Midland States Bancorp, Inc. Management Incentive Program

EX-10.23 36 a2203463zex-10_23.htm EX-10.23

Exhibit 10.23



Midland States Bancorp, Inc. Management Incentive Program


Compensation Philosophy


It is the desire of the Compensation Committee of Midland States Bancorp, Inc. (Company) to provide the Executive Management Team of the Company and Midland States Bank (Bank) a compensation plan that aligns with the overall performance and health of the Company and the Bank.  We believe that a total reward strategy that provides both short term and long term rewards is in the best interest of the Executives and the shareholders of the Company. This plan is designed using independent third party compensation information, is Compensation Committee driven and Risk Management approved.


Total Rewards Strategy


Base Salary is established using a third party evaluation of selected peer group companies within the Central States Region and representative of the Bank’s size.  The plan provides a base salary that amplifies the reward as it relates to the performance of the Bank; upper market performance translates to upper market base salary.


Short Term and Long Term Bonus plans are built using qualifying metrics that incentivize the Executives for managing the Bank’s growth balanced with the assumption of reasonable risk.  One element of our bonus program is the annual performance based bonus, which is intended to be formula driven, based on specific performance measures at both the personal and the business level, and, with respect to our executives best positioned to manage risk,  designed to create disincentives for excessive risk.


Annual Performance Based Bonus Payment Calculations


Each Executive is assigned a target bonus based on their roles and responsibilities within the Company and/or the Bank.


Having evaluated other options as well as published peer group metrics, the Compensation Committee will, for each executive covered by the plan, annually select one or more of the performance metrics, including adjustments, described in Section 2.3 of the Company’s 2010 Long-Term Incentive Plan, as the metric that best reflects the value of the respective executive’s performance to the Company and its shareholders, and such metric(s) will be the major driver in the respective executive’s bonus plan for that year.  Each year, the Compensation Committee will also establish a target level of performance with respect to such performance metric(s) which takes into consideration: previous performance, budgeted




performance, and peer performance. This target will be commensurate with the strategic direction established at the annual planning session of the Company’s Board of Directors (Board) and may incorporate metrics and adjustments different from those used by the Board for planning purposes.  The Compensation Committee shall take such steps as it believes appropriate, with the advice of counsel, to seek to insure that publicly filed documents disclose that the Compensation Committee’s chosen metrics or performance thresholds do not necessarily reflect the Board’s or management’s forecasts, budgets, or projections for the Company or the Bank.


Qualifying Metrics


The Board believes that Risk Management metrics within the bonus plan encourage management to remain focused on the long term performance of the Bank and therefore Company shareholder value.  The Board has identified two qualifying metrics that will be used in determining the level of bonus paid to the Executives: Capital Quality and Asset Quality; and believes that the failure to meet specified targets of capital and asset quality should result in a partial or complete reduction of a performance bonus for such year, subject to certain restoration opportunities if corrective measures are successfully executed within specified time periods.


Capital Quality.  Maintaining sufficient capital is critical to the continued success and growth of the Bank.  In order for a full bonus to be earned with respect to any year, the Bank must maintain a Capital Level of 100 basis points above Well Capitalized for such year.  Falling short of this level will result in a partial or complete reduction of the bonus earned for such year.


  100 bp above Well Capitalized in each of the three regulatory capital classifications = full bonus earned


 Progressive reduction in earned bonus


  50 bp above Well Capitalized = no bonus earned for the year


Asset Quality.  Maintaining Asset Quality is critical to the health of the Bank and the shareholder’s investment in the Company.  As a global measure of risk, the Bank’s ratio of non-performing assets (calculated as non-current loans + OREO/total loans + OREO, but in each case on a loss share adjusted basis), will be the second qualifying metric.  The Bank will benchmark its performance against the FDIC’s National UBPR Peer Group of banks with assets between $1B-$3B.


. . . . . . . . . . progressive reduction in earned bonus;


Peer. . . . . . . full bonus earned (but in any event , at or below 1% the full bonus will be earned)


 . . . . . . . . . full bonus earned


In order to be eligible to receive an annual bonus for an applicable year under this program, an executive must be employed by the Company or the Bank at the end of the year in which such bonus is earned.




The Compensation Committee intends that earned bonuses shall be paid within 2½ months following the end of the year in which they are earned, but in the event the information it deems to be relevant for making such awards is not available prior to such date, the Committee reserves the right to delay making such award and/or authorizing such payment.


Restoration Bonuses


To the extent either the Qualifying Capital or Asset Quality Metric results in a reduction or a elimination of the bonus earned for a given year (Year 1), each Executive affected by such reduction or elimination shall be eligible to earn a Restoration Bonus payment for the following fiscal year (Year 2) if at the end of Year 2 the Bank’s capital and/or asset quality, as the case may be, has returned to the level that would have been required for a full or partial bonus to have been earned for the applicable Year 1.  The amount of the Restoration Bonus shall be equal to (i) the amount the Year 1 bonus which would have been paid if the Qualifying Capital or Asset Quality Metric had been measured at the end of the Year 2 instead of Year 1, minus (ii) the actual bonus paid to such executive in Year 1.


In order to be eligible to receive a Restoration Bonus for an applicable year, an executive must be employed by the Company or the Bank at the end of the year in which such bonus is earned .


Earned Restoration Bonuses shall be paid within 2½ months following the end of the year in which they are earned.


Form of Payment


The Compensation Committee believes it is appropriate for annual bonuses above a certain level to be paid in the form of Company equity.  However, the Compensation Committee also believes that in determining the appropriate split between cash and equity, it is appropriate to take into consideration the current level of equity ownership by the respective Executive and the overall mix of after-tax cash and equity.  Based on the current significant level of equity ownership levels and current tax rates, the Compensation Committee believes that the following is an appropriate mix of cash and equity, until such time as it shall determine otherwise:




Bonus Target




Form of Payout










50% of Base Salary


200% of Base Salary


Target — 125% of Base = Cash Payment







126% - 200% = Equity Payment










40% of Base Salary


200% of Base Salary


Target — 125% of Base = Cash Payment







126% - 200% = Equity Payment










% of Base Salary


200% of Base Salary


Target — 150% of Base = Cash Payment



per Empl. Agrmt.




151% - 200% = Equity Payment


The Compensation Committee reserves the discretion to include other of the Company’s or the Bank’s senior executives in this Program.




The selected performance metric (if not reduced by the Qualifying Metrics of Capital Quality or Asset Quality) will provide for a potential incentive payout up to two times the Executive’s annual salary.  The Compensation Committee maintains discretionary authority for eliminating the payment of bonuses as deemed appropriate for underperformance in any area that would place the Bank or the Company shareholders at risk.


2010 Long-Term Incentive Plan


All cash and equity payments made as a result of this Management Incentive Program shall be paid pursuant to the Midland States Bancorp, Inc.  2010 Long-Term Incentive Plan.


Other Performance Awards


This MIP is designed to outline the metrics, risk based metrics and form of payment provisions for our executive’s annual performance bonus.  The Compensation Committee expressly reserves the right to award cash or equity bonuses, including other short and long-term awards, based on other metrics deemed to be appropriate by the Compensation Committee for any given year.