2003 Incentive Compensation Plan

EX-10.5 7 ex10_5a.htm EXHIBIT 10.5 Exhibit 10.5

FIRST SECURTIY GROUP, INC. 

2003 INCENTIVE COMPENSATION PLAN 

Frequently Asked Questions 

Q1. How do I know if I am eligible to participate in this Plan? 

A1. All full-time employees (excluding those in commission eligible positions *) of First Security Group ("FSG" or "the Holding Company") and its Affiliate Banks who are employed prior to July 1, 2003 are eligible to participate in this Plan. 

Q2. What Participant Group am I in? 

A2. Your Participant Group is indicated on your personalized Participant Summary enclosed with this material. If you have misplaced your Participant Summary, you can obtain this information by contacting Deborah Blue at ###-###-#### or Melissa Moore at ###-###-####. 

Q3. How was my Participant Group determined? 

A3. In separating the organization into Participant Groups, we reviewed position titles, roles and responsibilities, base salary levels, and competitive market data. The current participant groups are in place for 2003, but may be modified in future years. 

Q4. How much can I earn under this Plan? 

A4. The amount of compensation you can earn under this plan is determined by many factors including your Base Salary, your Participant Group, the performance of the Company (both FSG and the Affiliate Banks), and your individual performance. In no case will your individual award exceed 150% of the maximum range identified for your Participant Group. 

Q5. What does it mean that awards will be adjusted on a pro-rata basis? 

A5. The award opportunities relate to how much you could earn under the incentive plan for an entire year. Therefore, if you have not worked for FSG or an Affiliate Bank for the entire year, your award is reduced to reflect the time period you were employed by the Company. For example, if a full year award was $5,000 but you only joined the Company on April 1, you would be eligible for 9/12ths of the award or $3,750. If you have worked for FSG or an Affiliate Bank the entire year, your award would not be adjusted. 

Q6. How is performance being measured? 

A6. For 2003, performance will be measured relative to budget, with a particular emphasis in the following four areas: 

Net Income
Leverage Ratio

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FIRST SECURTIY GROUP, INC. 2003 INCENTIVE COMPENSATION PLAN *Frequently Asked Questions*

Liquidity Ratio
Asset Quality

Q6a. What is Net Income? 

A6a. In general, net income is equal to total revenue minus total expenses. An example of revenue is the interest we charge on loans to our customers. An example of expense is the salaries we pay our Associates. Having positive and growing levels of net income is a sign that we are serving our customers and managing our business well. 

Q6b. What is Liquidity Ratio? 

A6b. In general, liquidity reflects the ability of the bank to meet its customer’s requests or requirements for cash. For example, having the cash on hand when one of our customers wants to withdraw money from their account. Because we invest our customers’ money in a variety of ways, we need to make sure that these investments are structured and managed in a way that always maintains our ability to quickly meet our customer’s needs. This is similar to the way in which you manage your money to make sure you have enough to cover your expenses (car payment, rent, etc.). This ratio of our short-term cash resources divided by our customer obligations is referred to as our liquidity ratio. Having a good liquidity ratio is not only required by certain regulations for our industry, it is important for our customers. 

Q6c. What is Asset Quality? 

A6c. In general, asset quality reflects the overall quality of our loans. Loans to our customers are considered assets because they produce income for the bank by charging our customers interest. This interest is an important source of revenue for the bank, but we also expect the repayment of the loan amount itself. For example, when you make a car payment, part of the payment is for interest and part of the payment is for the loan amount. Sometimes, the companies or individuals to whom we make loans are unable to repay the money because of financial hardship. Accordingly, we are very careful when we make loans, and we regularly review loans, to assess the extent to which we believe the borrower can continue to make the scheduled payments. Having good asset quality means we are making good lending decisions and are staying current with our customers’ f inancial well-being. 

Q6d. What is Leverage Ratio? 

A6d. In general, leverage reflects the extent to which the bank has invested its resources in income-producing assets. Because we have a certain level of resources to invest, we need to make sure that our level of investment is appropriate for our level of resources. For example, an individual with a lot of obligations relative to their income or net worth is more leveraged than an individual without a lot of obligations and the same level of income. Therefore, leverage is a measure of risk. Having a reasonable leverage ratio is

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FIRST SECURTIY GROUP, INC. 2003 INCENTIVE COMPENSATION PLAN *Frequently Asked Questions*

not only required by certain regulations for our industry, it is an important indicator of how we are managing the overall business. 

Q7. How does this Plan relate to my Performance Review? 

A7. Your performance review will be considered in determining your award level. We will also review other factors relevant to your overall performance. 

Q8. When will I know if I have earned an award under this Plan 

A8. You will not know for certain that you have earned an award under this plan until some time following the end of the year (12/31/03). Once the financial performance for the year has been reviewed and the award determination process has been completed, a communication will be distributed to you. However, periodically you receive updates on how the Company and your Affiliate Bank is doing relative to budgeted expectations. 

Q9. How can I increase the chances of earning an award under this Plan? 

A9. Everything you do has an impact on the financial performance of the Company and your Affiliate Bank. Continuing to focus on our customers, delivering exceptional service, and being cost conscious where possible will all contribute to the likelihood of a successful year and an opportunity for a payout under this plan. For more specific action items, ask your immediate supervisor or Bank President. 

Q10. What does it mean that this is a "Discretionary" Plan? 

A10. Even though we have identified performance measures and goals, actual payout levels under the 2003 Incentive Compensation Plan are at the sole discretion of the Compensation Committee of the Board of Directors of FSG. In fact, the Committee reserves the right to automatically prohibit the payment of any awards under this plan if certain minimum performance levels are not achieved. 

Q11. Can we earn an award if our Bank does well but other Banks do poorly? 

A11. Yes, it is possible that participants at one Bank can receive incentive compensation awards under this Plan while participants at another Bank do not receive incentive compensation awards under this Plan. However, given that one of the measures is the performance of the Holding Company, it is much more likely that we will either all receive some level of incentive compensation award or we will all not receive any incentive compensation award. 

Q12. Can I earn an award if I perform well but my Bank performs poorly? 

A12. No, the lowest level measurement in the 2003 Incentive Compensation Plan is at the Affiliate Bank Level. Individual performance can only increase or decrease a

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FIRST SECURTIY GROUP, INC. 2003 INCENTIVE COMPENSATION PLAN *Frequently Asked Questions*

suggested award level calculated based on the performance of the Holding Company and the Affiliate Banks. If the Holding Company and the Affiliate Banks perform poorly, there will be no suggested award to modify based on your individual performance. 

Q13. If I am an exempt (salaried) employee, will my participation in this Plan affect my salary? 

A13. No, participation in this Plan does not affect your salary. 

Q14. If I am a non-exempt and/or hourly employee, does this get factored into my overtime pay? 

A14. No, all non-exempt and hourly employees are included in Participant Group 3. This group is eligible for fixed dollar award opportunities that are unrelated to your level of pay or wages, the number of hours worked, production, or efficiency. Any awards under the Plan represent discretionary bonuses and therefore are not factored into your hourly rate or any calculations of overtime pay. 

Q15. When will the first communication of performance results be made? 

A15. We will communicate initial performance results after the end of the second quarter. If you have an immediate performance question, contact your Bank President 

Q16. Will this Incentive Compensation Plan replace the Christmas Bonus? 

A16. No. 

Q17. Will there be an Incentive Compensation Plan in 2004 and beyond? 

A17. While there is no guarantee that First Security Group will provide Incentive Compensation in the future, it is the intention of the company to continue to link performance with pay by implementing Incentive Compensation Programs. However, we do expect that the specific provisions of this Incentive program may evolve in the future. 

PRIVATE AND CONFIDENTIAL April 25, 2003