Exhibit 10.1

 

Pacific Financial Corporation

 

Annual Incentive Compensation Plan

 

 

 

December 2010

 

 

 

 

 

 

 

 

 

 

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All Rights Reserved.

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Production in whole or in part, in any form whatsoever, without prior written
permission is strictly prohibited.

 

 

 

 

 

 

 

 

Performance-Based

Annual Incentive Compensation Plan  

 

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Annual Incentive Plan Document

 

INTRODUCTION

 

Pacific Financial Corporation and Bank of the Pacific (the “Company”) are
willing to provide annual cash incentive award opportunities for eligible
employees, through the use of a Performance-Based Annual Incentive Compensation
Plan (the “Plan”).  The annual incentive awards will provide a payment based
upon attainment of specified goals and objectives.  The objective is to align
the interests of these employees with the interests of the Company in obtaining
superior financial results.

I.          OBJECTIVE & PURPOSE

The Company believes in pay for performance, and desires to implement a
performance-based culture.  The Company is committed to rewarding employees for
the achievement of annual performance goals.  This Plan is designed to reward
and retain high performers, and to drive the long-term financial success of the
Company.  The Plan should encourage teamwork and create an environment where
executives are rewarded if the Company and his/her department achieve or exceed
pre-determined annual performance criteria.  The Plan is also designed to reward
employees for achieving and exceeding individual performance criteria.  It is
prospective in design with the utilization of a defined payout formula that is
based upon the achievement of a combination of pre-determined Company and
department/individual performance criteria.

II.        PARTICIPATION/ELIGIBLITY

Each Plan Year the Company’s Chief Executive Officer (“CEO”) shall submit to the
 Compensation Committee (“Committee”) of the Board of Directors of the Company a
list of eligible employees (or employee groups) for participation in the Plan
for the upcoming Plan Year.  In addition to a listing of the eligible employees,
the CEO shall also provide the Committee with a summary of the annual incentive
award tiers, the incentive award opportunities for each tier, the weighting of
Company versus department/individual performance goals, and a summary of
possible payouts, for the Committee’s review and approval.  Each Plan
participant shall be notified of selection for participation in the Plan. 

A.           The Plan is limited to employees of the Company recommended by the
CEO and approved by the Committee.

Additional eligibility requirements include: 

ü     New employees must be employed by August 31st in a given Plan Year to be
eligible for an award related to performance in that Plan Year.

ü     Employees hired after August 31st must wait until the next Plan Year to be
eligible for an award.

ü     Employees hired before August 31st who work a partial year will receive
pro-rated awards based on hours worked.

ü     Plan participants must receive a minimum performance rating of
“satisfactory” or better for the Plan Year to be eligible for any payout.

ü     Except as provided in Section XI below, Plan participant must be an active
employee as of the award payout date to receive an award.

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Annual Incentive Plan Document

III.       PLAN YEAR/PERFORMANCE PERIOD

The Plan operates on a calendar year basis (January 1st to December 31st) and
Plan payouts will be made no later than 2½ months after the end of the Plan Year
that represents the Performance Period, or a later date that would still permit
the payment to constitute a short-term deferral that is not subject to Section
409A of the Internal Revenue Code (i.e., generally, no later than 2½ months
after the end of the year in which a participant obtains a legally binding right
to such award).  This same Plan Year (calendar year) is the Performance Period
for determining the amount of incentive awards to be paid in the following Plan
Year.

IV.       PLAN DESIGN

The Plan design incorporates a tiered approach with annual incentive awards that
are linked to the achievement of pre-defined performance goals.  The incentive
ranges (as a percent of salary) are designed to provide market competitive
payouts for the achievement of minimum, target and maximum performance goals. 
This design should be reviewed and possibly adjusted on an annual basis to be
sure the Plan remains market competitive and includes all the appropriate Plan
participants.  The basic Plan design must be approved by the Committee on an
annual basis, with respect to each Plan Year/Performance Period. 

V.        AWARD OPPORTUNITIES

For each Plan Year/Performance Period Minimum, Target, and Maximum Performance
award opportunity levels, expressed as a percent of salary, will be set for each
participating employee.  The actual payouts will be calculated using a ratable
approach, where payouts are calculated as a proportion of minimum, target and
maximum performance levels.   

A.           Minimum Performance:  The minimum level of performance is required
to be achieved before being eligible to receive any payout under the Plan.

B.           Target Performance:  The budgeted, or expected, level of
performance based upon both historical data and management's best judgment of
expected performance during the performance period.

C.           Maximum Performance:  The level of performance which based upon
historical performance and management’s judgment would be exceptional or
significantly beyond the expected.

VI.       PERFORMANCE OBJECTIVES

The Plan will provide annual incentive awards to Plan participants based on
overall Company and department and/or individual performance objectives.   The
performance objectives are determined by using the Company’s performance
history, peer data, market data, and management's judgment of what reasonable
levels can be reached, based on previous experience.  Once the Target
Performance is established, the Minimum  and Maximum payout levels are also
determined.  The specific performance criteria for each Plan participant will be
based on the Plan’s overall goals, as approved by the Committee, and will be
communicated to Plan participants by management.  The communication will clearly
define the performance objectives at Minimum, Target, and Maximum Performance
levels and will define the potential award opportunity for the Plan
participants.

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A.           Company Performance - The  Company’s performance will be based on
the Company’s  success as measured by criteria determined by the  Committee with
input from the  CEO.  The percentage of payout for overall Company performance
will be allocated based on the specific weighting of the Company’s goal based on
the participant’s tier, and the actual performance compared to the
pre-determined Minimum, Target, and Maximum Performance levels.  

B.           Department or Individual Performance – Certain Plan participants
may have a portion of their annual incentive award based on a combination of
department and/or individual performance criteria.  The number of performance
criteria included, the specific type of performance criteria to use, and the
weighting of each criteria for the overall incentive award will vary based on
the position and role of each Plan participant.

VII.     AWARD CALCULATION

            The actual award payouts will be calculated using a ratable
approach, where award payouts are calculated as a proportion of minimum, target
and maximum award opportunities.  If actual performance falls between a
performance level, the payout will also fall between the pre-defined performance
level on a pro-rated basis. 

VIII.    EARNING OF ANNUAL INCENTIVE AWARDS

Incentive awards will be earned during each Plan Year/Performance Period.  If
the Company does not meet minimum performance levels, there will be no payouts
for the Company performance objectives.  However, the Plan participants may
still be eligible to receive payouts related to their department or individual
performance objectives.

Plan Trigger:  The Committee may at its discretion establish a plan trigger in
any plan year.  The Committee will set any such trigger at the beginning of the
performance period.   If established, in order for the Annual Incentive Plan to
be funded and “activated”, the Company must achieve a threshold performance
level to be determined by the Committee for each Plan Year/Performance Period. 
This performance level is not related to the Company Minimum, Target, or Maximum
Performance goals.  It is instead a threshold level of performance that needs to
be attained for  any incentive awards to  be paid out.  If this threshold level
of performance is not met, the Plan will not be “turned on” for that given year
and no payouts will be made.  If a plan trigger is not established  by the
Committee at the beginning of the performance period, any payouts will be
determined based upon Company, department and/or individual performance
objectives as established and approved by the Committee, with input from the
CEO, as described in Section VI. 

IX.       PAYMENT OF AWARDS

After all performance results are available following year-end, the awards will
be calculated for each Plan participant and recommended by the CEO for approval
by the Committee.  Awards are then paid out less the necessary withholdings.

          

           The following procedures will apply to the payment of awards:

ü     Payments will be declared no later than 2½ months following the end of the
Plan Year that constitutes the Performance Period.

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ü     Payment will be made at the time provided for in Section III.

ü     Except as otherwise provided in Section XI, a Plan participant must be an
active employee on the date of the award payout in order to receive a payout.

ü     The result of the performance criteria is calculated as a percent of the
total actual salary for a participant during the applicable Plan Year.

X.        PLAN ADMINISTRATION

Administration of the Plan is the joint responsibility of the Compensation
Committee, the CEO and the Human Resources department of the Company.

 A.    Responsibilities of the Compensation Committee

The  Committee, subject to approval by the Board, has the responsibility to
approve, amend, or terminate the Plan as necessary.  The actions of the Board or
Committee shall be final and binding on all parties.  The Committee also has the
authority, in its sole discretion, to make adjustments with respect to any
performance criteria or plan trigger for the Plan Year due to the occurrence of
extraordinary events.  After approval by the Committee, management shall, as
soon as practical, inform each of the Plan participants under the Plan of their
potential award under the operating rules adopted for the Plan Year.

B.     Responsibilities of the CEO

The CEO of the Company administers the program directly and provides liaison to
the Committee, including the following specific responsibilities:

ü     Recommend the Plan participants to be included in the Plan for a Plan
Year/Performance Period.  This includes determining if additional employees
should be added to the Plan and if any existing Plan participants should be
removed from participating in the Plan. 

ü     Provide recommendations for the award opportunity amounts at minimum,
target and maximum for all other Plan participants.  The CEO will review the
objectives and evaluations, adjust guideline awards for performance and
recommend final awards to the Committee for its approval.

ü     Provide other appropriate recommendations that may become necessary during
the life of the Plan.  This could include such items as changes to Plan
provisions.

C.           Responsibilities of Human Resources

The Human Resources department of the Company will act as the Plan Administrator
with regard to responsibilities for tracking the performance criteria during the
course of the Plan Year.  The Human Resources department will also have the
responsibility of determining the amount of the payouts following year end. 
Additional responsibilities may be assigned to the Human Resources department by
the Committee or CEO.  All necessary reporting to outside auditors for inclusion
in annual reporting will be carried out by the CEO or designee.

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XI.       TERMINATION OF EMPLOYMENT

If a Plan participant is terminated by the Company, or voluntarily terminates
his/her employment with the Company prior to payout, no incentive award will be
paid. To encourage employees to remain employed by the Company, a participant
must be an active employee on the date the incentive is paid to receive an
award.  However, there are exceptions for terminations as a result of death,
disability, or retirement, as provided below.

A.     Disability, Death or Retirement

If a participant is disabled and placed on long-term disability, his/her bonus
award for the Plan period shall be prorated so that no award will be earned
during the period of long-term disability.  In the event of death, the Company
will pay to the participant’s estate the pro-rata portion of the award that had
been earned by the participant.  Employees who retire will receive payment for a
pro-rata portion of the award they earned prior to retirement. 

XII.     AMENDMENTS AND PLAN TERMINATION

The Company has developed the Plan on the basis of existing business, market and
economic conditions, current services, and staff assignments.  If substantial
changes occur that affect these conditions, services, assignments, or forecasts,
the Company may add to, amend, modify or discontinue any of the terms or
conditions of the Plan at any time with approval from the Committee.  The
Committee may, subject to approval by the Board, terminate, change or amend any
provision of the Plan as it deems appropriate.  In no event shall an amendment
to the Plan cause the Plan to be subject to Internal Revenue Code (“Code”)
Section 409A, or violate any regulatory requirement applicable to the Company.

XIII.    PLAN FUNDING

The Plan shall not be funded.  Amounts due hereunder shall be paid from the
general assets of the Company.

XIV.    CLAIMS AND REVIEW PROCEDURES

A.     Claims Procedure

A Plan participant or beneficiary (“claimant”) who has not received awards under
the Plan that he or she believes should be paid shall make a claim as follows:

1.      Initiation – Written Claim.  The claimant initiates a claim by
submitting to the Plan Administrator a written claim for the benefits.

2.      Timing of Plan Administrator Response.  The Plan Administrator shall
respond to such claimant within 90 days after receiving the claim.  If the Plan
Administrator determines that special circumstances require additional time for
processing the claim, the Plan Administrator can extend the response period by
an additional 90 days by notifying the claimant in writing.

3.      Notice of Decision.  If the Plan Administrator denies part or all of the
claim, the Plan Administrator shall notify the claimant in writing of such
denial. 

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B.     Review Procedure

If the Plan Administrator denies part or all of the claim, the claimant shall
have the opportunity for review by the Plan Administrator of the denial, as
follows:

1.      Initiation – Written Request.  To initiate the review, the claimant,
within 60 days after receiving the Plan Administrator’s notice of denial, must
file with the Plan Administrator a written request for review.

2.      Additional Submissions – Information Access.  The claimant shall then
have the opportunity to submit written comments, documents, records and other
information relating to the claim. 

3.      Considerations on Review.  In considering the review, the Plan
Administrator shall take into account all materials and information the claimant
submits relating to the claim, without regard to whether such information was
submitted or considered in the initial benefit determination.

4.      Timing of Plan Administrator Response.  The Plan Administrator shall
respond in writing to such claimant within 60 days after receiving the request
for review.  If the Plan Administrator determines that special circumstances
require additional time for processing the claim, the Plan Administrator can
extend the response period by an additional 60 days by notifying the claimant in
writing.

5.      Notice of Decision.  The Plan Administrator shall notify the claimant in
writing of its decision on review.  The Plan Administrator shall write the
notification in a manner calculated to be understood by the claimant. 

XV.      COMMUNICATION OF PLAN TO PLAN PARTICIPANTS

Communication of the Plan will be vital to the overall success of the Plan.  Key
communication events include the following:

1.      An initial communication to Plan participants of the Plan details,
including the performance targets set for the initial Plan Year.  This will
typically take place in the first few months of the Plan Year.

2.      Communication of new performance targets, Plan procedure changes, etc.,
at the beginning of each Plan Year.

3.      Periodic reviews and/or performance updates throughout the Plan Year.
These reviews should include a year-to-date performance update and discuss any
changes that may be necessary to assure attainment of the Plan targets.

4.      A year-end review of estimated Plan results, including an estimate of
the Company's performance on each performance measure.

5.      An evaluation discussion surrounding the Plan participants’ final annual
incentive awards to be conducted by the appropriate manager upon final
determination of year-end results.

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XVI.    MISCELLANEOUS

A.           No Guarantee of Employment.  This Plan is not an employment
contract.  It does not give the Plan participant the right to remain an employee
of the Company or limit the Company's right to discharge the Plan participant. 

B.           Non-Transferability. Benefits under this Plan cannot be sold,
transferred, assigned, pledged, attached or encumbered in any manner.

C.           Reorganization. If the Company shall (1) merge into or consolidate
with another company, (2) reorganize, or (3) sell substantially all of its
assets to another company, firm, or person, or upon a change in control
involving Pacific Financial Corporation stock, then the succeeding or continuing
company, firm, or person shall succeed to, assume and discharge the obligations
of the Company under this Plan. Upon the occurrence of such event, the term
“Company” as used in this Plan shall be deemed to refer to the successor or
survivor company.

D.          Tax Withholding.  The Company shall withhold any taxes that are
required to be withheld from the benefits provided under this Plan.

E.           Applicable Law.  The Plan and all rights hereunder shall be
governed by the laws of the State of Washington, except to the extent preempted
by the laws of the United States of America.

F.            Code 162(m) Limitation.   To the extent permitted by Treas. Reg.
1.409A-1(b)(4)(ii), any amounts payable hereunder that would not be deductible
on account of the limitations of Code Section 162(m) shall be paid as soon as
reasonably practicable following the first date on which the Company reasonably
anticipates that if the payment were made on such date, the Company's deduction
with respect to such payment would no longer be restricted due to the
application of section 162(m).

 

 

 

Adopted by the Board of Directors March 9, 2011.

 

 

/s/ John Van Dijk, Secretary                          3-9-2011

 

John Van Dijk, Secretary

Date

 

 

 

 

 

 

 

 

 

 

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BENEFICIARY DESIGNATION

BANK NAME

ANNUAL INCENTIVE COMPENSATION PLAN

 

I, ________________________________, designate the following as beneficiary of
benefits under the Plan payable following my death:

 

Primary:

___________________________________________________________

 

___________________________________________________________

 

 

_____%

 

_____%

 

Contingent:

___________________________________________________________

 

___________________________________________________________

 

 

_____%

 

_____%

 

Notes:

·        Please PRINT CLEARLY or TYPE the names of the beneficiaries.

·        To name a trust as beneficiary, please provide the name of the
trustee(s) and the exact name and date of the trust agreement.

·        To name your estate as beneficiary, please write “Estate of _[your
name]_”.

·        Be aware that none of the contingent beneficiaries will receive
anything unless ALL of the primary beneficiaries predecease you.

 

I understand that I may change these beneficiary designations by delivering a
new written designation to the Plan Administrator, which shall be effective only
upon receipt and acknowledgment by the Plan Administrator prior to my death.  I
further understand that the designations will be automatically revoked if the
beneficiary predeceases me, or, if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.

 

NAME:                                        _______________________________

 

SIGNATURE:                                  _______________________________  
DATE:    _______

 

SPOUSAL CONSENT (Required if Spouse not named beneficiary):

 

I consent to the beneficiary designation above, and acknowledge that if I am
named beneficiary and our marriage is subsequently dissolved, the designation
will be automatically revoked.

 

SPOUSE NAME:               _______________________________

 

Signature:                      _______________________________      Date:    
_______

 

 

Received by the Plan Administrator this ________ day of ___________________,
2____.

 

BY:       _________________________________

 

Title:      __________________________________________

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