

If the employer determines that providing post-termination group health coverage is prohibited by law or would subject the employer or executive to penalties or excise taxes, the employer shall pay the executive a monthly amount equal to the COBRA premium amount being paid by its former employees who are eligible for COBRA. The post-termination group health coverage provided under the employment agreement runs concurrently with COBRA coverage.

Severance on termination without cause is the same as severance on termination for good reason.
Section 4.2
Continued payment of base salary for the remainder of the term.

Prorated portion of any bonuses that the Executive would have received if the Executive had continued to be employed for the rest of the term.

Continuation of group life insurance, hospitalization, medical, dental, prescription drug and other health benefits, and long-term disability insurance on substantially the same terms, levels of coverage, and costs as in effect before the termination date for the remainder of the term.

Severance on termination without cause is the same as severance on termination for good reason.
Section 7(a)
Lump sum payment equal to one times the highest base salary paid in any one of the prior three years.
Continuation of health and dental insurance benefits paid by the employer for one year following termination. The one-year period counts against the total COBRA continuation period. If the employer determines that it cannot provide the continuation coverage without potentially violating applicable law or incurring an excise or penalty tax, the employer will instead provide a taxable lump sum payment in an amount equivalent to the monthly COBRA premium the executive would be required to pay to continue coverage for one year following the termination of employment.

Severance on termination without cause is the same as severance on termination for good reason.
Section 5.b.
SEVERANCE ON TERMINATION FOR GOOD REASON
Payment of an amount equal to base salary plus the average annual cash bonus awarded to the executive over the three calendar years before the executive's calendar year of termination, payable over a period lasting the longer of six months following termination or until the end of the Employment Period.

Accelerated vesting of all outstanding and unvested awards.

Continued eligibility to participate in the employer's employee benefit plans for six months, with the executive continuing to pay the employee portion of the premiums at the active rate.

An amount equal to 150% of the employer's actual group term life insurance premiums for the three-year period following the executive's termination, payable in a lump sum if the executive's termination is after the second anniversary of the Effective date, or payable in substantially equal monthly installments over the three years following the executive's termination date if the executive's termination is on or before the second anniversary of the Effective date.

If the executive is unable to continue to participate in any employee benefit plan of the employer, then for six months, the employer shall pay the executive an amount equal to the employer portion of the premium that it would have incurred if the executive had been able to participate in the employer's employee benefit plan, plus a gross-up amount to address the executive's tax liability applicable to the payments.

If the employer determines that providing post-termination group health coverage is prohibited by law or would subject the employer or executive to penalties or excise taxes, the employer shall pay the executive a monthly amount equal to the COBRA premium amount being paid by its former employees who are eligible for COBRA. The post-termination group health coverage provided under the employment agreement runs concurrently with COBRA coverage.
Severance on termination for good reason is the same as severance on termination without cause.

Section 4.2(a)
Continued payment of base salary for the remainder of the term.

Prorated portion of any bonuses that the Executive would have received if the Executive had continued to be employed for the rest of the term.

Continuation of group life insurance, hospitalization, medical, dental, prescription drug and other health benefits, and long-term disability insurance on substantially the same terms, levels of coverage, and costs as in effect before the termination date for the remainder of the term.

Severance on termination for good reason is the same as severance on termination without cause.
Section 7(a)
Lump sum payment equal to one times the highest base salary paid in any one of the prior three years.

Continuation of health and dental insurance benefits paid by the employer for one year following termination. The one-year period counts against the total COBRA continuation period. If the employer determines that it cannot provide the continuation coverage without potentially violating applicable law or incurring an excise or penalty tax, the employer will instead provide a taxable lump sum payment in an amount equivalent to the monthly COBRA premium the executive would be required to pay to continue coverage for one year following the termination of employment.

Severance on termination for good reason is the same as severance on termination without cause.
Section 5.b.
DOUBLE-TRIGGER CHANGE IN CONTROL BENEFITS
None specified. However, the employment agreement provides that the employer and executive entered into a change in control agreement, which was not attached to the employment agreement.
Page 1, Background
If the executive experiences an involuntary termination following a change in control, the executive receives:
  • Lump sum payment in an amount equal to 299% of the executive's average taxable compensation over the five most recent tax years before the change in control (base amount) but excluding gains attributable to equity awards.
  • Continuation of group life insurance, hospitalization, medical, dental, prescription drug and other health benefits, and long-term disability insurance on substantially the same terms, levels of coverage, and costs as in effect before the termination date for the remainder of the term.
No payment will be made under the double-trigger provision to the extent that it would cause the Bank to be undercapitalized under certain FDIC rules.
Section 7(d)
If the executive's employment is terminated without cause, including a refusal to extend the term on expiration, or the executive terminates employment for good reason within 730 days of a change in control, in either case, the executive receives:
  • Lump sum payment equal to two times the highest base salary paid in any one of the prior three years.
  • Lump sum payment equal to two times the average profit share paid in any one of the prior three years.
  • Continuation of health and dental insurance benefits paid by the employer for two years following termination. The two-year period counts against the total COBRA continuation period. If the employer determines that it cannot provide the continuation coverage without potentially violating applicable law, or incurring an excise or penalty tax, the employer will instead provide a taxable lump sum payment in an amount equivalent to the monthly COBRA premium the executive would be required to pay to continue coverage for two years following the termination of employment.
  • Age and service credit towards all SERP plans for the remainder of the term of the agreement.
Section 5.a.
For additional executive employment agreement summaries, see the What's Market, Executive Employment Agreements: Detailed Analysis database, which includes summaries for a variety of executive positions and a diverse group of employers, based on size, industry, and location. The summaries cover terms that are typically heavily negotiated, such as compensation, severance, and non-competition provisions, and often reflect emerging trends.