Unassociated Document


     

    Exhibit
      10.4

     

    

    


    Executive
      Pay for Performance Plan

    Plan
      Summary and Terms

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    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. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    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. 

    
       

      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      
        	
                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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    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. 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    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. 

    


    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    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: