Document:

EX-10.4 Stock Ownership Requirement

 

EX-10.4

(Exhibit 10.4) Stock Ownership Requirements

Financial Institutions, Inc.

Stock Ownership Requirements

Effective Date: January 1, 2005

Purpose

     Financial Institution Inc.’s (FII) Stock Ownership Requirements align the interests of
Executives and Directors (“participants”) with the interests of shareholders and further promotes
FII’s commitment to sound corporate governance.

II. Participation

FII’s Stock Ownership Requirements apply to the following positions:

	 	•  	Chairman and Chief Executive Officer;
	 
	 	•  	Chief Financial Officer
	 
	 	•  	Chief of Community Banking
	 
	 	•  	Chief Risk Officer
	 
	 	•  	Presidents of Subsidiary Organizations
	 
	 	•  	Non-employee Directors of Financial Institutions, Inc.
	 
	 	•  	Other Company executives as determined by the Management, Development & Compensation
(MD&C) Committee of the FII Board of Directors.

III. Determination of Requirements

FII’s Stock Ownership Requirements are determined as a multiple of the Executive’s base salary,
and in the case of a non-employee Director, a flat dollar amount, and then converted to a fixed
number of shares. Individual requirements are established for each participant as follows:

(1) The executive’s base salary is multiplied by the appropriate multiple:

	 	•  	4.0x for Chairman/Chief Executive Officer
	 
	 	•  	2.0x for positions in Salary Ranges 20 and above
	 
	 	•  	1.0x for other Executives in Salary Ranges below 20, as determined by the MD&C
Committee of the FII Board of Directors.

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That product is divided by FII’s prior 365-day average closing common stock price as reported
by NASDAQ. That amount is then rounded to the nearest 1,000 shares.

(2) Non-Employee Director of FII

	 	•  	$50,000

This amount is divided by FII’s prior 365-day average closing common stock price as reported
by NASDAQ. That amount is then rounded to the nearest 1,000 shares.

     These requirements have been established using the Executive’s January 1, 2005 base salary and
the average FII closing stock price for the period from January 1, 2004 through December 31, 2004,
Executives and Directors who become subject to the Stock Ownership Requirements in the future will
have their individual requirement established based upon their base salary, or dollar amount in
effect for Directors, at the time they become subject to the Requirements and FII’s average closing
common stock price for the prior 365-day period. Once established, a participant’s required amount
does not change as a result of changes in his or her base salary or fluctuations in FII’s common
stock price.

IV. Counting Shares Owned

Stock that counts towards satisfaction of FII’s Stock Ownership Requirements includes:

	 	•  	Shares owned outright by the executive or his or her immediate family members residing
in the same household;
	 
	 	•  	Stock held in FII’s 401(k) Retirement Savings Plan;
	 
	 	•  	Shares acquired upon stock option exercises;
	 
	 	•  	Shares held in trust. (Due to the complexities of trust accounts, requests to include
shares held in trust must be submitted in writing to the Director of Human Resources. The
Director of Human Resources will review the request with the Chairman and Chief Executive
Officer and the MD&C Committee will make the final decision.)
	 
	 	•  	Other types of stock grants that may be issued by FII.

V. Compliance with the Guidelines

Participants are required to achieve their Stock Ownership Requirement within five years, e.g. by
December 31, 2010, in the case of participants subject to the requirements at January 1, 2005. If a
participant’s Stock Ownership Requirement increases because of a change in title, a five-year
period to achieve the incremental requirement begins in January following the year of the title
change. Until the requirement is achieved, the participant is required to retain at least 75% of
net shares delivered through FII’s Stock Option Program. Net shares refer to those that remain
after shares are sold or netted to pay the exercise price of stock options and withholding taxes.
Until

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the requirement is achieved, shares that were acquired by an executive before he or she became
subject to the Stock Ownership Requirements may only be disposed of for one or more of the
“exclusion” purposes set forth below in this Section V and only upon compliance with the procedures
set forth therein.

Once achieved, ownership of the required amount must be maintained for as long as the individual is
subject to the Stock Ownership Guidelines.

Transferability of stock options does not exempt the participant from the ownership requirements.
The donee will be subject to the same retention requirement until the ownership requirement is
achieved.

Certain exclusions apply to the retention requirement. The existence of exclusions does not,
however, affect the requirement that the participant must meet his or her Stock Ownership
Requirement within the five-year period. The exclusions are:

	 	•  	Estate planning;
	 
	 	•  	Gifts to charity;
	 
	 	•  	Education; and
	 
	 	•  	Primary residence.

To be excluded from the retention requirement for any of these purposes, the participant must
submit a form that is available from the Human Resources Department. This request must include the
reason for the exclusion, current status with respect to the Stock Ownership Requirements and a
description of the stock transactions for which the exclusion is being requested. The Director of
Human Resources will review the request with members of FII’s Management, Development &
Compensation Committee, who will make the final decision. Once the Stock Ownership Requirement is
achieved, the retention ratio no longer applies unless the participant’s ownership falls below the
requirement, at which point the retention requirement will be reinstated.

Failure to comply with the Stock Ownership Requirements, other than for reasons approved by the
MD&C Committee on an exception basis, may result in termination of the participant’s employment or
continuation as a Board member.

VI. Reporting

Participants are required to sign an attestation when they are in compliance with their Stock
Ownership Requirement. Any participant who has not signed and returned his or her attestation is
subject to the retention requirement. In addition, any participant who has satisfied his or her
Stock Ownership Requirement must immediately notify the Human Resources Department if at any
subsequent time his or her ownership of FII stock falls below the required amount.

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VII. Hardship

There may be instances in which the Stock Ownership Requirements would place a severe hardship on
the participant or prevent the participant from complying with a court order, such as in the case
of a divorce settlement. It is expected that these instances will be rare. In these instances, the
participant must submit a request in writing to the Director of Human Resources that summarizes the
circumstances and describes the extent to which an exemption from the Stock Ownership Requirements
is being requested. The Director of Human Resources will review the request with members of FII’s
Management, Development & Compensation Committee who will make the final decision. If the request
is granted in whole or in part, the Director of Human Resources will in consultation with the
participant develop an alternative stock ownership plan that reflects both the intention of these
Executive Stock Ownership Requirements and the participant’s individual circumstances.

VIII. Administration

The Executive Stock Ownership Requirements are administered and interpreted by the Management,
Development & Compensation Committee of Financial Institutions, Inc.

Revised 1/17/05

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Attachment to Stock Ownership Requirements

Financial Institutions, Inc.

Stock Options Program Effective 1/1/2004

The multiples to be used when granting stock options are:

	 	 	 	 	 	 
	 
	 	 Salary	 	 	Multiple	 
	 	$350,000-$500,000
	 	 	1.0-1.2	 
	 	$250,000-$350,000
	 	 	.8-1.0	 
	 	$200,000-$250,000
	 	 	.65-.8	 
	 	$150,000-$200,000
	 	 	.5-.65	 
	 	$100,000-$150,000
	 	 	.35-.5	 
	 	$75,000-$100,000
	 	 	.2-.35	 
	 	$50,000-$75,000
	 	 	.15-.2	 
	 

Number of options is determined by multiplying the base salary by the multiple and dividing by the
stock price on the day the options are awarded.

	 	•  	In general, eligible employees are those in salary grades 12 and above who are achieving
a required level of performance for the year.

109EX-10.5 Senior Management Incentive Compensation

 

EX-10.5

(Exhibit 10.5) Senior Management Incentive Compensation

SENIOR MANAGEMENT

INCENTIVE COMPENSATION PLAN

Effective 1/1/05

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Financial Institutions, Inc.

SENIOR MANAGEMENT INCENTIVE COMPENSATION PLAN

BASIC PLAN

	1.  	PURPOSE

     The purpose of the Senior Management Incentive Compensation Plan (the “Plan”) is to
maximize the accomplishment of Financial Institutions, Inc. and subsidiaries’ (“FII”, or “the
Company”) objectives by providing discretionary incentive awards to those employees who attain high
levels of performance bearing on the success and profitability of the Company.

	2.  	GENERAL DESCRIPTION

     The overall pool of potential incentive dollars is based on achievement levels of
consolidated performance targets established each year by the Plan Administrator (MD&C Committee of
the FII Board of Directors). The overall pool is then allocated between corporate units and
subsidiary units based on consolidated participation level metrics. The pool of potential
incentive dollars to subsidiary business units is then reallocated to subsidiary units based on
achievement levels of individual subsidiary unit performance targets established each year by the
Plan Administrator.

     The potential incentive award to a participant is designed to ensure a level of incentive
award that is competitive with and comparable to levels of performance in other banks, in order
that Financial Institutions, Inc. will be able to attract, retain, and motivate top quality
managers and encourage attainment of specific goals and objectives.

     The incentive award is to be in the form of discretionary annual supplemental compensation.

	3.  	ADMINISTRATION

     The Plan Administrator has the responsibility to interpret, administer, and amend the
Plan as necessary. The actions of the Plan Administrator as to the interpretation, construction,
and administration of the Plan shall be final and binding on all parties. Incentive compensation
matters that come before the Plan Administrator shall be decided based on of a majority vote.

     The Plan Administrator shall review and revise, if deemed advisable, the operating rules of
the Plan.

     The FII CEO will present incentive award recommendations to the Plan Administrator no later
than 60 days after fiscal year-end and subject to approval of year-end financials by the Company’s
outside accounting firm. The FII CEO will be responsible for recommending Individual Performance
Factors; the FII CFO will responsible for performing the Incentive Award calculations prior to
payment. Payment of an Incentive Award is subject to the discretion of the Plan Administrator.
The Plan Administrator may, in its sole discretion, reduce or increase the amount of a
participant’s incentive award or decide to pay a participant no award. Additionally, in computing
an incentive award, the Plan Administrator may deem to exclude extraordinary occurrences, which
could impact, the incentive awards either positively or negatively, but are of their nature outside
the significant influence of the Plan participants. Payment to participants will be made no later
than March 15.

	4.  	PARTICIPANTS

     Eligibility for participation in the Plan shall be limited to those employees recommended
by senior management who, in the judgment of senior management and the Plan Administrator, are
responsible for directing functions, which have a significant bearing on the further growth and
profitability of the Company.

     At the beginning of each fiscal year, Management shall submit to the Plan Administrator its
recommendation as to those employees who should be eligible for participation in the Plan for a
particular fiscal

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year. Such individuals shall participate in the Plan if so approved by the Plan
Administrator. Participants shall be notified of their eligibility after such approval.

     Participants may be added during the fiscal year at the discretion of the Committee, but their
incentive award would be pro-rated as set forth in paragraph 5.

	5.  	PARTIAL PAYMENT:
	 
	   	TERMINATION OF EMPLOYMENT – NEW HIRES

     In the event of termination of employment, at any time and for any reason, other than by
death or normal retirement, any incentive awards that are unpaid at the time the employee gives
notice of or terminates his/her employment relationship, shall be subject to forfeiture at the
discretion of the Plan Administrator. Forfeiture will occur regardless of the period of time for
which the award was earned. In all cases, when an employee terminates to accept employment with
another financial services provider, the incentive compensation award will be forfeited. If the
termination is a result of normal retirement, the employee shall be considered to have earned
one-twelfth of the annual incentive compensation award for each full month of employment in the
fiscal year of the employee’s retirement. In the event of death of a participant, the FII CEO,
shall determine, with the approval of the Plan Administrator, the amount of the annual incentive
award to be paid in the fiscal year of the death.

     Normal retirement is as defined in the Company’s defined Benefit Pension Plan.

     If a participant dies, any unpaid incentive awards shall be paid to the estate or to such
individual(s) as the participant may have designated in writing. Payment shall be made at such
time and in such manner as if the participant were living.

     If any individual becomes a new participant during the Plan year the incentive compensation
award will be earned on the basis of one-twelfth of the annual incentive compensation for each full
month of employment in the fiscal year.

	6.  	INCENTIVE COMPENSATION COMMITTEE OPERATING RULES

The Plan Administrator may review and revise, if deemed advisable, the Operating Rules of this
Plan for a fiscal year. The Operating Rules shall include the following:

	 	   	a.) Identification of employees selected under paragraph 4 for participation in the plan.
	 
	 	   	b.) Participation Level Percentage for each individual selected.
	 
	 	   	c.) Target Performance Factors, for each individual selected.
	 
	 	   	d.) Performance Factor Weighting for each Target Performance Factor for each
individual selected.
	 
	 	   	e.) Performance Attainment Factor Floor.
	 
	 	   	f.) Performance Attainment Factor Ceiling.
	 
	 	   	g.) Performance Attainment Factor Multiplier
	 
	 	   	h.) Other administrative and procedural rules, which the Plan Administrator considers appropriate.

	7.  	AMENDMENTS OR TERMINATION OF PLAN

The Plan Administrator may terminate, amend or modify this Plan at any time.

	8.  	RIGHT TO REDUCE OR NOT PAY AN AWARD

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     Awards paid under this Plan are discretionary, and the Plan Administrator has the
authority, in its sole discretion, to reduce the amount of a participant’s award or to pay a
participant no award. The Plan Administrator’s right to reduce a participant’s award or pay no
award applies notwithstanding a participant’s attainment of performance goals under the Plan.
Recommendations to pay no award are subject to FII Board approval.

	9.  	OPERATING RULES

Definitions

Target Performance Factor – financial goal for the Plan year.

Actual Performance Factor – financial goal for the Plan year as calculated.

Base Salary – annual salary of the participant at plan year-end, 12/31.

Participation Level – the percentage of base salary to be utilized in computing the base
award.

Eligible Base Award – Base Salary times Participation Level.

Performance Factor Weighting – each participant will be assigned one or more Target
Performance Factors. Each factor will be assigned a percentage weighting the sum of which will
equal 100% for each participant.

Eligible Base Performance Target Factor Award – Eligible Base Award times Target
Performance Factor.

Performance Attainment Factor – Actual Performance Factor divided by Target Performance
Factor.

Performance Attainment Factor Floor – the level at which a specific Actual Performance
Factor must be achieved for that factor to earn any award.

Performance Attainment Factor Ceiling – the level at which a specific actual Performance
Factor will be maximized in determining the award for that factor.

Performance Attainment Factor Multiplier – 1 plus 5 times the difference between the
Performance Attainment Factor and 1.

Attained Base Award– Eligible Base Performance Target Factor Award times Performance
Attainment Factor Multiplier.

Individual Performance Factor (IPF) - The amount by which an award can be adjusted to
recognize differing levels of individual performance

Target Incentive Pool - dollar amount of potential awards before any IPF that would be
granted if each consolidated target performance factor was exactly achieved. It is calculated by
summing the Eligible Base Awards of all participants.

Attained Target Percentage (Corporate) – The weighted percentage achievement of all
corporate Target Performance Factors based on the weighting assigned to the FII CEO. It is
calculated by multiplying the Performance Attainment Factor for each Performance Factor by the
Performance Factor Weighting assigned to the FII CEO and summing the products.

Attained Incentive Pool – The increase or decrease to the Target Incentive Pool based on
actual performance. Calculated by multiplying the Target Incentive Pool by the Attained Target
Percentage (Corporate).

Distribution Per Cent – The percentage to apply to the Attained Incentive Pool to allocate
dollars between corporate Business Units and Subsidiary Business Units. Calculated by summing
Eligible Base Awards of

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Corporate Business units and Subsidiary Business Unit Participants; derive a percentage of the
total Eligible Base Awards of each group.

Distributed Incentive Pool – Allocating the Attained Incentive Pool between corporate
Business Units and Subsidiary Business Units. Calculated by multiplying the Attained Incentive
Pool by the Distribution Per Cent.

Subsidiary Attained Incentive Pool – For purposes of comparing performance between
subsidiary Business Units. Calculated by summing the Attained Base Award of all subsidiary
Business Unit participants.

Subsidiary Pool Attained Per Cent — For the purpose of finding the percentage of the
Distributed Incentive Pool to the Subsidiaries that should be allocated to each Subsidiary.
Calculated by summing each Subsidiary participant’s Attained Base Award and dividing by the
Subsidiary Attained Incentive Pool.

Incentive Award – the result of multiplying the Attained Base Award times the Attained
Target Percentage (Corporate/Subsidiary) times the Individual Performance Factor.

Extraordinary Occurrences – as determined by the Plan Administrator (see paragraph 3) of
the Basic Plan.

	10.  	General Incentive Formula

          Subject to the Plan Administrator’s discretion under Paragraphs 3 and 8, the general
formula for arriving at individual awards is as follows: (refer to Operating Definitions as
Needed):

          Corporate Business Units:

	 	•  	Attained Base Award times Attained Target Percentage (Corporate) equals Attained Award
	 
	 	•  	Attained Award times IPF equals Incentive Award

          Subsidiary Business Units:

	 	•  	Attained Base Award times Attained Target Percentage (Subsidiary) equals Attained Award
	 
	 	•  	Attained Award times IPF equals Incentive Award

Individual Performance Factor (IPF)

          To align the Attained Award with individual performance effort, an Individual Performance
Factor (IPF) will be utilized in computing the final Incentive Award. Recommendations as to the
IPF’s will be made by the FII CEO as part of the recommended Incentive Award to the Plan
Administrator. General guidelines in utilizing the IPF are as follows:

	 	1)  	Each participant in the Plan should expect to receive an Incentive Award that
is relative to his or her performance.
	 
	 	2)  	Application of the Factor will be considered in the context of achievements or
non-achievements within the current Plan year.
	 
	 	3)  	It is expected that the total Incentive Awards for the Company, after applying
the IPF’s, will approximate the dollar amount of the Attained Incentive Pool. This
implies that increased IPF’s for participants will generally be offset with decreased
IPF’s for other participants. The Plan Administrator, however, will consider for
approval recommendations for total Incentive Awards that may exceed the Attained
Incentive Pool.

Effective Date

          The Senior Management Incentive Compensation Plan is effective January 1, 2005.

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