Exhibit 10.1

     

    Shore
Bancshares, Inc.

     

    Management
Incentive Plan

    


    


    ARTICLE
I

     

    OBJECTIVE
OF THE PLAN

    


    The
purpose of this Management Incentive Plan ("Plan") is to reward executives of
Shore Bancshares, Inc. (hereafter, the "Company") for creating value for the
Company by maximizing Company, Divisional and/or Individual performance
goals.

    


    ARTICLE
II

     

    PLAN
ADMINISTRATION

    


    The
Compensation Committee of the Board shall administer the Plan and have final
authority on all matters and or disputes pertaining to this Plan.

    


    The Plan,
effective in 2010, shall remain in effect until the Committee deems
otherwise.  A new Plan year shall commence on the first business day
of the fiscal year.

    


    ARTICLE
III

     

    PARTICIPANTS

    


    Participation
is limited to those executives recommended by the President & CEO and
approved by the Committee each Plan year.

    


    ARTICLE
IV

     

    PERFORMANCE
OBJECTIVES

    


    Prior to
or at the beginning of each fiscal year, the Committee shall
establish:

    


    (i) Plan
performance objectives for the Company, subsidiary or business unit of the
Company based on such criteria as may be recommended by the President & CEO,
and

    


    (ii) the
award formula or matrix by which all incentive awards under this Plan shall be
calculated for Committee review and approval.

    


    The
Chairman & CEO shall establish individual performance objectives for each
Plan participant and evaluate each participant’s performance against those
pre-established individual objectives.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    


    ARTICLE
V

     

    AWARD
CALCULATIONS

    


    Each
executive shall be assigned an incentive award target, calculated as a
percentage of base salary at beginning of the plan year, which shall be awarded
if the Company and the executive achieve targeted performance
goals.  The target awards and weights by executive position are
attached to the Plan as Schedule A. Target awards
shall be weighted between 1) Company Net Income and 2) Division / Individual
Goals.  Target awards shall be leveraged up when performance exceeds
expectations, or down when performance is below expectations, as set forth in
Schedule B of the
Plan.  The achievement of goals and entitlement to leverage
adjustments shall be determined by the Compensation Committee.

    


    
      ARTICLE
VI

    

     

    ADMINISTRATIVE
MATTERS

    


    The
Committee reserves the right to withhold awards provided that the Committee
gives written explanation to participants within a reasonable period of time
following their decision to withhold.

    


    Incentive
awards shall be paid as soon as practicable following the end of the fiscal
year, however in no event shall awards be paid later than March 15th of the
subsequent fiscal year.

    


    In the
event of death, permanent disability, retirement or involuntary termination
without cause, unpaid awards shall be calculated on a pro-rated basis by taking
the number of full months, including the month in which the terminating event
occurred, and dividing those months by twelve.  Prorated awards will
be payable at the same time that normal award distributions occur.

    


    Except in
the case of death, disability or retirement, a participant shall forfeit his
right to receive any Plan award in the event of voluntary or involuntary
termination for cause during the Plan year.

    


    Interpolation
shall be used to calculate incentive awards when Company and Division /
Individual performance falls between levels detailed in Schedules
B.

     

    ARTICLE
VII

     

    NO
ENTITLEMENT TO BONUS

    


    Plan
participants are entitled to a distribution under this Plan only upon the
approval of the award by the Committee and no participant shall be entitled to
an award under the Plan unless the award is subject to the attainment of
performance objectives defined under the Plan.

    


    ARTICLE
VIII

     

    TERMINATION
OF PLAN

    


    The
Committee reserves the right to amend or terminate the Plan at any time within
thirty days written notice to Plan participants.  In the event of a
Plan termination, participants shall continue to be eligible for incentive
awards, if earned, for the current Plan year.  Incentive awards shall
be calculated as of the date of the Plan termination and payable as soon as
practicable after the end of the Plan year.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    


    ARTICLE
IX

     

    PARTICIPANT'S
RIGHT OF ASSIGNABILITY

    


    Participant
awards shall not be subject to assignment, pledge or other disposition, nor
shall such amounts be subject to garnishment, attachment, transfer by operation
of law, or any legal process.

    


    Nothing
contained in this Plan shall confer upon participants any right to continued
employment, nor interfere with the right of the Company to terminate a
participant’s employment from the Company.  Participation in the Plan
does not confer rights to participation in other company programs, including
annual or long-term incentive plans, non-qualified retirement or deferred
compensation plans or other perquisite programs.

    


    ARTICLE
X

     

    GOVERNING
LAW

    


    The laws
of the State of Maryland shall govern the validity, construction, performance
and effect of the Plan.

    


    


    IN
WITNESS WHEREOF, the parties have executed this Plan on the date written
below.

     

    
      
        	
                /s/ W. Moorhead
      Vermilye

              	 	 	
                4/19/2010

              	 
	
                President
      & CEO

              	 	 	
                Date

              	 


      

    

     

    
      	
              /s/ Christopher
      Spurry

            	 	 	
                    
                4/19/2010

              

            	 
	
              Chairman,
      Compensation Committee

            	 	 	
                    
                Date

              

            	 


    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    


    Schedule A:    Award Percentages

     

    
      	
               

              Position/Title

            	
              Award

              Target

            	
              Company

              Net
      Income

              Weight

            	
              Division/
      Individual

              Performance

              Weight

            
	
              President
      & CEO, Shore Bancshares

            	
              75%

            	
              50%
      (   %)

            	
              50%
      (   %)

            
	
              COO,
      Shore Bancshares

            	
              40%

            	
              50%
      (   %)

            	
              50%
      (   %)

            
	
              CFO,
      Shore Bancshares

            	
              40%

            	
              40%
      (   %)

            	
              60%
      (   %)

            
	
              President,
      Talbot Bank

            	
              50%

            	
              40%
      (   %)

            	
              60%
      (   %)

            
	
              President,
      CNB

            	
              30%

            	
              40%
      (   %)

            	
              60%
      (   %)

            
	
              Senior
      Lender, Talbot

            	
              35%

            	
              30%
      (   %)

            	
              70%
      (   %)

            
	
              Senior
      Lender, CNB

            	
              20%

            	
              30%
      (   %)

            	
              70%
      (   %)

            
	
              CEO,
      Insurance Division

            	
              5%

            	
              20%
      (   %)

            	
              80%
      (   %)

            


    

    


    Schedule
B:    Award Leverage
Schedule

    


    
      	
              Percent
      of Company

              Performance

            	
              Percent
      of Company

              Award

            	 
      	
              Percent
      of

              Division
      / Individual

              Goal
      Performance

            	
              Percent
      of

              Division
      / Individual

              Incentive
      Award

            
	
              120%

            	
              150%

            	 
      	
              120%
      or (Exceeded All
      Goals)

            	
              150%

            
	
              110%

            	
              120%

            	 
      	
              110%
      or (Met All / Exceeded Some
      Goals)

            	
              120%

            
	
              100%

            	
              100%

            	 
      	
              100%
      or (Met Most
      Goals)

            	
              100%

            
	
              85%

            	
              50%

            	 
      	
              85%
      or (Met Some
      Goals)

            	
              50%

            
	
              Less
      than 85%

            	
              0%

            	 
      	
              Less
      than 85% or (Did Not Meet
      Goals)

            	
              0%

            


    

    


    Award
Calculation Formula:

     

    The
calculation example below assumes an executive has a base salary of $150,000
with a target award opportunity of 25% and goal weights of 60% on Company Net
Income, and 40%
on Division / Individual goals.  In addition, the example assumes Net
Income results are 110% of target performance and Division / Individual goals
are met.  Please refer to Schedule B above when determining
appropriate leverage percentages.

    


    (Base
Salary) x ((Company Award x Leverage %) + (Division / Individual Award x
Leverage %))

    


    
      	
            	
              Example:

            	
              ($150,000)
      x ((25% x 60%) + (25% x 40%)) =

            


    

     

    
      ($150,000)
x ((15%) + (10%)) =

    

     

    
      ($150,000)
x ((15% x 1.20) + (10% x 1.00)) =

    

     

    
      ($150,000)
x ((18%) + (10%)) =

    

     

    ($150,000)
x (28%) = $42,000 Total Annual Incentive
Award