Exhibit 10.4
 
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Executive Pay for Performance Plan
Plan Summary and Terms

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Introduction and Objective

The annual incentive compensation plan, known as the Executive
Pay-for-Performance Plan (the “Plan”), of First United Corporation (the
“Corporation”) is designed to recognize and reward employees of the Corporation
and its affiliates for their collective contributions to the success of the
Corporation. The Plan focuses on the financial measures that are critical to the
Corporation’s growth and profitability. This document summarizes the elements
and features of the Plan.
In short, the objectives of the Incentive Plan are to:

 
·
Align pay with performance;

 
·
Encourage teamwork and collaboration across all areas of the Corporation and its
affiliates;

 
·
Motivate and reward the achievement of specific, measurable performance
objectives;

 
·
Position total cash compensation to be competitive with market (50th percentile)
when performance meets expectations;

 
·
Motivate and reward employees for achieving/exceeding performance goals; and

 
·
Enable the Bank to attract and retain the talent needed to drive success.

Eligibility

The Corporation’s CEO and certain other executive officers selected by the
Compensation Committee are eligible to participate in the Plan. An employee who
becomes a participant after the beginning of the Plan year, whether because he
or she is a new hire or because he or she is appointed as an executive officer
during a Plan year, is eligible for a prorated award for that Plan year based on
the period of the Plan year during which he or she was a participant, provided
that an executive must be employed by October 1 of a Plan year to be eligible
for an award for that Plan year.

Participants must maintain a performance level of “Satisfactory”, as determined
by the Corporation’s performance review program.

Participants must be an active employee of the Corporation or one of its
affiliates as of the award payout date to receive an award (other than
exceptions for death, disability and retirement contained herein).

Effective Date

The Plan is effective June 18, 2008. The Plan will be reviewed annually by the
Compensation Committee of the Corporation’s Board of Directors and by Executive
Management to ensure proper alignment with the Corporation’s business objectives
and to revise, if necessary, the performance goals. The Corporation retains the
rights as described below to amend, modify or discontinue the Plan at any time
during the specified period. The Plan will remain in effect until terminated by
the Board of Directors.

Program Administration

The Plan was adopted by the Board of Directors at the recommendation of its
Compensation Committee. The Compensation Committee has the sole authority to
interpret the Plan and to make or nullify any rules and procedures, as
necessary, for proper administration. Any determination by the Compensation
Committee will be final and binding on all participants.
 
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Performance Period

The performance period and Plan operate on a calendar year basis (January 1 -
December 31st). The first Plan year is January 1, 2008 to December 31, 2008.

Incentive Payout Opportunity

Each participant will have a target incentive opportunity based on competitive
market practice for his/her role. A participant’s award will be based upon a
percentage of the participant’s base salary as of December 31 for the Plan year
and will be calculated based on actual performance relative to the target
levels. Threshold performance will pay out at 50% of the target award; target
performance will pay out the expected target award, and stretch performance will
pay out at 125% of target award. Payouts for performance below the threshold
will be zero. Actual payouts for each performance goal will be pro-rated between
threshold and target levels and target and stretch levels to reward incremental
improvement. The range of awards can go from 0% of target (not achieving minimal
performance) to 125% of target for exceptional performance. For goals that do
not meet threshold performance, there will be no award for that component. The
target incentives for a given Plan year will be disclosed in an Appendix A to
this Plan.

Incentive Plan Measures

The Plan rewards the Corporation’s attainment of critical consolidated
performance goals. The performance goals for a given Plan year will be disclosed
in an Appendix A to this Plan.

Plan Trigger

In order for the Plan to “activate” in a Plan year, the Corporation must attain
the threshold levels stated in an Appendix A to this Plan for that Plan year. If
the threshold levels established for that year are not met, then the Plan will
not pay out any awards for that Plan year, regardless of performance on other
goals.

Example

Below is an illustration for a fictional executive with a base salary of
$125,000 and an incentive target of 20% of base salary ($25,000), where the
performance measures are return on equity (ROE), earnings per share (EPS),
efficiency ratio, operating income as a percentage of net revenue, and growth of
Community Oriented Business Owners (COBO) loan and deposit relationships. Weight
and actual performance are fictional for illustration.
 

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Participant Goals
 
Performance and Payout
 
Performance
Measure
 
Performance Goal
threshold/target/stretch
 
Weight
 
$
 
Actual
Performance
 
Payout
Allocation
(0% - 125%)
 
Payout ($)
                                         
ROE
   
12.10% /13.44%/ 14.78%
 
 
30
%
$
7,500
   
Threshold
   
50
%
$
3,750
                                         
EPS
 
 
$2.21 /$2.35/ $2.59
   
30
%
$
7,500
   
Target
   
100
%
$
7,500
                                         
Efficiency Ratio
   
67.98% /61.80%/ 56.62%
 
 
15
%
$
3,750
   
Threshold
   
50
%
$
1,875
                                         
Operating Income
as % of Net Revenue
   
26.1% / 29% / 31.9%
 
 
15
%
$
3,750
   
Stretch
   
125
%
$
4,688
                                         
Growth of COBO Loan and Deposit Relationships
   
4.5% / 5% / 5.5%
 
 
10
%
$
2,500
   
Below Threshold
   
0
%  
$
0
                                         
TOTAL
 
100
%  
$
25,000
 
71.3% payout     
$
17,813
 

Award Payouts

Awards for a Plan year will be paid as a cash bonus before the end of the first
quarter following the Plan year. Awards will be calculated based on actual
performance relative to the target levels. Awards will be taxable income to
participants in the year in which the award is actually paid and will be subject
to withholding for required income and other applicable taxes.

Any rights accruing to a participant or his/her beneficiary under the Plan shall
be solely those of an unsecured general creditor of the Corporation. Nothing
contained in the Plan, and no action taken pursuant to the provisions hereof,
will create or be construed to create a trust of any kind, or a pledge, or a
fiduciary relationship between the Corporation and its affiliates, on the one
hand, and a participant or any other person, on the other hand. Nothing herein
will be construed to require the Corporation to maintain any fund or to
segregate any amount for a participant’s benefit.

Program Changes or Discontinuance

The Corporation has developed the Plan based on existing business, market and
economic conditions. If substantial changes occur that affect these conditions,
the Corporation may add to, amend, modify or discontinue any of the terms or
conditions of the Plan at any time.

The Compensation Committee may also, at its sole discretion, waive, change or
amend the Plan, as it deems appropriate.

No amendment, modification, discontinuance or waiver may adversely affect a
participant’s eligibility to receive an award if he or she has been notified of
such eligiblity.

Notwithstanding any other provision of this Plan to the contrary, however, the
Corporation may amend, modify or terminate this Plan, without the consent of the
participants, as the Corporation deems necessary or appropriate to ensure
compliance with any law, rule, regulation or other regulatory pronouncement
applicable to the Plan, including, without limitation, Section 409A of the
Internal Revenue Code and any related regulations or other guidance promulgated
with respect to Section 409A of the Code.
 
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Promotions and Transfers

If a participant changes his/her role or is promoted during the Plan year,
he/she will be eligible for the new role’s target award on a prorata basis (i.e.
the award will be determined based on the number of months employed in each
position.)

Termination of Employment

Except in the case of a termination due to a participant’s death, disability or
retirement as discussed below, no incentive award will be granted to any
participant whose employment with the Corporation or one of its affiliates is
terminated for any reason. Moreover, to encourage employees to remain in the
employment of the Corporation, a participant must be an active employee of the
Corporation or one of its affiliates on the date the incentive is paid to
receive an award.

Death, Disability or Retirement

If a participant is disabled by an accident or illness and is disabled long
enough to be placed on long-term disability under the Corporation’s long-term
disability policy, his/her award for the Plan year shall be prorated so that no
award will be earned during the period of long-term disability.

In the event a participant’s employment is terminated due to death or disability
(as defined in the Corporation’s long-term disability policy), the Corporation
will pay to the participant’s estate or to the participant (as the case may be)
the pro rata portion of the award that had been earned by the participant
through the date of termination.

Participant’s who retire during the Plan year will receive a pro-rata portion of
the award based on the retirement date. For purposes of the Plan, the term
“retire” means a participant’s voluntary termination of his or her employment
(other than by reason of death or disability) after (i) reaching 60 years of age
and (ii) completing 10 years of service with the Corporation.

Clawback

In the event the Corporation is required to prepare an accounting restatement
due to the material noncompliance of the Corporation with any financial
reporting requirement under applicable securities laws or applicable accounting
principles, then each participant who received an award under the Plan shall
return to the Corporation his or her award to the extent the accounting
restatement shows that a smaller award should have been paid; provided, however,
that, notwithstanding the foregoing, no participant or former participant shall
be required to return any portion of any award to the extent it was paid more
than three years prior to the date the Corporation determines that a restatement
is required. To the extent a participant has deferred into a deferred
compensation plan of the Corporation an amount that an accounting restatement
shows should not have been awarded, such participant’s account under the
deferred compensation plan shall be adjusted to reflect such improperly-awarded
amount (and earnings and losses thereon).

Ethics and Interpretation

If there is any ambiguity as to the meaning of any terms or provisions of this
Plan or any questions as to the correct interpretation of any information
contained herein, the Corporation’s interpretation expressed by the Compensation
Committee will be final and binding. It is the intent of the Corporation that
this Plan and each award hereunder comply with the applicable provisions of
Section 409A of the Internal Revenue Code, and the Plan shall be so interpreted
and administered accordingly, including with respect to any restrictions or
other limitations imposed by Section 409A of the Internal Revenue Code on the
amount and timing of distributions payable under an award.
 
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The altering, inflating, and/or inappropriate manipulation of
performance/financial results or any other infraction of recognized ethical
business standards by a participant will subject that participant to
disciplinary action up to and including termination of employment. In addition,
that participant’s eligibility for an award under the Plan shall be revoked.

If it is determined (by the independent members of the Board of Directors) that
a participant has willfully engaged or is willfully engaging in any activity
that was or is injurious to the Corporation or its affiliates, then the
participant shall forfeit eligibility for an award for the Plan year in which
such determination is made. If it is determined that such activity occurred
during a Plan year for which the participant received an award under the Plan,
then, subject to any provision of the Corporation’s deferred compensation plan
that does not permit the forfeiture of amounts deferred into such plan, the
participant shall return the award to the Corporation.

Miscellaneous

The Plan will not be deemed to give any participant the right to be retained in
the employ of the Corporation or any of its affiliates, nor will the Plan
interfere with the right of the Corporation or an affiliate to discharge any
participant at any time.

In the absence of an authorized, written employment contract, the relationship
between a participant and the Corporation and its affiliates is one of at-will
employment. The Plan does not alter the relationship.

This Plan and the transactions and payments hereunder shall, in all respects, be
governed by, and construed and enforced in accordance with the laws of the State
of Maryland.

Each provision in this Plan is severable, and if any provision is held to be
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not, in any way, be affected or impaired thereby.

Participant Acknowledgement

As a condition to participation in the Plan and the receipt of any award, each
participant shall sign and deliver to the Corporation an acknowledgement in
which he or she agrees to the terms and conditions of the Plan.

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Appendix A

Executive Pay-for-Performance Plan
2008 Plan Year Targets and Goals

Incentive Targets

The incentive targets for the 2008 Plan year are set forth in the following
table:

2008 Short-Term Incentive Opportunities
(% of Base Salary)
 
Tier
 
Below
Threshold
 
Threshold
(50% of Target)
 
Target
(100%)
 
Stretch
(125% of Target)
 
CEO
   
0
%
 
20
%
 
40
%
 
50
%
Tier I
   
0
%
 
15
%
 
30
%
 
37.5
%
Tier II
   
0
%
 
10
%
 
20
%
 
25
%

Tier I includes the following executive officers: Robert W. Kurtz & Carissa L.
Rodeheaver.

Tier II includes the following executive officers: Eugene D. Helbig, Jeannette
Rudy Fitzwater, Frederick A. Thayer, Robin E. Murray and Steven M. Lantz.

Performance Goals

For Plan year 2008, the performance goals are return on equity (ROE), earnings
per share (EPS), efficiency ratio, operating income as a percentage of net
revenue, and growth of Community Oriented Business Owners (COBO) loan and
deposit relationships. The following table shows the performance goals at
threshold, budget and stretch for Plan year 2008:
 

       
2008 Performance Metrics
 
Performance Measures
 
Wt.
 
Threshold
(90% of target performance)
 
Target
(100%)
 
Stretch
(110% of target performance)
 
ROE
   
30
%
 
12.10
%
 
13.44
%
 
14.78
%
EPS
   
30
%
$
2.21
 
$
2.35
 
$
2.59
 
Efficiency Ratio
   
15
%
 
67.98
%
 
61.80
%
 
56.62
%
Operating Income
as % of Net Revenue
   
15
%
 
26.1
%
 
29
%
 
31.9
%
Growth of COBO Loan and Deposit Relationships
   
10
%
 
4.5
%
 
5
%
 
5.5
%

Minimum Thresholds

For Plan year 2008, the Corporation must attain the threshold level for at least
one of ROE or EPS, as stated above, or the Plan will not pay out any awards,
regardless of the performance of other goals.

Acknowledgement

By signing below, the undersigned participant ackowledges the terms of the
Executive Pay-for-Performance Plan and his or her award opportunity.

Date:
 
, 2008
Name:
   

 

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