Compensation Strategy and Financial Performance of Community Banks: An Exploratory Study

Abstract

An exploratory study of 52 banks with assets between $100 million and $300 million was conducted to determine the usefulness of incentive compensation systems to this segment of the industry. It was found that incentive compensation plans may be more appropriate when specific circumstances face a bank. Variables most closely linked to the use of compensation plans were: (J) the strategic orientation of the bank, (2) unit or branch bank decision making, (3) the roles played by bank owners, and (4) slightly higher compensation per employee. Implications of the case study findings are discussed. Future directions of research are discussed.