EXECUTIVE COMPENSATION
The following tables summarize the compensation of the Chief
Executive Officer and the four other most highly compensated
executive officers of Bancorp for the fiscal year 1993:
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION
Awards Payouts
- -----------------------------------------------------------------------------------------------------------
Other
Annual Long Term All Other
Name and Compen- Incentive Compen-
Principal Bonus sation Options/ Payouts sation
Position Year Salary($) ($)[1] (4)[2] SARS(#)[3] ($)[4] ($)[5]
- -----------------------------------------------------------------------------------------------------------
H. Howard Stephenson 1993 $591,865 $344,324 -- 0 $454,127 $ 55,830
Chmn. of Bd. & CEO 1992 569,100 421,703 -- 17,500 368,223 140,721
of Bancorp & Bank 1991 542,000 348,777 -- 15,000 323,606 23,162
Lawrence M. Johnson 1993 411,685 191,603 -- 20,000 276,394 38,834
Pres. & Dir. of 1992 395,850 234,660 -- 10,000 219,970 77,954
Bancorp & Bank 1991 377,000 194,080 -- 10,000 194,800 23,162
Richard J. Dahl 1993 251,160 116,890 -- 12,500 168,621 23,691
Exec. Vice Pres. of 1992 241,500 143,161 -- 7,500 134,300 26,612
Bancorp & Vice 1991 230,000 118,404 -- 7,500 120,000 23,162
Chmn. of Bank
Thomas J. Kappock 1993 251,160 116,890 -- 12,500 168,621 23,691
Exec. Vice Pres. of 1992 241,500 143,161 -- 7,500 134,300 26,612
Bancorp & Vice 1991 230,000 118,404 -- 7,500 120,000 23,162
Chmn. of Bank
John K. Tsui 1993 262,080 121,972 -- 12,500 175,952 24,721
Exec. Vice Pres. of 1992 252,000 149,386 -- 7,500 140,400 28,805
Bancorp & Vice 1991 240,000 123,552 -- 7,500 126,000 23,162
Chmn. of Bank
- -----------------------------------------------------------------------------------------------------------
[1] "Bonus" consists of cash awards under Bancorp's One-
Year Incentive Plan. The material terms of this plan
are described in the Compensation Committee's Report in
the section entitled "One-Year Incentive Plan for 1993"
on pages ____ and ____.
[2] The named executive officers of Bancorp receive certain
perquisites, such as participation in group medical,
dental, disability, and life insurance programs that
are available to all employees on a nondiscriminatory
basis. Perquisites did not exceed $50,000 or 10% of
the total of annual salaries and bonuses reported for
any such executive for 1993.
[3] Each stock option was in tandem with a stock
appreciation right ("SAR"). An SAR entitles the
optionee, in lieu of exercising the stock option, to
receive cash equal to the excess of the value of one
share over the option price times the number of shares
as to which the option is exercised. There were no
restricted stock awards to the named executive officers
of Bancorp for the years 1991, 1992, or 1993. All
stock option awards were granted with an exercise price
that is equal to the fair market value of Bancorp's
common stock on the date of grant. The number and
exercise price of the stock options awarded to the
named executive officers were not adjusted or amended
for the years 1991, 1992 and 1993.
[4] Represents amounts paid under Bancorp's Sustained
Profit Growth Plan for the three-year incentive period
from January 1, 1991 through December 31, 1993. The
material terms of this plan are described in the
Compensation Committee's Report in the section entitled
"Sustained Profit Growth Plan" on pages ___ and ___.
[5] This column includes allocations for 1993 under the
Bank of Hawaii Profit Sharing Plan (the "Profit Sharing
Plan") and the Bank of Hawaii Profit Sharing Excess
Plan (the "Excess Profit Sharing Plan"). The Profit
Sharing Plan is a tax-qualified, defined contribution
plan with features meeting the requirements of Section
401(k) of the Internal Revenue Code. The Internal
Revenue Code limits the annual amounts that any
participant may be allocated under the Profit Sharing
Plan. The Excess Profit Sharing Plan, which was
adopted effective as of January 1, 1992, establishes an
account on the books of Bancorp or a subsidiary to
which is credited the amount of any reduction in a
participant's allocation under the Profit Sharing Plan.
The amounts so allocated under the Excess Profit
Sharing Plan will be paid from the general assets of
Bancorp or a subsidiary at the same time the
participant receives a distribution of his accounts in
the Profit Sharing Plan.
For 1993 Mr. Stephenson received an allocation of
$22,372 under the Profit Sharing Plan and $33,458 under
the Excess Profit Sharing Plan. Mr. Johnson received
an allocation of $22,372 under the Profit Sharing Plan
for 1993 and $16,462 under the Excess Profit Sharing
Plan. Mr. Dahl received an allocation of $22,372 under
the Profit Sharing Plan for 1993 and $1,319 under the
Excess Profit Sharing Plan. Mr. Kappock received an
allocation of $22,372 under the Profit Sharing Plan for
1993 and $1,319 under the Excess Profit Sharing Plan.
Mr. Tsui received an allocation of $22,372 under the
Profit Sharing Plan for 1993 and $2,349 under the
Excess Profit Sharing Plan.
/TABLE
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation
For Option Term [1]
- -----------------------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options/SARs Exercise
Options/ Granted to or Base
SARs Employees Price Expiration
Name Granted in Fiscal Year $/Share Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------
H. Howard Stephenson 0 0 $ 0 -- $ 0 $ 0
Lawrence M. Johnson 20,000[2] 7.4%/32.0% 42.25 11-21-2003 531,000 1,347,000
Richard J. Dahl 12,500[2] 4.65%/20.0% 42.25 11-21-2003 332,000 842,000
Thomas J. Kappock 12,500[2] 4.65%/20.0% 42.25 11-21-2003 332,000 842,000
John K. Tsui 12,500[2] 4.65%/20.0% 42.25 11-21-2003 332,000 842,000
- -----------------------------------------------------------------------------------------------------------
[1] These amounts represent certain assumed rates of appreciation
only. Actual gains, if any, on stock option exercises or
stock holdings are dependent on the future performance of the
stock and overall market conditions. There can be no
assurance that the amounts reflected in this table will be
achieved.
[2] Stock options in tandem with SARs granted on November 22, 1993
become exercisable on November 22, 1994 for a nine year period
ending November 21, 2003. The exercise or base price of the
stock options and tandem SARs was the fair market value of
Bancorp's common stock on date of grant.
/TABLE
The stock options and stock appreciation rights exercised by
the Executive officers during fiscal 1993, as well as the number
and total value of unexercised in-the-money options as of December
31, 1993, are shown in the following table:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
- -----------------------------------------------------------------------------------------------------------
Number of Unexer- Value of Unexercised,
cised Option at In-the-Money Options at
Fiscal Year-End (#) Fiscal Year-End ($) [2]
- -----------------------------------------------------------------------------------------------------------
Shares
Acquired Value
Name On Exer- Realized Exer- Unexer- Unexer-
cise (#) ($) [1] cisable cisable Exercisable cisable
- -----------------------------------------------------------------------------------------------------------
H. Howard Stephenson 6,357 $162,473 65,317 0 $ 371,267 $ 0
Lawrence M. Johnson 12,386 481,148 101,783 23,334 1,653,113 0
Richard J. Dahl 2,000 197,886 87,827 15,000 1,041,432 0
Thomas J. Kappock 4,250 128,072 91,658 15,000 1,154,415 0
John K. Tsui 0 132,987 48,908 15,000 262,639 0
- -----------------------------------------------------------------------------------------------------------
[1] Includes exercise of stock appreciation rights.
[2] The fair market value of Bancorp's stock at fiscal year-end
was $41.00.
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR [1]
- -----------------------------------------------------------------------------------------------------------
Target Payout Performance
as a % of or Other Estimated Future Payout Under
FY 94-96 Period Until Long-Term Incentive Plan
Name Average Maturation Threshold Target Maximum
Annual Salary or Payout ($ or#) ($ or #) ($ or #)
- -----------------------------------------------------------------------------------------------------------
H. Howard Stephenson 8% 3 years ending
12-31-96 $ 6,000[2] $ 46,000[2] $ 92,000[2]
Lawrence M. Johnson 35% 3 years ending
12-31-96 19,000 151,000 303,000
Richard J. Dahl 35% 3 years ending
12-31-96 12,000 92,000 185,000
Thomas J. Kappock 35% 3 years ending
12-31-96 12,000 92,000 185,000
John K. Tsui 35% 3 years ending
12-31-96 12,000 92,000 185,000
- -----------------------------------------------------------------------------------------------------------
[1] Represents contingent awards under Bancorp's Sustained Profit
Growth Plan for the three-year incentive period from January
1, 1994 through December 31, 1996. Under this Plan each
executive received a contingent award of a specified
percentage of his average annual base salary for the three-
year period. The maximum cash award payable under the plan
is two times the contingent award. The amount of the cash
awards will depend upon Bancorp's performance as measured by
the growth in net income per employee and earnings per share
growth. Maximum payout, which is two times the contingent
award, can occur only if growth in net income per employee
during the three-year period is 26% or more and growth in
earnings per share is 28% or more. No payments will be made
if growth in net income per employee during such period is 8%
or less and growth in earnings is 12% or less. If growth in
net income per employee during such period is 20% and growth
in earnings is 20%, then one times the contingent awards would
be payable ("Target", above). After the earnings growth rate
and net income per employee growth have been ascertained, the
Chairman and the President of Bancorp will prepare
recommendations for all participants (excluding themselves)
for the Compensation Committee. The Compensation Committee
will then make the final determination of cash awards.
[2] Amounts reflect the prorated estimated future payout to Mr.
Stephenson who will retire as Chairman and Chief Executive
Officer of Bancorp effective August 1, 1994.
- -----------------------------------------------------------------------------------------------------------
PENSION PLAN TABLE
Estimated Maximum Annual Retirement
Average Annual Benefit Based Upon Years of Service
Salary in Consecutive
Highest Paid Years 15 20 25 30 35*
- -----------------------------------------------------------------------------------------------------------
$ 75,000 $20,435 $27,247 $34,059 $40,871 $47,683
100,000 27,935 37,247 46,559 55,871 65,183
125,000 35,435 47,247 59,059 70,871 82,683
150,000 42,935 57,247 71,559 85,871 100,183
200,000 57,935 77,247 96,559 115,871 135,183
250,000 72,935 97,247 121,559 145,871 170,183
300,000 87,935 117,247 146,559 175,871 205,183
350,000 102,935 137,247 171,559 205,871 240,183
400,000 117,935 157,247 196,559 235,871 275,183
450,000 132,935 177,247 221,559 265,871 310,183
500,000 147,935 197,247 246,559 295,871 345,183
550,000 162,935 217,247 271,559 325,871 380,183
600,000 177,935 237,247 296,559 355,871 415,183
650,000 192,935 257,247 321,559 385,871 450,183
700,000 207,935 277,247 346,559 415,871 485,183
- -----------------------------------------------------------------------------------------------------------
*Applies only to individuals hired before November 1, 1969.
The Employees' Retirement Plan of Bank of Hawaii (the
"Retirement Plan") provides retirement benefits for employees of
participating employers who have completed certain age and service
requirements. "Participating employers" means the Bank, Hawaiian
Trust Company, Limited, Building Services, Inc., First Federal
Savings and Loan Association of America, First Savings and Loan
Association of America, First National Bank of Arizona, and any
associated company that have adopted the Retirement Plan. Although
retirement generally occurs at age 65, employees may retire at or
after age 62 with unreduced benefits. The amount of benefits
payable to employees who retire prior to age 62 is subject to
specified adjustments. Benefits paid under the Retirement Plan are
primarily determined by (1) the number of months a participant has
worked, and (2) a participant's average annual salary during the 60
consecutive months in his or her last 120 months of service
affording the highest average, excluding overtime, premium pay,
incentive plan payouts, or discretionary bonuses.
The normal retirement benefit shown above assumes payment in
the form of a single life annuity commencing at age 65, and is not
subject to any deduction for Social Security or other offset
amounts. The Internal Revenue Code generally limits the maximum
annual benefit which can be paid under the Retirement Plan to the
lesser of $118,800 or 100% of the participant's average
compensation for the highest three consecutive calendar years
during which he or she was a participant. Accordingly, if at
retirement the annual benefit of any participant should exceed this
limit, the individual's benefit from the Retirement Plan will be
reduced to the permissible maximum. The amount of this reduction
will be paid to the participant from an unfunded excess benefit
plan designed for this purpose.
The credited years of service and the 1993 compensation
covered by the Retirement Plan of the individuals named in the
Summary Compensation Table on page __ of this Proxy Statement are
as follows: Mr. Stephenson, 34 years and $591,865; Mr. Johnson, 30
years and $411,685; Mr. Dahl, 11 years and $251,160; Mr. Kappock,
21 years and $251,160; and Mr. Tsui, 8 years and $262,080.
Change-in-Control Arrangements
Bancorp's Key Executive Severance Plan provides for severance
benefits to a participant if the participant's employment is
terminated within 2 years of a change of control. A "change of
control" will be deemed to have occurred if (i) any person or group
becomes the beneficial owner of 25% or more of the total number of
voting securities of Bancorp, (ii) the persons who were directors
of Bancorp before a cash tender or exchange offer, merger or other
business combination, sale of assets, or contested election cease
to constitute a majority of the Board of Directors of Bancorp or
any successor to Bancorp, or (iii) a majority of the Board of
Directors determines in good faith that a change of control is
imminent. The severance benefits include (i) payment of a lump sum
amount equal to 3 years of compensation (consisting of salary,
bonuses, and incentive compensation); (ii) special supplemental
retirement payments equal to the retirement benefits the
participant would have received had he continued in the employ of
Bancorp and the Bank for 3 years following his termination of
employment (or until his normal retirement date, if earlier); and
(iii) continuation of all other benefits he would have received had
he continued in the employ of Bancorp and the Bank for 3 years
following his termination of employment (or until his normal
retirement date, if earlier), such as hospital, medical-surgical,
major medical, and group life insurance. Messrs. Stephenson,
Johnson, Dahl, Kappock, and Tsui are covered by the Key Executive
Severance Plan.
REPORT OF THE COMPENSATION COMMITTEE
The Committee, composed entirely of independent nonemployee
directors, sets and administers the policies which govern Bancorp's
executive compensation program, and various incentive and stock
option programs. The Committee reviews compensation levels of
members of management, evaluates the performance of management,
considers management succession and related matters. All decisions
relating to the compensation of Bancorp's officers are reviewed by
the full Board, except for decisions about awards under Bancorp's
stock option plans, which must be made solely by the Committee in
order for the grants under such plans to satisfy Securities
Exchange Act Rule 16b-3. Pursuant to recently adopted rules
designed to enhance disclosure of companies' policies toward
executive compensation, set forth below is a report addressing
Bancorp's compensation policies as they affect all executive
officers in general, and specifically as they affect Mr.
Stephenson, the Chairman and Chief Executive Officer; and Messrs.
Johnson, Dahl, Kappock, and Tsui, the four executive officers other
than Mr. Stephenson who, for 1993, were Bancorp's most highly paid
executives (collectively with Mr. Stephenson, the "Executive
Officers").
The policies and underlying philosophy governing Bancorp's
executive compensation program, which are endorsed by the Committee
and the Board of Directors, are designed to (i) maintain a
compensation program that is equitable in a competitive
marketplace, (ii) provide opportunities that integrate pay with
Bancorp's annual and long-term performance goals, (iii) recognize
and reward individual initiative and achievements, and (iv) allow
Bancorp to compete for, retain, and motivate talented executives
who are critical to Bancorp's success.
Executive compensation is targeted at levels that the
Committee believes to be consistent with others in Bancorp's
industry, with the Executive Officers' compensation weighted toward
programs contingent upon Bancorp's level of annual and long-term
performance. As a result, the Executive Officers' actual
compensation levels in any particular year may be above or below
those of Bancorp's competitors, depending upon Bancorp's
performance. The following are Bancorp's competitive targets:
In general, Bancorp will provide total compensation
that is at the 50th percentile (median) among bank of
comparable size and performance.
Bancorp will provide 75th percentile awards if
Bancorp's performance significantly exceeds
expectations.
Goals for specific components are as follows:
Base salaries for executives generally are targeted at
the 50th percentile of their comparator group.
The short-term (one-year) incentive plan will provide
50th percentile awards if annual goals are achieved. The plan
will pay higher awards if annual performance goals are
exceeded.
Under long-term incentive plans, Bancorp will provide to
participants a consistent 50th percentile opportunity from
year-to-year, with possibilities of earning substantially
higher levels if long-term performance goals are exceeded.
For competitive compensation purposes, Bancorp uses a group of 13
Bank Corporations chosen because they generally are comparable to
Bancorp in terms in overall size, business mix and geographic
scope. This group of 13 banks differs from the group of banks used
in the line of business index for the performance graph. The
organizations used in the performance graph are the 27 bank
corporations of the Montgomery Securities Regional Bank Group.
Overall, the 13 Bank Corporations used for compensation comparisons
better reflect Bancorp's size, business mix and geographic scope
than the full Montgomery Securities Regional Bank Group. Eight of
the thirteen are in the Montgomery Securities Regional Bank Group.
Bancorp has retained the services of a nationally recognized
consulting firm to assist the Committee in connection with the
performance of its various duties since 1982.
The consulting firm provides advice to the Committee with
respect to executive compensation programs for officers of Bancorp.
In doing so, Bancorp is able to take into account how the
compensation paid to its executives compares to compensation paid
by the 13 Bank Corporations, as well as how Bancorp's performance
compares to such companies. The consulting firm has reviewed
Bancorp's compensation program for the five highest paid officers
for 1993, and has reported to Bancorp that, in its opinion, the
compensation of all such officers falls within the range of
competitive practices in view of Bancorp's consolidated performance
and the contribution of those officers to that performance.
Relationship of Performance Under Compensation Plans
Compensation paid the Executive Officers in 1993, as
reflected in the Summary Compensation Table on page ____,
consisted of the following elements: base salary, profit sharing,
One-Year Incentive Plan cash award for 1993, and cash awards
earned under Bancorp's Sustained Profit Growth Plan for the 1991
through 1993 performance cycle. In addition, as indicated in the
Summary Compensation Table and the table entitled "Stock
Option/SAR Grants in Last Fiscal Year" on page ____, in 1993 the
Committee awarded stock options under the Bancorp Hawaii, Inc.
Stock Option Plan of 1988.
The Committee's emphasis on tying pay to annual and long-
term performance criteria is reflected in the compensation paid
to Executive Officers for 1993. Approximately fifty percent of
the amount paid to Executive Officers for 1993 arose from
performance based compensation arrangements; and approximately
thirty-two percent arose from arrangements tied to Bancorp's
performance over a three-year period.
Base Salaries
Base salaries for Executive Officers are determined by
evaluating the responsibilities of the position held, the
experience of the individual, the competitive marketplace, and the
individual's performance of his responsibilities. Adjustments to
salary also reflect new responsibilities assigned or assumed by the
individual. In setting salaries, the focus is generally on median
competitive data. However, also taken into account are key
differences in responsibilities between the executives of Bancorp
and those found at other banks when using competitive market data
in the salary process.
The largest salary adjustment among the top five named
executive officers was 4%. Salary adjustments reflect the
criteria that are described above, namely competitive information
on salary increases, and the overall economic environment. The
other factors considered were position responsibilities and
individual performance.
One-Year Incentive Plan for 1993
The awards under Bancorp's One-Year Incentive Plan (the
"Incentive Plan") to its Executive Officers reported in the "Bonus"
column of the Summary Compensation Table on page ____ were
determined by a two-step process that considered both the
performance of Bancorp as a whole during the year and the
individual performance of each Executive Officer. The first step
established a financial performance factor that was determined by
Bancorp's (i) return on average equity ("ROAE") and (ii) earnings
growth. The maximum financial performance factor of 1.4 would be
attained if the earnings growth was 12.0% or more and ROAE was 18%
or more. For purposes of the Incentive Plan, "ROAE" is defined as
Bancorp's net income for 1993 divided by Bancorp's average total
equity (as reported in its annual report to stockholders) for 1993,
and "earnings growth" is defined as the percentage growth in
Bancorp's fully-diluted earnings per share (subject to certain
adjustments such as unusual gains or loss transactions), comparing
1993 with 1992. After this performance factor was determined, a
second step evaluated the individual participant's job performance
against his responsibilities and the economic and other
circumstances with which he had to cope during the year. An
individual performance factor ranging from 0 to 1.4 was assigned.
These two factors were multiplied by each other by the contingent
award and by base salary to determine the award payable, if any.
Bancorp's performance for purposes of compensation decisions was
measured under the Incentive Plan against goals established prior
to the start of the fiscal year and reviewed and approved by the
Committee.
The Committee regards total shareholder return as the key
measure of financial success. "Total shareholder return" consists
of dividends paid and share price appreciation. The Committee
believes that some of the most important factors driving share
price appreciation are the general state of the stock market, the
worldwide and national economic environment and investor sentiment
regarding the financial services industry in general and regional
banks in particular. None of these factors are within the control
of Bancorp management. However, of those factors within
management's control, earnings per share is regarded by the
Committee as an effective factor because of the emphasis within the
stock markets on price/earnings multiples. Over the long-term, the
expectation is that growth in earnings per share will be roughly
matched by growth in share prices, given a stable price - earnings
multiple. Also, given the expectation that Bancorp's dividend
tends to remain at a level of 25% - 35% of earnings, growth in
dividends per share should, over the long term, mirror earnings per
share growth.
Of course, movements in the other factors cited above (overall
stock market direction, economic environment, etc.) could overwhelm
the effects of earnings per share growth. However, over the long
term, the Committee believes that earnings per share growth is the
single factor (within management's control) most likely to
influence total shareholder return.
The Committee regards ROAE as a very good measure of how
Bancorp's profit compares to returns available to shareholders in
the overall investment marketplace. This measure is not unique to
banks, but is a common measure of investment return. Also, the
measure of ROAE ties in to total shareholder value in that it is
the percentage growth rate which should roughly be reflected in
dividends growth and share price growth, as discussed above.
Under the Incentive Plan, each Executive Officer received a
contingent incentive award of a specified percentage of his annual
base salary (Mr. Stephenson - 50%, Messrs. Johnson, Dahl, Kappock,
and Tsui - 40%). The total awards were based on a financial
performance factor for the year of 0.895. This performance factor
was then adjusted for individual performance in each case,
resulting in awards that, on average, were 97.5% of contingent cash
awards. The maximum bonus payable to any participant under this
plan is 200% of the contingent award.
Sustained Profit Growth Plan
The Committee determines which, and to what extent, selected
senior officers will participate in the Sustained Profit Growth
Plan (the "Growth Plan") on the basis of their ability to make
substantial contributions to the long-term success, growth, and
profitability of Bancorp. Under this plan each executive received
a contingent award of a specified percentage of his average annual
base salary for the three-year period (Mr. Stephenson - 40%,
Messrs. Johnson, Dahl, Kappock, and Tsui - 35%). The maximum cash
award payable under the plan was two times the contingent award.
Bancorp's performance was measured by the growth in net income per
employee and growth in earnings per share, weighted equally in
determining awards under the Growth Plan. The payout under the
1991 - 1993 Growth Plan was based on a financial performance factor
in excess of the Growth Plan maximum of 2.0 times the contingent
award as of December 31, 1993.
The Committee regards consistent growth in earnings per share
as one of the most important single factors within management's
control for influencing long-term stockholder value and net income
per employee as the best measure of efficient management of
personnel and resources. The reasons the Committee emphasizes
growth in earnings per share as important to enhance shareholder
value are described above ("One-Year Incentive Plan"). Indeed, the
importance placed on this factor is indicated by the fact that it
is included in both the One-Year Incentive and Sustained Profit
Growth Plans.
The Committee also feels the need to measure efficiency of
operations, which is difficult to do in a multi-product service
industry because of the inability to precisely allocate overhead
costs. Therefore, some indirect measure of efficiency is required.
The Committee has chosen to focus on staff expense, Bancorp's
largest expense category, other than interest. Rather than simply
restrict the growth of this expense, which might inhibit otherwise
profitable expansion, the Growth Plan measures net income per
employee (NIPE) as a means of quantifying the profit realized on
the staff expense incurred. While other factors, such as interest
rate levels and the growth of the economy, will influence Bancorp's
net income, the Committee believes that NIPE growth, over a three-
year period, is a reasonable proxy for measuring whether staff
expense is being appropriately managed.
Stock Option Plans
The Committee considers stock option grants under the Bancorp
Hawaii, Inc. Stock Option Plan, the Bancorp Hawaii, Inc. Stock
Option Plan of 1983, and the Bancorp Hawaii, Inc. Stock Option Plan
of 1988 (collectively, the "Plans") for key employees, including
key executive officers of Bancorp and its subsidiaries. Stock
options are granted by the Compensation Committee ("Committee") to
those key employees whose management responsibilities place them
in a position to make substantial contributions to the financial
success of Bancorp. Directors who are not also employees may not
participate in the Plans. Stock options are granted at a price
equal to the fair market value of the stock on the date the options
are granted. The Committee, which administers the Plans,
determines whether the options are incentive stock options or
nonqualified stock options.
The Committee reviewed employee stock option programs of the
13 Bank Corporations that comprise Bancorp's competitive group for
compensation purposes, prior to determining the grant of options to
the Executive Officers in 1993. While the value realizable from
exercisable options is dependent upon the extent to which Bancorp's
performance is reflected in the market price of Bancorp's common
stock at any particular point in time, the decision as to whether
such value will be realized in any particular year is primarily
determined by each individual executive and not by the Committee.
The Committee considered several factors in the granting of
stock options in November 1993. Anticipating a change in Bancorp's
executive leadership in 1994, the Committee desired to retain each
member of the Managing Committee. The Committee increased long-
term stock option grants in an effort to improve retention of each
member of senior management. The Committee determined the
performance of the five named executive officers throughout 1993 to
be outstanding in producing well above average financial results in
a demanding and challenging Hawaii economy. During May of 1993, as
a result of the efforts of the executive officers and staff of
Bancorp, the Bank of Hawaii, the largest subsidiary of Bancorp,
completed its acquisition of American Financial Services of Hawaii,
Inc. ("AFS") and the integration of AFS is progressing well and
ahead of schedule. Other significant accomplishments include the:
(i) acquisition by Bank of Hawaii International, Inc., a subsidiary
of the Bank, of an equity interest in Banque Indosuez Vanuatu, Ltd.
(renamed Banque d'Hawaii Vanuatu, Ltd.), (ii) establishment of
branches of the Bank in Suva and Nadi, Fiji, which expands
Bancorp's market presence in the growing economy of the South
Pacific. The Committee believes that the performance level of each
individual warranted an increase in stock option grants over
previous years. In the case of Mr. Stephenson, who will be
retiring as Chairman and Chief Executive Officer effective August
1, 1994, the Committee elected to examine the possibility of a
stock option grant to him during January 1994 after the final
financial results were made public. The performance of Bancorp was
such that the Committee on January 27, 1994 granted Mr. Stephenson
a stock option for 21,000 shares at an option price of $45.00 per
share out of the Bancorp Stock Plan of 1994, which would be
exercisable after July 27, 1994. This stock option grant is
subject to approval of the 1994 Plan by the stockholders at the
annual meeting of stockholders to be held on April 27, 1994.
The Committee believes that stock options are an integral part
of its executive compensation package since options align the
interests of management with stockholders and focus the attention
of management on the long-term success of Bancorp.
CEO Compensation
The Committee's general approach in setting Mr. Stephenson's
target annual compensation is to provide levels that are
competitive among the 13 Bank Corporations that comprise Bancorp
Hawaii's competitive group for compensation purposes. In
addition, the Committee intends to have a significant percentage
(over 20%) of each executive officer's target compensation based
upon objective long-term performance criteria. On average, Mr.
Stephenson's long-term incentive compensation opportunity is
approximately 30 percent of his total compensation. This compares
with the aforementioned 13 Bank Corporations' average of
approximately 26 percent.
Mr. Stephenson has held the position of Chairman and Chief
Executive Officer since March 1989. Bancorp's performance
throughout the last five fiscal years enabled stockholders to
realize a total return of 102.6% (or an annual compounded return of
15.2%). "Total return" is defined as cumulative stock price
appreciation including the reinvestment of dividends. This total
return compares to a 5-year return of 95.3% (or an annual
compounded return of 14.3%) for the Standard & Poors' 500 Index.
This performance resulted in increased compensation paid to
Mr. Stephenson over the past three years. The Committee in late
1992 approved a four percent increase in Mr. Stephenson's base
salary for the year 1993. Mr. Stephenson's 1994 base salary will
be reviewed by the Committee in February 1994 and any salary
adjustment will be effective April 1, 1994. Mr. Stephenson's 1993
salary and incentive plan compensation increased 4.0% over his 1992
compensation in recognition of Bancorp's 13.2% earnings improvement
in 1992 under his leadership. Of the 1993 compensation, 57.4% was
represented by incentive plan compensation, compared to 58.1% in
1992, and 55.4% in 1991. Base salary represented only 42.6% of
1993 salary and incentive plan compensation. A significant portion
of the increased compensation was represented by incentive payments
under Bancorp's plans.
Mr. Stephenson's award under the One-Year Incentive Plan for
1993 was based on both corporate financial and individual
performance. Two financial performance factors were used, weighted
equally: growth in earnings per share and return on average equity.
These measures are explained in more detail under the section
entitled "One-Year Incentive Plan". Other factors include
individual performance in assigned responsibilities, leadership and
management skills, strategic decision making, and the economic and
other challenges that were present during the course of the year.
The performance factors, as described in the section entitled "One
Year Incentive Plan for 1993" on page ____, were achieved. The
cash award for the one-year incentive period ended December 31,
1993 for Mr. Stephenson was equal to about 58% of his annual base
salary.
Mr. Stephenson's award under the Sustained Profit Growth Plan
for the years 1991 to 1993 is based on two measures of corporate
performance weighted equally: earnings per share growth and net
income per employee. These measures and the actual performance
goals are described in detail in the footnote to the table entitled
"Long-Term Incentive Plans-Awards in Last Fiscal Year". The
performance factors, as described in the section entitled
"Sustained Profit Growth Plan" on page ____, were achieved.
Revenue Reconciliation Act of 1993
In 1993, Congress adopted the Revenue Reconciliation Act of
1993 (the "1993 Act"), certain provisions of which limit the
ability of publicly-held companies to deduct for taxation purposes
the compensation paid to individual employees in excess of $1
million in any fiscal year. The 1993 Act affords certain
exemptions to the deductibility limitation, generally requiring
that compensation be closely tied to objective performance
criteria.
In general, Bancorp intends to maintain deductibility for all
compensation paid to covered employees, and will comply with the
required terms of the specified exemptions under the 1993 Act,
except in circumstances under which such compliance would unduly
interfere with the incentive goals of Bancorp's executive
compensation program and when the loss of deductibility would not
be materially adverse to Bancorp's overall financial position.
Compensation Committee
Fred E. Trotter, Chairman
Stuart T. K. Ho
Charles R. Wichman
March 10, 1994
NO COMPENSATION COMMITTEE INTERLOCKS
OR INSIDER PARTICIPATION
During 1993 no Executive Officer of Bancorp served as a member
of a compensation committee (or Board of Directors serving as such)
of any entity of which any member of the Compensation Committee was
an Executive Officer.
No member of the Compensation Committee was an employee or
former employee of Bancorp or its subsidiaries or had any
relationships with Bancorp required to be disclosed in this Proxy
Statement pursuant to Item 404 of Regulation S-K under the 1934
Act, other than as noted under the heading "Sale of Commercial
Paper" on page ______, and page ____ under the heading "Certain
Business Relationships".
PERFORMANCE GRAPH
The following performance graph, which shows a five-year
comparison of cumulative total returns for Bancorp, the S&P 500
Composite Index, and the Montgomery Securities Regional Bank
Median, shall not be deemed to be incorporated by reference into
any filing under the 1933 Act or the 1934 Act, except to the extent
Bancorp specifically incorporates it by reference into a filing
under the 1933 Act or the 1934 Act; nor shall it be deemed to be
"soliciting material" or to be "filed" with the Securities and
Exchange Commission or subject to Regulation 14A or 14C under the
1934 Act or to the liabilities of Section 18 of the 1934 Act,
except to the extent that Bancorp specifically requests that such
information be treated as soliciting material or specifically
incorporates it by reference into a filing under the 1933 Act or
the 1934 Act. As of the date of this Proxy Statement, Bancorp has
made no such incorporation by reference or request.
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
(Includes Dividend Reinvestment)
Montgomery
Securities Regional
Bancorp Hawaii S&P 500 Bank Median
- -----------------------------------------------------------------
12/88 $100 $100 $100
12/89 144 131 120
12/90 131 127 94
12/91 209 165 164
12/92 210 178 220
12/93 203 195 231
* Assumes $100 invested on December 31, 1988 in Bancorp Hawaii
stock, S&P 500 Index and the Montgomery Securities Regional Bank
Median
The above graph compares the performance of Bancorp Hawaii, Inc.
with that of the S&P 500 Index and a peer group defined in the
Montgomery Securities Regional Bank Median. The chart assumes
that $100 was invested on December 31, 1988, in Bancorp Hawaii
stock, S&P 500 Index and the Montgomery Securities Regional Bank
Median. The total return on each investment is as of December 31
of each of the subsequent 5 years and assumes reinvested
dividends.
