A New York community bank is crediting an innovative employee incentive plan for a one-third increase in its stock price.

Evergreen Bancorp, Glens Falls, awarded stock options last December to 350 full- and part-time employees. The options, equivalent to 20% of each worker's pay, could be exercised once the share price closed above $20.75 for three consecutive days.

That goal was reached Nov. 21, creating a potential $760,000 windfall for employees, if they had all immediately cashed in their options.

Evergreen senior vice president Daniel J. Burke said the prospect of a major payout pushed employees at the $992 million-asset institution to become more productive. For instance, he said, the bank's efficiency ratio remained steady at 62% even though the company added four branches during the past 12 months.

"The success of the bank is more on the minds of our staff on a daily basis," he said. "We posted our stock price every day, and employees are talking about it. It turned them on to what it means to be a shareholder."

More community banks need to find innovative ways to motivate employees to work harder, said Richard C. Chapman, president and chief executive officer of Bank Compensation Strategies Group, Minneapolis. Too many rely solely on retirement plans that are linked to the bank's stock price.

In fact, a survey by SNL Securities, Charlottesville, Va., found that half of publicly owned commercial banks and thrifts in 1996 used stock options in retirement plans. But analysts said no other community bank had a program like Evergreen's that rewarded performance so quickly.

"The psychology of this program is different from a pension-driven, long-term stock option plan," said Robert D. Clore, an analyst who follows Evergreen for Cowen & Co., Albany, N.Y. "This is a morale issue. So much of what community banks do is dependent on employee interaction in the community.

But some analysts expressed concern over Evergreen's generosity.

"I am not high on rewarding nonexecutives for bank performance," said Dennis W. Burnette, an executive recruiter at Sanford Rose Associates, Roswell, Ga. "If the bank was doing poorly, it would be hard to blame it on the tellers. When things are good, it is just as hard to tie it to them."

And Jon A. Doukas, a human resources consultant at Professional Bank Services Inc., Louisville, Ky., said the program would not help retain workers because they can cash out at will.

But Mr. Burke said the program builds loyalty. He noted that only 20% of the options have been exercised. "We have given them reason to believe in this organization," he said. "I think that is a long-term benefit."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.