UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

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PACWEST BANCORP

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LETTER TO STOCKHOLDERS

2021 was a year of strong execution for PacWest Bancorp despite the ever-changing environment caused by the COVID-19 pandemic. As we begin 2022, new challenges and uncertainties are unfolding, from rising inflation and anticipated interest rate hikes to Russia’s invasion of Ukraine. Despite the challenges faced in 2021 and those coming in 2022, we believe the actions we have taken over the last several years have positioned our company well for continued success. In 2021, we executed on a number of strategic initiatives, including two strategically important acquisitions, which expanded and further diversified our low-cost core deposits and revenue sources, and a subordinated debt offering, which enhanced Pacific Western Bank’s capital position. We maintained our disciplined focus on efficient operations and consistently delivering value to our clients. As a result, we generated strong earnings and profitability in 2021 while executing on a strategic plan that we believe will continue to drive strong results in the years to come.

This year exemplified and validated the core tenets to our operating strategy: Soundness, Profitability and Growth.

Soundness.   In 2016, we began a process of de-risking our balance sheet after several years of significant growth. This multi-year de-risking exercise has resulted in what we believe to be a strong balance sheet and platform for future disciplined, accretive growth. Our credit metrics improved in 2021 with net recoveries for the year and classified assets falling 60% to below pre-pandemic levels from the high in the second quarter of 2020. We also bolstered Pacific Western Bank’s capital by issuing $400 million of subordinated debt in April 2021.

Profitability.   Our profitability was among the highest of our peer group with a return on average assets of 1.71% and a return on average tangible equity of 24.4% in 2021. These results were driven by a combination of loan loss reserve releases due to improvements in credit quality and in the macroeconomic environment, significant increases in fee income from our venture banking business, and net interest income expansion as we started to deploy the large amount of liquidity resulting from our strong deposit growth throughout the year. Strategic investments in people and technology, as well as the two all-cash acquisitions, negatively affected profitability in the short run but position us for future profitable growth as we continue to realize the benefits of scale and enhanced organic growth opportunities.

Growth.   Strategic and organic growth were bright spots in 2021. Deposits increased $10.1 billion or 40% compared to 2020, while our loan growth in 2021 was also strong, increasing $3.9 billion or 20% year-over-year. Loan growth was an important part of our liquidity deployment effort in 2021, helping drive quarterly net revenue growth during the year. Continuing to grow loans and improving the loan-to-deposit ratio will be key initiatives in 2022.

As we start 2022, we are focused on four key areas within our operations and organization:

Anticipating Inflation.   Like many financial institutions, we have been anticipating an eventual rise in interest rates following the pandemic-induced rate cuts in 2020 and the expected rebound in the economy and inflation. Rising inflation has become a reality and has the attention of the Federal Reserve, which has indicated its intention to raise rates. While our business is naturally asset sensitive, our increase in low-cost core deposits during 2021 from organic and strategic growth has helped us further diversify our funding base and prepare for a higher rate environment. We will continue to build our business with a strong commitment to core deposits and a willingness to think long-term from a funding perspective. We believe this commitment and approach have positioned us to effectively manage an uncertain economic environment resulting from an inflationary period.

Maintaining Our Commitment to Prudent Capital Management.   We ended 2021 with capital levels that were somewhat below our longer term targets, primarily as a result of the timing, size, and cash consideration paid for Civic in February 2021 and the HOA Business in October 2021, coupled with the significant growth in risk-weighted assets from our liquidity deployment strategies in the second half of 2021. We expect our ratios will rebuild organically throughout 2022 given our profitability profile and our anticipated growth.

Executing on Our Digital Innovation.   Our digital innovation efforts continued to accelerate in 2021 as we executed on our “Vision 2025” strategy, through which we are focused on leveraging technology and fintech partnerships to help us deliver comprehensive digital solutions to our customer base. We will continue to focus a significant part of our managerial and operational attention to digital innovation in 2022.

Sharing Our Commitment to Environmental, Social and Governance Issues.   In 2021, we released our inaugural Corporate Social Responsibility Report, which highlights our efforts in a wide range of areas that comprise the pillars of our corporate social responsibility strategy—community reinvestment, human capital management, diversity, equity, and inclusion, corporate governance, ethics, risk management, and sustainability. We look forward to issuing our 2022 report, which is being enhanced and renamed as our ESG Report, and continuing to enhance our activities and transparency in this important aspect of our business.

As we look back on 2021, we began the year by announcing the anticipated retirement in December 2023 of our first and only CEO, Matt Wagner. The results we experienced this year, and our historical growth and execution, are the byproduct of the culture

 

 

and commitment to excellence that Matt and his executive team have instilled throughout our organization. The Board of Directors, with Matt’s leadership, has been actively working with our advisors and our executive officers on ensuring that Matt’s retirement, the identification of a qualified successor, and the integration of that successor, are smooth and position the organization for long-term success and continued value creation for our stockholders. We have provided more information regarding Matt’s transition in the enclosed proxy statement and look forward to sharing additional information on this watershed event over the coming year.

In closing, thank you for supporting PacWest Bancorp throughout 2021 and over the years. We also acknowledge and thank our nearly 2,300 employees for their relentless hard work and dedication to our clients, colleagues and the communities we serve. These efforts drove our 2021 results, and we are excited about 2022 and look forward to continuing to build on this past year’s momentum.

Sincerely,

 

 

TABLE OF CONTENTS​

 

 

NOTICE OF 2022 ANNUAL MEETING OF STOCKHOLDERS

You are cordially invited to attend PacWest Bancorp’s (“PacWest” or the “Company”) 2022 Annual Meeting of Stockholders (“Annual Meeting”) to be held:

VOTING MATTERS

YOUR VOTE IS IMPORTANT. We appreciate you taking the time to vote promptly. You can access proxy materials at www.proxyvote.com. After reading this Proxy Statement, please vote at your earliest convenience by internet, telephone, mobile device, or, if you received printed proxy materials, by signing, dating, and returning your proxy card by mail.

By Order of the Board of Directors,

Angela M.W. Kelley
Executive Vice President, General Counsel and Corporate Secretary
March 30, 2022

 

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2021 PERFORMANCE HIGHLIGHTS

The following 2021 Performance Highlights are qualified by reference to our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Annual Report”). For more complete information regarding our 2021 performance, please review our 2021 Annual Report.

2021 FINANCIAL PERFORMANCE

Highlights of the Company’s strong 2021 financial performance are provided below.

(1)

For 2020, net earnings (loss) of  ($1,237.6) million is inclusive of  $1.47 billion of goodwill impairment, and excluding the goodwill impairment, net earnings were $232.4 million. For more information regarding the calculation of this financial measure, which is not in accordance with U.S. Generally Accepted Accounting Principles (“non-GAAP”), please refer to “Calculation of Non-GAAP Financial Measures” in Appendix A.

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(2)

For more information regarding the calculation of non-GAAP financial measures included in this section, please refer to “Calculation of Non-GAAP Financial Measures” in Appendix A.

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STRATEGIC ACQUISITIONS

The Company has a long and successful history of strategic acquisitions. In assessing new strategic growth opportunities, we follow our disciplined strategic growth principles that an acquisition should add new products, talent, and/or markets as we strive for better not just bigger. In 2021, we closed two acquisitions that will contribute to our growth and further diversify our funding sources, our credit portfolio, and our sources of non-interest income. Below is a timeline showing the Company’s 31 acquisitions over its history along with its related growth in asset size.

 

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We acquired Civic Financial Services (“Civic”) in February 2021. Through the Civic acquisition, we have further diversified and expanded our lending portfolio, diversified our revenue streams, and deployed excess liquidity into higher-yielding assets. Civic, headquartered in Redondo Beach, California, is one of the leading lenders in the United States specializing in business-purpose residential non-owner-occupied investment properties. For the 11 months of 2021, Civic loan production totaled $1.6 billion, and we ended the year with outstanding loans totaling $1.4 billion.

We acquired the Homeowners Association Services division of MUFG Union Bank, N.A. (the “HOA Business”) in October 2021. This acquisition advanced our strategy to expand product offerings to our customers and diversify our revenue and funding sources. The HOA Business acquisition significantly expanded our existing HOA banking practice, making us one of the premier financial institutions in this market segment. At December 31, 2021, the HOA Business had total deposits of  $4.1 billion.

 

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PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting.

OVERVIEW OF VOTING MATTERS

Our Board of Directors (“Board”) unanimously recommends that you vote FOR the election of each director nominee.

DIRECTOR NOMINEES

The following table provides summary information regarding each director nominee:

A: Audit Committee ALM: Asset/Liability Management Committee CNG: Compensation, Nominating and Governance Committee
E: Executive Committee R: Risk Committee C: Chair

 

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THE PACWEST BOARD OF DIRECTORS

We are committed to maintaining strong corporate governance practices. The Board regularly reviews our governance policies and procedures to ensure compliance with laws, rules, and regulations and stays abreast of governance best practices. We are also committed to operating with corporate social responsibility as a central tenet and continue to focus attention on environmental, social and governance (“ESG”) principles. Examples of our corporate governance practices and our efforts to be a strong corporate citizen are set forth in “Our Directors” and “Corporate Governance Matters,” and certain items are highlighted below.

 

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Our Board unanimously recommends that you vote FOR approval of the compensation paid to our Chief Executive Officer (“CEO”) and our other executive officers who are named in the Summary Compensation Table in “Executive Compensation Tables” (“Named Executive Officers” or “NEOs”).

As an advisory vote, this proposal is not binding upon the Board or the Company. The Compensation, Nominating and Governance Committee (the “CNG Committee”), however, values the opinions expressed by stockholders in their vote on this proposal and will consider the outcome of the vote when making future compensation decisions for our executive officers. The Board believes that the compensation of our Named Executive Officers is appropriate and should be approved on an advisory basis by our stockholders.

OUR COMPENSATION PHILOSOPHY

Our compensation philosophy provides the principles that drive our compensation-related decisions.

1. ALIGN WITH STOCKHOLDER INTERESTS

Executive officers should be compensated through pay elements (base salaries and annual and long-term incentives) that, designed together, align total compensation with stockholder value creation

2. PAY FOR PERFORMANCE

A significant portion of an executive officer’s total compensation should be variable and/or “at-risk” and dependent upon the attainment of specific and measurable performance objectives

3. ATTRACT AND RETAIN EXECUTIVE OFFICERS

The executive compensation program should enable the Company to attract highly-talented people with exceptional leadership and operational capabilities and to retain high-caliber talent

4. MITIGATE RISK

Our executive compensation program should be guided by best-practice governance standards and rigorous processes that encourage prudent decision-making

 

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STOCKHOLDER OUTREACH

Following our 2021 Annual Meeting of Stockholders, we contacted stockholders representing over 50% of our outstanding shares of common stock to obtain specific feedback regarding the Company, our performance, and other corporate topics of interest. During these discussions, we received stockholder feedback regarding our CEO succession planning and transition process, executive compensation program, as well as board governance, board refreshment and diversity, and ESG matters. We have taken meaningful steps to respond to this feedback, as described in this Proxy Statement.

Our Board unanimously recommends that you vote FOR the ratification of the appointment of KPMG LLP as the Company’s independent auditor for the year ending December 31, 2022.

 

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​	• Tanya M. Acker ​	​	​	• John M. Eggemeyer, III ​	​	​	• Susan E. Lester ​	​	​	• Paul W. Taylor ​	​
​	• Paul R. Burke ​	​	​	• C. William Hosler ​	​	​	• Roger H. Molvar ​	​	​	• Matthew P. Wagner ​	​
​	• Craig A. Carlson ​	​	​	• Polly B. Jessen ​	​	​	• Robert A. Stine ​	​	​	​	​

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The Board unanimously recommends a vote FOR the election of each director nominee.

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OUR DIRECTORS

We are pleased to propose 11 director nominees for election this year. We believe that our director nominees possess the requisite diversity, experience, qualifications, and skills, and mix of institutional knowledge and fresh perspectives necessary to maintain an effective Board to serve the best interests of the Company and its stockholders. All nominees are incumbent directors and are deemed “independent” except for our CEO.

Our Board, which currently has 12 members, is cognizant of the importance of Board refreshment. Daniel B. Platt, a current director, has reached our recommended retirement age and will not stand for re-election at the Annual Meeting. Our Board has set the number of directors that will constitute our Board, effective after the Annual Meeting, at 11. However, we anticipate expanding our Board by adding a director later this year, and are prioritizing diversity in director recruitment. Our CNG Committee and Board are committed to maintaining and enhancing our Board’s diversity in an effort to align our Board’s composition with the diverse clients and communities we serve and our diverse workforce.

The biographies below describe the business experience, directorships, and qualifications of each of our director nominees and Mr. Platt. The members of our Board also constitute the board of directors of our wholly-owned subsidiary, Pacific Western Bank (the “Bank”).

 

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DIRECTOR INDEPENDENCE

The Board determines the independence of each director based upon the Nasdaq Stock Market LLC (“Nasdaq”) rules and our independence standards as set forth in our Corporate Governance Guidelines. Based on these standards, the Board has affirmatively determined that all of our non-employee directors, i.e., Mses. Acker, Jessen, and Lester and Messrs. Burke, Carlson, Eggemeyer, Hosler, Molvar, Platt, Stine, and Taylor, are independent and have no material relationship with us (including our directors and executive officers) that would interfere with their exercise of independent judgment. Our President and CEO, Mr. Wagner, is the only director who is not independent.

BOARD MEMBER EXPERIENCE, QUALIFICATIONS AND SKILLS

Based on our business, the primary areas of experience, qualifications and skills typically sought by the CNG Committee in director candidates, include, but are not limited to, the following:

BOARD DIVERSITY AND INCLUSION

While the Board has not adopted a formal written policy regarding director diversity, the Board appreciates and embraces the value of Board diversity. The Board believes different points of view brought through diverse representation lead to better business performance, decision making, and understanding of the needs of our diverse clients, employees, stockholders, business partners, and other stakeholders.

Our Board takes a multi-dimensional approach to diversity and considers a variety of skills and attributes such as:

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Gender, age, racial/ethnic, and geographic diversity;

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Functional, technical or other professional expertise; and

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Industry knowledge, particularly in banking or other industries relevant to our business, such as real estate.

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The Board Diversity Matrix below presents the Board’s diversity statistics.

BOARD DIVERSITY MATRIX AS OF MARCH 30, 2022​

 

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BOARD REFRESHMENT

As part of our annual Board evaluation process, the CNG Committee and our Board consider the tenure and age of each of our directors. Although we do not have a strict policy regarding tenure, the CNG Committee and our Board appreciate the benefit that a disciplined approach to board refreshment can provide. Our Board believes it is critical to maintain a range of Board member tenures to ensure sufficient experience for Board leadership positions and to ensure continuity and institutional knowledge through economic cycles and an evolving competitive landscape, while balancing the benefit of fresh perspectives. In addition, our Corporate Governance Guidelines provide for the retirement of a director who would be age 75 or older at the time of election.

Over the last few years, we have taken a phased approach to refreshment while maintaining continuity and avoiding undue disruptions from excessive turnover. In early 2021, we onboarded a director with significant banking and human capital management experience. At the 2021 Annual Meeting of Stockholders, three directors did not stand for re-election; one director had reached retirement age, and two directors were not independent. Later in 2021, we onboarded a female director with legal expertise in commercial real estate. At this Annual Meeting, one director is not standing for re-election as he has reached retirement age. Two other directors also have reached retirement age, but our Board, as recommended by the CNG Committee, chose to re-nominate them because these directors hold important leadership roles during this critical CEO succession planning and transition process. Our Chairman of the Board, Mr. Eggemeyer, and our Chair of the CNG Committee, Mr. Stine, have served in those roles since 2000 and 2014, respectively, and our Board has deemed their continuity, insights and institutional knowledge during the Company’s CEO succession planning and transition process as essential. Providing an exception to the retirement age guideline was the result of a deliberate approach to refreshment and is reassessed each year. Our Board believes that following the Corporate Governance Guidelines’ recommendation in this instance would not benefit, and would actually adversely affect, our CEO succession planning and transition process and long-term stockholder value. As part of our ongoing refreshment process, we anticipate adding a new director during 2022, and are prioritizing diversity in our recruitment.

SELECTING AND NOMINATING DIRECTOR CANDIDATES

Our CNG Committee is responsible for selecting and nominating director candidates and for carrying out the Board’s commitment to maintaining a balanced and diverse composition of members. The CNG Committee identifies candidates for Board membership and recommends such candidates’ nomination to the Board based on their ability to diversify and complement the Board’s existing strengths.

The CNG Committee will consider candidates recommended by stockholders utilizing the same criteria as director candidates not proposed by stockholders. Stockholders who wish to submit director candidates for consideration by the CNG Committee for election at the 2023 Annual Meeting of Stockholders should follow the process detailed in “Other Business — Stockholder Proposals.”

 

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CORPORATE GOVERNANCE MATTERS

BOARD’S ROLE AND RESPONSIBILITIES

BOARD OVERSIGHT OF STRATEGY AND DIRECT CONTACT WITH MANAGEMENT

Our Board is actively engaged in overseeing the Company’s strategy. The Board annually discusses the Company’s outlook and strategy, and reviews our overall business. Throughout the year, the Board reviews the Company’s strategic priorities and goals, as well as execution on those priorities and goals.

All of our directors have access to our CEO and our executive officers at any time to discuss any aspect of our business.

CEO AND EXECUTIVE OFFICER SUCCESSION PLANNING

Succession planning for the CEO and other senior leadership positions is one of the Board’s important responsibilities. Each year, the CNG Committee reviews and approves a senior leadership succession plan. The senior leadership succession plan describes the process by which the senior leadership of the Company will continue if the current CEO or other senior leader is unwilling or unable to serve, including an unexpected departure of the CEO. Human Resources leads annual discussions with our executive officers, and a written succession plan is prepared for each executive officer’s senior managers. We use these discussions to identify experiences and learning opportunities to prepare potential successors. For more information regarding our CEO succession planning and transition process, please see the discussion in “Compensation Discussion and Analysis — Strategic CEO Succession and Transition Plan.”

STOCKHOLDER OUTREACH AND ENGAGEMENT

Following our 2021 Annual Meeting of Stockholders, we contacted stockholders representing over 50% of our outstanding shares of common stock to obtain specific feedback regarding the Company, our performance, and other corporate topics of interest. During these discussions, we received stockholder feedback regarding our CEO succession planning and transition process, executive compensation program, as well as board governance, board refreshment and diversity, and ESG matters. For additional information regarding our stockholder outreach efforts in 2021 and our response, please see “Compensation Discussion and Analysis — Stockholder Outreach and Our Response to the 2021 Say on Pay Vote.”

RISK OVERSIGHT

OUR BOARD’S ROLE

Our Board believes that identifying, assessing, measuring, and managing risk are essential to our success. Our Board has established the Risk Committee to approve and review the Company’s risk management policies, oversee the implementation of the Company’s enterprise-wise risk management framework, and enhance the Board’s understanding of the Company’s overall risk tolerance and the effectiveness of its enterprise-wide risk management activities. The Risk Committee considers many of the most pressing risk issues a financial institution faces — credit, regulatory, operations, information technology, and information security. The Risk Committee also assists the other Board committees in overseeing risks within their respective areas of oversight. The Board specifically delegates risk oversight functions as follows:

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The ALM Committee is responsible for review of asset/liability management policies, the Company’s investment portfolio and financial risk exposures, and the interest rate risk and liquidity monitoring and reporting system.

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The Audit Committee is responsible for review of accounting and financial controls, financial statement integrity, legal and regulatory compliance, and, in conjunction with the Risk Committee, the Company’s risk management functions.

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The CNG Committee is responsible for review of risks in relation to our compensation programs and policies, human capital management, and our corporate governance structure and processes.

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The Risk Committee is responsible for general risk oversight, credit review, credit management and administration, compliance, including the Bank Secrecy Act, capital plan and stress testing, and operations and systems risk.

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As a general matter, except for cases where a particular committee may choose to meet in executive session, such as our Risk Committee’s quarterly executive session meetings with the Chief Risk Officer, all Board members are invited (but not required) to attend the regular meetings of all Board committees. We believe that this transparent and collaborative structure provides for a more informed Board overall, and helps the Board understand and monitor internal and external risks.

MANAGEMENT’S ROLE

Company management is responsible for day-to-day risk management. The Chief Risk Officer provides the Board, directly, or through the Risk Committee, with regular reports on the operation and effectiveness of the enterprise risk management program, the top and emerging risks to our business and the controls and other mitigating factors utilized to manage those risks. The Internal Audit, Risk Management, Information Technology, Human Resources, Legal, Credit Administration, Accounting, Finance, and Treasury departments, among others, monitor compliance with Company-wide policies and procedures and the day-to-day risk management of the Company. We believe that this approach to risk management adequately addresses the Company’s risks.

RISK APPETITE STATEMENT

The Board oversees, and annually approves, upon recommendation of the Risk Committee, the Risk Appetite Statement. The Risk Appetite Statement sets forth risk targets and tolerance ranges with respect to the amounts and types of risks that we are willing to accept. These key risk indicator limits and thresholds are measured and reported quarterly to the Risk Committee on the Company’s Risk Dashboard.

BOARD OVERSIGHT OF CYBERSECURITY MATTERS

Cybersecurity is a major component of our overall risk management approach. As a financial services institution, handling sensitive data is a part of daily operations and is taken very seriously by employees. We maintain a comprehensive cybersecurity strategy that includes, but is not limited to: regular employee cybersecurity training and communications; preventative, detective, alerting, and defensive in-depth technologies; internal and third-party program oversight; policies and procedures regularly reviewed and designed with regulatory and industry guidance; and regular reviews of vendors who maintain sensitive data on behalf of the Bank. The Board reviews our information security program at least annually, and the Risk Committee receives quarterly management updates from the Chief Information Security Officer regarding cyber/information security matters, including an assessment of current security updates, cyber statistics, core elements and controls, and key information technology trends affecting information security.

BOARD STRUCTURE AND PROCESSES

BOARD LEADERSHIP

Each year, the Board evaluates the Company’s Board leadership structure to ensure that it remains an appropriate structure for our Company and stockholders. Our current structure provides for separate roles of the Chairman of the Board (“Chairman”) and CEO, and all committees are chaired by independent directors. In the event that the Chairman is not independent, our Corporate Governance Guidelines require that we name a lead independent director. We believe this structure provides for open communication between the Board and management and provides the oversight and safeguards necessary to operate our business successfully.

Mr. Wagner is our President and CEO, and Mr. Eggemeyer, an independent member of the Board, serves as Chairman. The Chairman’s principal responsibilities include:

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Chairing meetings of the Board and the annual meeting of stockholders;

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Reviewing and approving Board meeting agendas, meeting schedules and information provided to the Board and ensuring such information is appropriately disseminated;

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Acting as liaison between non-employee directors and management;

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Meeting periodically with the CEO for informal discussions concerning material issues involving the Company; and

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Providing input to the CNG Committee concerning the performance of the CEO.

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EXECUTIVE SESSIONS

The Company’s independent directors meet in executive sessions without management at least twice on an annual basis in conjunction with regularly scheduled Board meetings. During 2021, the independent directors met six times in executive sessions without the presence of management.

ANNUAL BOARD EVALUATIONS AND SELF-ASSESSMENTS

The CNG Committee, in coordination with the full Board, coordinates an annual evaluation of the Board’s performance and effectiveness at the Board, committee, and individual director levels. The Corporate Secretary conducts interviews with each director and compiles the comments anonymously. The evaluation and self-assessments are designed to encourage open and candid feedback on both the effectiveness of the Board as a whole, as well as the effectiveness of each of its members. The scope of the evaluation includes components of Board governance, such as Board size, meeting frequency, quality and timing of information provided to the Board, director communication, director experience, qualifications and skills, director independence, and Board strategy. Similarly, the scope includes components of committee governance, such as committee size, composition, performance, and coordination among committee members and among the standing committees. The results of the Board evaluation are discussed with the full Board, and the results of each committee evaluation are discussed with such committee as well as with the CNG Committee.

BOARD COMMITTEES

We believe our Board has created a sound committee structure designed to help the Board carry out its responsibilities in an effective and efficient manner. There are five standing Board committees: Audit, Asset/Liability Management (“ALM”), CNG, Executive, and Risk. The Board may also form from time to time ad hoc or other special purpose committees, such as the formation of the CEO Succession Committee in 2021.

BOARD COMMITTEE MEMBERSHIPS, RESPONSIBILITIES, AND MEETINGS

All chairs of our five standing committees are independent and appointed annually by the Board upon the recommendation of the CNG Committee. Each chair presides over committee meetings, oversees meeting agendas, serves as a liaison between the committee members and the Board, as well as between committee members and senior management, and works actively and closely with senior management on all committee matters, as appropriate.

Each of the Audit, ALM, CNG, and Risk Committees meets regularly, at least on a quarterly basis. The committees, typically through their committee chairs, routinely report their actions to, and discuss their recommendations with, the full Board. In addition, certain committees periodically hold extended meetings dedicated to discussing key strategic matters or other business items that are relevant or subject to the committee’s oversight responsibilities on a more in-depth basis.

The Board has adopted a written charter for each of these committees, which is available on the PacWest website www.pacwestbancorp.com, under “Corporate Overview — Corporate Governance.” The charters provide that the committees have adequate resources and authority to discharge their responsibilities, including appropriate funding for the retention of external consultants or advisers, as the committees deem necessary or appropriate.

With the exception of our CEO’s participation on the ALM, Risk and Executive Committees, each of the current members of the five standing Board committees is “independent.” The names of the current members (chairs specifically noted) and highlights of some of the key oversight responsibilities of the Board committees are set forth below.

 

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ASSET/LIABILITY MANAGEMENT COMMITTEE

AUDIT COMMITTEE

COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE

 

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EXECUTIVE COMMITTEE

RISK COMMITTEE

In 2021, the Board formed the CEO Succession Committee, a special committee comprised of six independent directors to lead the Board’s efforts to identify and recommend a new CEO for the full Board’s approval. The names of the current members (chair specifically noted) and highlights of some of the key oversight responsibilities of the CEO Succession Committee are set forth below.

CEO SUCCESSION COMMITTEE

DIRECTOR MATTERS

MEETING ATTENDANCE

During 2021, the Board met 10 times. In 2021, each director attended at least 95% of the meetings of the Board and the committees on which he or she served.

Directors are encouraged, but not required, to attend the Annual Meeting. Ten of the directors then-serving attended the 2021 Annual Meeting of Stockholders.

 

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

For 2021, the CNG Committee was comprised of Ms. Acker and Messrs. Burke, Hosler, Molvar, and Stine. None of these individuals is or ever was an officer or employee of the Company. No executive officer of the Company is, or was during 2021, a member of the board of directors or compensation committee (or other board committee performing equivalent functions) of another entity that has, or had during 2021, an executive officer serving as a member of our Board or CNG Committee. For a discussion of related party transactions, see “Corporate Governance Matters — Certain Relationships and Related Party Transactions.”

OUTSIDE DIRECTORSHIPS

The Company values the experience directors bring from other boards on which they serve, but we encourage all directors to carefully consider the number of other boards of directors on which they serve, taking into account the time required for board attendance, conflicts of interests, participation, and effectiveness on these boards. Pursuant to our Corporate Governance Guidelines, directors are required to advise the Chair of the CNG Committee and the CEO before accepting membership on other boards of directors or other significant commitments involving affiliations with other businesses or governmental units.

ESG MATTERS

ESG GOVERNANCE STRUCTURE

We are committed to integrating ESG considerations into our business practices and operations. Our priority is to mitigate risk and improve performance, while optimizing the positive impact on our business, society and the environment. This includes making our operations more sustainable, fostering an inclusive workforce, and addressing social and environmental issues in our communities.

The Company devoted significant resources to building out our ESG framework in 2021, including the development and implementation of a new ESG governance structure. An overview of our ESG governance structure and the duties and responsibilities of each committee and working group are outlined below.

 

PACWEST BANCORP  2022 PROXY STATEMENT    |    23​

ESG HIGHLIGHTS

Below are selected highlights of our ESG efforts in 2021. For more details regarding our commitment to ESG initiatives, you are encouraged to read our 2020 Corporate Social Responsibility Report, which is available on the Bank website at www.pacwest.com, under “About Us — Social Responsibility,” and our forthcoming enhanced and renamed ESG Report, which you will be able to find in the same location when it is published in April 2022.

ENVIRONMENTAL

Environmental stewardship drives our efforts to implement solutions that reduce our environmental impact while protecting our stakeholders. We look forward to forthcoming regulatory standards to provide clear guidance on sustainability and industry best practices, including guidance from the newly formed International Sustainability Standards Board, the SEC and the Financial Stability Oversight Council. In the interim, we are assessing our approach to managing the physical and transition risks of climate change, considering the unique profile of our physical footprint and our client portfolio, taking into consideration the Global Reporting Initiative and Sustainability Accounting Standards Board standards and other applicable guidance. We are examining ways to reduce waste, promote recycling, conserve energy, and educate our employees regarding the benefits of environmental sustainability.

SOCIAL

Our commitment to investing in our communities is a hallmark of our ESG program. Through a robust community development program, we have a long-standing history of supporting local communities. We are committed to supporting the communities in which we live and work through investment in affordable housing projects, charitable contributions, and employee volunteerism. We also promote financial inclusion by increasing access to capital for women- and minority-owned businesses and supporting the Community Reinvestment Act initiatives that contribute to minority communities’ economic sustainability.

GOVERNANCE

Strong corporate governance practices support our overall effectiveness and enable us to manage our business and maintain integrity in the marketplace. We believe strong governance is required at all levels, from our Board to executive management and throughout our Company. For more information regarding our governance practices, see “Our Directors” and “Corporate Governance Matters.”

HUMAN CAPITAL MANAGEMENT

Our employees are our most important assets. To facilitate talent development and retention, we strive to provide opportunities for our employees to grow, learn, and advance in their careers, supported by strong compensation, benefits, and health and wellness programs. We are committed to advancing diversity, equity and inclusion throughout all levels of the Company and to providing a safe working environment. We endeavor to provide our employees with fulfilling careers and financial security.

 

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GENDER AND RACIAL DIVERSITY AT A GLANCE

We are proud of the diverse workforce we have at the Company, as detailed in the graphics below.

*As of December 31, 2021

For more information regarding our employee programs, see “Human Capital Management” in Part 1, Item 1 of the Company’s 2021 Annual Report.

ADDITIONAL CORPORATE GOVERNANCE MATTERS

We are committed to maintaining strong corporate governance practices, and the Board regularly reviews its corporate governance procedures to ensure compliance with laws, rules and regulations. The PacWest website at www.pacwestbancorp.com includes important information regarding the Board, Board committee charters, corporate governance policies, certain of our SEC filings, and press releases. Examples of our corporate governance practices are set forth in “Our Directors” and “Corporate Governance Matters,” and certain of our corporate governance policies are highlighted below.

CORPORATE GOVERNANCE GUIDELINES

The Board has developed and adopted a set of corporate governance principles to promote the functioning of the Board and its committees and to establish a common set of expectations as to how the Board should perform its functions. The Corporate Governance Guidelines address director qualification standards and independence requirements, board structure, director retirement and resignation, management succession planning, and expectations of directors. The CNG Committee reviews the Corporate Governance Guidelines at least annually and recommends changes to the Board in accordance with best practices in corporate governance and applicable laws and regulations. The Corporate Governance Guidelines are available on the PacWest website at www.pacwestbancorp.com, under “Corporate Overview — Corporate Governance.”

 

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CODE OF BUSINESS CONDUCT AND ETHICS

The Board has adopted a Code of Business Conduct and Ethics that is applicable to all employees and directors, including the Company’s CEO, Chief Financial Officer (“CFO”), Chief Accounting Officer, and other senior financial officers. Our Code of Business Conduct and Ethics sets forth specific standards of conduct that we expect all of our employees and directors to follow so that the Company conducts its business in accordance with the highest ethical standards of the financial industry and complies with all laws regulating the conduct of the Company and its employees. In addition, we have an executive-level management committee for conduct and ethics and maintain an ethics hotline for employees to use on an anonymous basis. The Code of Business Conduct and Ethics is available on the PacWest website at www.pacwestbancorp.com, under “Corporate Overview — Corporate Governance.”

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Our Board has adopted a written Related Party Transaction Policy requiring the review and approval by the Audit Committee of transactions with related parties (i.e., our directors, director nominees, executive officers, or immediate family members thereof; entities for which any such individual is an executive officer or general partner; 5% stockholders; and other entities either in which any of the foregoing parties, directly or indirectly, possesses a 10% or greater equity or voting interest or that is otherwise controlled by any of the foregoing parties). Any member of the Audit Committee who has an interest in a transaction under review must abstain from voting on the approval of the transaction.

2021 RELATED PARTY TRANSACTIONS

In the normal course of business, the Company purchases equity securities, corporate securities, and mortgage loans for investment purposes. On December 30, 2021, the Company purchased in a private placement 1,000,000 depository shares each representing an ownership interest in a share of non-voting fixed-rate, non-cumulative perpetual preferred stock of a privately-owned, non-affiliated bank holding company for the purchase price of  $25 per depository share for a total of $25.0 million for investment purposes. In February 2022, the Company purchased $133.1 million in unpaid principal balances of single-family residential mortgage loans from the same bank holding company. In addition, the Company entered into a subservicing agreement with the bank holding company pursuant to which it would service the purchased loans on an ongoing basis and the Company could outsource servicing of loans purchased from third parties to it. Our Chairman, Mr. Eggemeyer, is a member of the board of directors of the non-affiliated bank holding company and is the Managing Member of funds that own greater than 10% of the equity of the bank holding company. These transactions were all undertaken without any involvement from Mr. Eggemeyer with respect to negotiating the terms of the relevant securities, mortgage loans, or subservicing agreement, which terms were determined on an arms’ length basis. These transactions were approved by the Audit Committee in accordance with our policy.

We currently have no outstanding loans to insiders, but we have a comprehensive system for monitoring and reporting loans to insiders.

DIRECTOR COMPENSATION

The CNG Committee annually reviews director compensation and makes recommendations to the Board. Our independent directors approve our director compensation.

We use a combination of cash and equity to attract and retain qualified non-employee directors. Compensation of our directors reflects our belief that a significant portion of directors’ compensation should be tied to long-term growth in stockholder value. The annual equity awards are delivered in the form of fully-vested common stock and are subject to the directors’ respective elections at the annual meetings of stockholders. Our CEO, our only employee director, is not, and will not be, separately compensated for service as a member of the Board.

 

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ELEMENTS OF DIRECTOR COMPENSATION

The annual retainers for non-employee directors’ service on the Board and Board committees during 2021 were as follows:

​

(1)

The Board eliminated the Lead Independent Director position on May 12, 2021.

​

(2)

On August 11, 2021, the Board, as recommended by the CNG Committee, approved the Chairman’s personal use of the corporate aircraft in lieu of an increase in his annual equity award.

​

Prior to May 12, 2021, the Board had not changed non-employee director compensation since 2016. The CNG Committee engaged Pearl Meyer, an independent consulting firm specializing in compensation program design and evaluation, to review its non-employee director compensation relative to market data. On May 12, 2021, the CNG Committee reviewed Pearl Meyer’s non-employee director competitive compensation report, noting the Company’s current non-employee director compensation was underweighted on annual equity compensation compared to peers. The CNG Committee subsequently approved an increase in non-employee director annual equity compensation from $57,000 in shares of fully-vested stock to $75,000 in shares of fully-vested stock, effectively immediately, except that the Chairman’s annual equity compensation remained unchanged. The CNG Committee also approved a $40,000 increase in the chair supplemental retainer fees for each of the Audit and CNG Committees. On August 11, 2021, the Board, as recommended by the CNG Committee, approved limited personal use of the corporate aircraft by the Chairman in lieu of an increase in his annual equity award.

DIRECTOR COMPENSATION TABLE

The table below details all compensation paid to Company non-employee directors who served during 2021:

​

(1)

Amounts shown are based on the market value of the underlying stock on the date of grant. For further information, see Note 19. Stock-Based Compensation, to the Company’s audited financial statements for the year ended December 31, 2021 included in the Company’s 2021 Annual Report.

​

(2)

Amount includes life insurance premiums paid by the Company and $67,767 in personal use of corporate aircraft and accompaniment of personal guests on business trips using chartered and corporate aircraft. The dollar amount of personal use of corporate aircraft is calculated based on the number of personal flight hours multiplied by a standard cost per hour representing the

​

 

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incremental variable costs as determined by an independent reference source. The dollar amount of accompaniment of personal guests on chartered and corporate aircraft is calculated using the standard industry fare level, or SIFL, method.

(3)

Ms. Jessen joined the Board on August 3, 2021. Ms. Jessen received a pro rata board retainer based upon commencing service in 2021, and received a pro rata equity award for her service until the Annual Meeting.

​

(4)

Mr. Messer did not stand for re-election to the Board at the 2021 Annual Meeting of Stockholders.

​

(5)

Mr. Taylor joined the Board on January 29, 2021. Mr. Taylor received a pro rata equity award for his service until the 2021 Annual Meeting of Stockholders.

​

STOCK OWNERSHIP GUIDELINES FOR DIRECTORS

In an effort to ensure that the interests of our non-employee directors are aligned with our stockholders, the Company established in its Stock Ownership and Clawback Policy a non-employee director stock ownership guideline that expects non-employee directors to own shares equal to five times their annual cash retainer. Executive officers, including those serving as directors, are subject to stock ownership guidelines as described in “Compensation Discussion and Analysis — Other Executive Compensation Practices, Policies, and Guidelines — Stock Ownership Guidelines.” Non-employee directors are expected to meet this guideline within five years of the date of their election or appointment to the Board. As of the Record Date, all of the non-employee director nominees meet the stock ownership guideline or are expected to meet the guideline within five years of election or appointment.

 

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EXECUTIVE OFFICERS

Current executive officers of the Company and their age, current position and business experience during at least the past five years are as follows:

 

PACWEST BANCORP  2022 PROXY STATEMENT    |    29​

​

​

​

The Board unanimously recommends a vote FOR approval of the compensation paid to the Company’s NEOs as disclosed in this Proxy Statement pursuant to the disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.

​

 

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COMPENSATION DISCUSSION AND ANALYSIS

In this Compensation Discussion & Analysis (“CD&A”), we explain our 2021 compensation program for our CEO, CFO, and our other three highest paid executive officers, whom we collectively refer to as our “NEOs.” The CNG Committee of our Board has designed our executive compensation program to (i) align executive officers’ interests with the interests of our stockholders, (ii) pay for performance, (iii) attract and retain executive officers, and (iv) mitigate undue risk. In designing our executive compensation program, the CNG Committee is mindful of the perspectives our key stakeholders may have with respect to executive compensation.

EXECUTIVE COMPENSATION SNAPSHOT

(1)

For more information regarding the calculation of non-GAAP financial measures included in this section, please refer to “Calculation of Non-GAAP Financial Measures” in Appendix A.

​

(2)

Source: S&P Global Market Intelligence.

​

 

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HISTORICAL PERFORMANCE

Starting in 2000, which was the year our CEO joined and co-founded the Company, we embarked on a long-term strategic growth initiative that has delivered results for our stockholders and the communities we serve. Our history reflects an ability to execute on strategic acquisitions and grow organically, and this ability has played and continues to play an important role in our executive compensation decisions. This was particularly true in 2021, as we completed two strategic acquisitions that further diversified our sources of funding, interest income and non-interest income, as well as the profile of our credit portfolio. The below table provides a snapshot every seven years since formation and illustrates the growth and profitability of the Company over the years.

(1)

For more information regarding the calculation of non-GAAP financial measures included in this section, please refer to “Calculation of Non-GAAP Financial Measures” in Appendix A.

​

 

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STOCKHOLDER OUTREACH AND OUR RESPONSE TO THE 2021 SAY ON PAY VOTE

Our stockholders historically have supported our executive compensation program; however, our “say on pay” proposal received only 37% support at our 2021 Annual Meeting of Stockholders.

Although this vote is advisory and non-binding, the CNG Committee and our entire Board considered it important to understand the reasons for this outcome and solicited feedback from our stockholders following our 2021 Annual Meeting of Stockholders. We contacted stockholders representing over 50% of our outstanding shares of common stock to obtain specific feedback regarding the Company, our executive compensation, and our financial and operating performance. Our CFO and General Counsel participated in these outreach activities, as well as our CNG Committee Chair for certain meetings. During these discussions, we received stockholder feedback that touched on the status of our CEO succession and transition plan, our executive compensation program, including the size and structure of the CEO retention package awarded in January 2021, as well as board refreshment and diversity, and ESG-related initiatives. A summary of the key areas of feedback we received and how we responded is provided in the chart below.

 

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Our Board is committed to continuing our engagement with stockholders on the topics of our CEO succession and transition planning, executive compensation, board refreshment and diversity, and ESG-related initiatives, and such engagement will be a priority for us throughout 2022.

 

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STRATEGIC CEO SUCCESSION AND TRANSITION PLAN

In 2020, the COVID-19 pandemic spread globally shortly after Mr. Wagner entered his 20th successful year as President and CEO of the Company. Within the context of this historic period of volatility and uncertainty, the Board and the CNG Committee, together with Mr. Wagner, began the process of developing a strategic CEO succession and transition plan, which would span the course of multiple years, in order to draw upon Mr. Wagner’s significant tenure with the Company and his strong leadership and goodwill with the Company’s stakeholders. In addition, the Board wanted to ensure that the Bank continued to benefit from the critical services of Mr. Wagner, who, since 2000, had provided invaluable leadership, strategic direction, and management of a talented team, leading the Company to exponential growth, the successful completion of 29 acquisitions through 2020, and strong long-term financial performance. As a result, the Board and the CNG Committee took the following actions:

•

Succession Process.   The Company has an ongoing senior leadership succession planning process, including CEO succession, which is updated and reviewed by the Board annually. In supplement to its regular succession planning process, the Board developed a three-year CEO succession planning and transition process that is anticipated to culminate in Mr. Wagner’s retirement as President and CEO the Company on December 31, 2023. A three-year CEO succession plan and transition process provides the Board ample time to identify and appoint the next President and CEO of the Company, and allows for a smooth and orderly CEO transition. The below graphic illustrates key milestones with respect to the CEO succession and transition plan:

​

•

CEO Succession Committee.   In 2021, the Board constituted the CEO Succession Committee, a special committee comprised of six independent directors to lead the Board’s efforts to identify and recommend a new CEO for the full Board’s approval. The CEO Succession Committee includes the Chairs of the Board and Board committees, as well as Mr. Taylor, who joined the Board in early 2021 and has extensive bank CEO and succession planning and transition experience. The CEO Succession Committee provides the Board with regular updates regarding the CEO search process and works with the third-party advisor engaged to assist with developing the structure and timeline for the CEO succession and transition plan, and the assessment of potential CEO candidates.

​

•

CEO Retention Package.   In light of the challenges arising from the COVID-19 pandemic and the uncertainty that naturally arises from any CEO succession planning and transition process, the CNG Committee and the Board concluded that retaining Mr. Wagner was imperative, and that it was equally important to continue to align Mr. Wagner’s short- and long-term interests with those of the Company and its stockholders. In furtherance of these goals, the CNG Committee recommended, and the Board approved, a three-year CEO retention package designed to reinforce that alignment through the succession planning and transition process.

​

In designing and approving Mr. Wagner’s CEO retention package, the CNG Committee and the Board, after considering information and analysis provided by the CNG Committee’s compensation consultant, determined a front-loaded package with respect to long-term incentives, the largest component of the retention package, would align Mr. Wagner’s and stockholders’ interests and focus Mr. Wagner’s attention on his individual and Company performance over the next three years with no awards tied to Company performance after his anticipated retirement. The discussions regarding the long-term incentive elements of the CEO retention package began in the second quarter of 2020 and, because of the heavy operational demands and general volatility of the pandemic-influenced time period, stretched into the fourth quarter of 2020. Mr. Wagner, the CNG Committee, and the Board identified a potential quantum of long-term incentive shares/units for the CEO retention package—702,000. At the time, this number of shares/units had a market value of approximately three to four times Mr. Wagner’s maximum LTI award in 2020, which generally aligned with the three-year time horizon of Mr. Wagner’s anticipated transition. The parties spent additional time developing the structure of the CEO retention package and the associated performance metrics, which resulted in a long-term incentive mix of one-third time-based and two-thirds performance-based awards. By the time the terms of the CEO retention package were finalized and the award agreements were entered into and publicly announced on January 29, 2021, the Company’s stock price had rebounded, though the markets remained volatile. Given the ongoing economic and pandemic-induced uncertainty resulting in stock price volatility, the CNG Committee and the Board decided to maintain the previously discussed number of shares/units comprising the retention awards. On January 29, 2021, the award of 702,000 shares/units had a market value of approximately five times Mr. Wagner’s maximum LTI award in 2020.

The CEO retention package reflects various critical components during the succession planning and transition process: continued service, both short- and long-term financial performance during the transition, and the satisfactory completion of certain key strategic initiatives critical to the Company’s long-term success. In addition, Mr. Wagner will receive no increase to his base salary in the future and will receive no additional LTI awards, but will be eligible for annual cash incentive awards. The graphic below details the elements of Mr. Wagner’s CEO retention package.

 

PACWEST BANCORP  2022 PROXY STATEMENT    |    35​

 

The Board and the CNG Committee weighed various considerations when determining Mr. Wagner’s CEO retention package, including:

•

Reportable CEO Compensation in 2021.   While the Board and the CNG Committee were aware that this approach would result in increased reportable compensation for 2021 as compared to 2020 as well as to 2022 and 2023, both the Board and the CNG Committee strongly believed that this approach, which includes a significant portion of  “ at-risk” compensation tied to long-term performance during the three-year succession planning and transition process, was appropriate.

​

•

Significant Performance-Based Components.   Rather than structuring the retention awards exclusively as time-based vesting, the CNG Committee and Board determined that structuring the majority of the CEO retention package as performance-based and requiring the achievement of certain performance goals and metrics was appropriate. The CNG Committee and Board believe this structure aligns Mr. Wagner’s interests with those of stockholders while providing meaningful incentive for Mr. Wagner’s continued committed service and willingness to actively support the succession planning and transition process while at the same time overseeing the prudent and profitable short- and long-term operations of our Company.

​

•

Final Long-Term Incentive Award.   The LTI awards were designed to be front-loaded to tie Mr. Wagner’s performance to his remaining tenure. Accordingly, Mr. Wagner will not be eligible for any future LTI awards.

​

•

Important Forfeiture Components.   Equally important, subject to limited exceptions, Mr. Wagner will forfeit the unvested time-based restricted stock awards if he voluntarily leaves the Company prior to December 31, 2023, and he will forfeit unvested performance-based awards in the event he voluntarily leaves the Company prior to December 31, 2023, or if the specified performance goals are not achieved. Set forth below is a summary of the key features of Mr. Wagner’s CEO retention package.

​

 

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ALIGNMENT OBJECTIVE: ALIGNMENT OF SHORT-TERM INTERESTS

 

PACWEST BANCORP  2022 PROXY STATEMENT    |    37​

 

ALIGNMENT OBJECTIVE: ALIGNMENT OF LONG-TERM INTERESTS

 

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ADDITIONAL INFORMATION REGARDING SUCCESSION/TECHNOLOGY RSAs

As described above, Mr. Wagner received as part of his CEO retention package 234,000 Succession/Technology RSAs that vest based upon the achievement of certain specified goals relating to (i) CEO succession and transition planning and senior leadership development, and (ii) and development and implementation of a digital innovation strategy.

CEO SUCCESSION AND SENIOR LEADERSHIP DEVELOPMENT PLANS

The CNG Committee and Board conditioned 50% of the Succession/Technology RSAs on the successful execution of the CEO succession and transition plan and the senior leadership development plan. We have operated under the strong and steady leadership of Mr. Wagner for over 20 years, a remarkable time at the helm for a leader of a financial institution of the Company’s size. The CEO transition is a major event in the Company’s history, as we have never had another CEO, and a smooth CEO transition is critical to the future success of the Company. Additionally, the CNG Committee and the Board recognize that development of senior leaders across the organization allows the Company to have a strong group of individuals ready for other succession opportunities within the Company and reduces turnover among the senior leadership. Accordingly, the CNG Committee and Board felt that significant incentives dedicated to both a successful CEO succession and transition plan, and senior leadership development plan, were warranted and aligned with stockholder interests.

DIGITAL INNOVATION

The CNG Committee and Board also believe that digital innovation is critical to the future success of the Company, specifically to our ability to attract and service customers and our ability to operate efficiently. In light of the 31 acquisitions executed during Mr. Wagner’s tenure, the CNG Committee and the Board believe that it is important for legacy technology systems to be rationalized and enhanced, with a focus on customer experience and data warehouse, management, and analytics capabilities, prior to Mr. Wagner’s retirement. The Company has developed an extensive, forward-looking technology roadmap called “Vision 2025,” prioritizing digital innovation, enhancing customer experience and engagement, automating and improving the use of data across the Company, and driving operational efficiencies. As these efforts are of key strategic importance to the Company going forward, the CNG Committee and Board allocated 25% of the Succession/Technology RSAs to the execution of our digital innovation strategy.

DISCRETIONARY AMOUNTS

The CNG Committee and Board reserved the vesting of the remaining 25% of the Succession/Technology RSAs to the CNG Committee’s discretion, which the CNG Committee and Board believe is appropriate to provide some flexibility to evaluate Mr. Wagner’s overall performance based on other unforeseeable situations that may arise during the ensuing three-year CEO succession and transition timeframe. The table below summarizes the goals, established by the CNG Committee and approved by the Board, applicable to this award.

 

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EXECUTIVE COMPENSATION PHILOSOPHY AND OBJECTIVES

Beyond the unique considerations employed in determining appropriate compensation in light of our CEO succession planning and transition, the Company’s general philosophy and objectives underlying our executive compensation program are to:

•

employ the best leaders in our industry to ensure we execute on our business goals;

​

•

drive short- and long-term profitability of the Company; and

​

•

create long-term stockholder value.

​

Our CNG Committee has established four key principles that provide the framework for our executive compensation program:

 

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SUMMARY OF OUR EXECUTIVE COMPENSATION PRACTICES

We believe the following compensation practices and policies promote accountability in our executive officers and strengthen the alignment of our executive officers’ and stockholders’ interests.

 

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PAY FOR PERFORMANCE AND PAY “AT-RISK”

We strive to ensure that there is long-term alignment between executive compensation and our performance.

We believe that a significant portion of our executive officers’ total compensation should be “at-risk,” meaning that its payment or vesting is based upon the occurrence of a future event or determined based upon the achievement of certain performance metrics. We also believe that a significant portion should be variable, meaning that the level of compensation or value of awards will be increased or decreased based on the achievement of certain performance metrics or the performance of our stock.

The total amount of compensation each executive officer could receive with respect to a fiscal year is variable based on our performance, which motivates our executive officers to achieve performance goals and create value for our stockholders. The annual incentive bonus is earned by our executive officers for the achievement of short-term performance goals. The amount paid is tied to the level of achieved performance, with higher payout levels reflecting superior performance. The long-term performance-based equity awards reward our executive officers for achieving long-term performance goals and increasing stockholder value.

As reflected in the charts below, 96% of our CEO’s target total 2021 compensation was variable and/or “at-risk,” and 74% of our other NEOs’ total 2021 compensation was variable and/or “at-risk.”

EXECUTIVE COMPENSATION DECISION MAKING PROCESS

The CNG Committee is responsible for determining the compensation for our executive officers and recommending the compensation for our CEO, and the Board is responsible for determining our CEO’s compensation. For purposes of this CD&A, reference to a compensation action or decision by the CNG Committee with respect to our executive officers means, in the case of Mr. Wagner, an action or decision by our Board, as recommended by the CNG Committee.

Executive compensation decisions are made by our CNG Committee, considering executive compensation design proposals from the CNG Committee’s independent compensation consultant, information from executive management, and the compensation practices of our peer group.

From 2018 until April 2021, the Company engaged Pearl Meyer as its compensation consultant. During this engagement, the CNG Committee consulted Pearl Meyer regarding the CEO retention package, executive compensation, and non-employee director compensation. Based on the CNG Committee’s review and information provided by Pearl Meyer regarding the provision of services, fees, policies and procedures, the presence of any conflicts of interest, ownership of Company stock, and other relevant factors, the CNG Committee concluded that engaging Pearl Meyer raised no conflict of interest concerns, and Pearl Meyer was deemed to be independent for purposes of its services as an advisor to the CNG Committee.

In May 2021, the Company engaged F.W. Cook, an independent executive compensation consulting firm, as its new compensation consultant. Based on the CNG Committee’s review and information provided by F.W. Cook regarding the provision of services, fees, policies and procedures, the presence of any conflicts of interest, ownership of Company stock, and other relevant factors, the CNG Committee concluded that engaging F.W. Cook raised no conflict of interest concerns, and F.W. Cook was deemed to be independent for purposes of its services as an advisor to the CNG Committee.

 

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The following graphic illustrates the roles of our CNG Committee, independent compensation consultant, executive management team, and compensation peer group in our executive compensation program:

2021 PEER GROUP

In order to effectively attract, properly motivate, and retain our executive officers, the CNG Committee periodically reviews market data relating to pay levels, pay mix, and pay practices. The CNG Committee uses multiple reference points when establishing targeted pay levels. The CNG Committee applies judgment and discretion in establishing targeted pay levels, taking into account not only market data, but also factors such as Company, group and individual performance, scope of responsibility, critical needs and skill sets, experience, leadership potential, and succession planning. In evaluating market data for our executive officers, the CNG Committee benchmarks against our peer group, which consists of financial services companies with similar commercial banking business models and of similar size (i.e., total assets, market capitalization and revenue).

Based on Pearl Meyer’s recommendations, the CNG Committee maintained the same group of companies for benchmarking purposes for use in setting 2021 executive officer target compensation. The following 19 companies comprise our peer group:

 

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ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

We analyze and adjust the various elements of our executive compensation program annually in an effort to ensure that each element is designed in a way that is consistent with the program principles described above. The purpose and key characteristics of each element of our executive compensation program are summarized below.

BASE SALARY

The CNG Committee is responsible for setting executive officer base salaries. The CNG Committee considers base salary levels as part of its process of ensuring that each executive officer’s overall compensation package is competitive, including annual and long-term incentives, the target amounts of which are generally based on a percentage or multiple of base salary.

Below are NEO base salaries for 2020 and 2021. None of our NEOs received a base salary increase in 2021, except for Mr. Olson who was promoted to Chief Financial Officer.

​

(1)

Amounts in table represent NEO base salaries at the end of the period presented.

​

(2)

Mr. Olson was not an NEO in 2020. Mr. Olson received a promotion from Deputy Chief Financial Officer to CFO of the Company on January 1, 2021, with an approved annual base salary of  $500,000. In August 2021, Mr. Olson received a base salary increase to $550,000.

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ANNUAL CASH INCENTIVES — EIC PLAN

Our EIC Plan is designed to provide each executive officer with a strong incentive to execute our strategic and annual financial plan. Our annual EIC Plan:

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Applies to our NEOs.

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Each executive officer is assigned a target annual cash incentive, equal to a percentage of base salary, subject to maximum award amounts.

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The target and maximum award opportunity for each executive officer is reflective of the executive officer’s role and competitive market practice.

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Is based on performance metrics and targets set each fiscal year.

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At the beginning of each fiscal year, the CNG Committee reviews the performance metrics used under our existing EIC Plan and selects performance metrics and targets that it believes reflect a balanced approach to measuring our financial performance and focusing our executive officers on the key elements of our strategic and annual financial plan. For 2021, the performance metrics were focused on profitability, operating efficiency, asset quality, and loan growth.

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Our annual financial plan is prepared at the beginning of each fiscal year based on the prior fiscal year’s operating results, current fiscal year projections, and various assumptions and estimates with respect to macroeconomic conditions, industry conditions, estimated loan growth, estimated deposit growth, and forecasts of headcount, income and expenses, as well as our strategic initiatives. For fiscal 2021, our annual financial plan also took into consideration continued uncertainties with respect to the COVID-19 pandemic.

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Each performance metric is weighted relevant to other financial performance metrics and has a designated threshold, target, and maximum award opportunity, in each case based on our annual financial plan.

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•

Compares year-end actual performance to performance targets to determine the percentage of the target annual cash incentive that will be achieved.

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Based on the year-end annual financial results, the CNG Committee determines the extent to which the recently-ended year’s performance targets have been achieved and the corresponding annual cash incentive payout.

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Annual cash incentive payouts are interpolated between the threshold, target, and maximum award opportunities to ensure sound incentive compensation arrangements and appropriate pay for performance alignment.

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Performance below threshold results in no annual cash incentive payment for the particular performance metric.

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The CNG Committee has the discretion to adjust the payout based on its assessment of an executive officer’s individual performance and other circumstances relating to our business.

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2021 EIC PLAN INCENTIVE AWARD OPPORTUNITIES

Except for an increase in Mr. Wagner’s annual cash incentive award opportunity in connection with his CEO retention package, which increased the target from 150% to 200% of base pay, executive officer annual cash incentive award opportunities remain unchanged from 2020. For 2021, annual cash incentive award opportunities were as follows:

In considering appropriate performance metrics for 2021, the CNG Committee determined the Company’s 2018, 2019, and 2020 EIC Plan performance metrics of return on tangible common equity (“ROTCE”), efficiency ratio, net charge-off ratio, and average loans continued to reflect a balanced approach to measuring our financial performance while focusing our CEO and other executive officers on the key elements of our strategic and annual financial plan. The weight of each performance metric also remained unchanged from the 2019 and 2020 EIC Plans.

Our 2021 EIC Plan performance targets were based upon, and consistent with, our annual financial plan, which was developed in the fourth quarter of 2020 and approved by the Board in February 2021. In finalizing our performance targets, the CNG Committee considered our 2020 financial performance, the continued economic uncertainty the COVID-19 pandemic presented (including with respect to our forecast results of operations and credit quality), and the potential impact of certain strategic events,

 

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such as the Civic acquisition, which closed in early 2021. As a result, our 2021 annual plan and 2021 EIC Plan performance targets varied as compared to the 2020 actual results:

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ROTCE and average loan balance performance targets were set above our 2020 actual results.   Notably, our ROTCE performance metric has the highest weighting of 50% and, collectively, our ROTCE and average loan balance performance targets represent 65% of the total weighting for our EIC Plan.

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On the other hand, the efficiency ratio and net charge-off ratio performance targets were set below 2020 actual results.   Our 2021 efficiency ratio was forecast to increase over 2020 because we anticipated that the Civic acquisition would increase operating expenses at a higher pace than revenues because of a change to the Civic revenue model (moving from a gain-on-sale model to a held-for-portfolio model). Additionally, our 2021 net charge-off ratio was forecast to increase as compared to 2020, largely because of the uncertainty regarding the COVID-19 pandemic’s ongoing potential impact on credit quality—the same uncertainty that contributed to our 2020 actual net charge-offs of 45 basis points, exceeding our pre-pandemic 2020 annual financial plan and target net charge-offs of 17 basis points.

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Ultimately, the CNG Committee approved the 2021 EIC Plan targets at levels the CNG Committee believed were disciplined, rigorous, and prudent in light of our anticipated strategic growth and uncertain operating environment.

The 2021 EIC Plan performance metrics, relative weightings, and payout factors were as follows:

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(1)

Performance below threshold results in no annual cash incentive payment for the particular performance metric.

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(2)

When establishing the 2021 EIC Plan in early 2021, the CNG Committee adopted a guideline, consistent with previous years, for potentially enhancing the ROTCE performance metric payout factor to up to 200%, as described in greater detail below.

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When establishing the 2021 EIC Plan in early 2021, and consistent with previous years, the CNG Committee adopted payout factor adjustment guidelines providing for positive enhancements tied to our ROTCE performence metric. The CNG Committee singled out the ROTCE performance metric because of its comparative importance—it represents our ability to generate long-term profitable growth and returns. If the Company’s actual ROTCE met or exceeded target and the Company’s pre-tax core ROTCE is at or above the 75th percentile relative to our compensation peer group, the ROTCE payout factor may be increased to up to 200% of target. Pre-tax core ROTCE is used for relative performance to ensure non-core items do not distort the comparison of true operating performance. For more information regarding its calculation, please refer to “Calculation of Non-GAAP Financial Measures” in Appendix A.

In conjunction with the establishment of the 2021 EIC Plan in early 2021, the CNG Committee established the following ROTCE payout factor adjustment guidelines when considering its potential application of discretion to the ROTCE performance metric:

In 2021, our ROTCE of 24.41% was above the maximum performance target and our pre-tax core ROTCE of 33.2% ranked first (100th percentile relative to peers) in our compensation peer group. As a result, the potential adjusted ROTCE payout factor for the CNG Committee’s consideration was up to 200% of target. Acknowledging the Company’s strong performance in 2021 generally, and particularly with respect to the ROTCE performance metric, the CNG Committee adjusted the ROTCE payout factor to 190% of target. Accordingly, the total weighted achievement for our 2021 EIC Plan was 151.6% of target. By comparison, the 2020 EIC Plan payout was 30.9% of target.

 

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Our 2021 EIC Plan payout percentage calculations were as follows:

Annual incentive award payments are calculated based on the executive officer’s base salary as of year-end. Our NEOs’ target and actual cash incentive payouts were as follows:

LONG-TERM INCENTIVES — EQUITY AWARDS

Our executive officers and a broader group of employees are granted LTI awards under our Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (“LTI Plan”) in order to motivate and reward executive officers and employees for delivering long-term sustained performance aligned with our stockholders’ interests. LTI awards also enable us to attract and, through vesting provisions, retain executive officers and employees.

We provide a meaningful portion of executive compensation in the form of long-term equity awards, as follows:

 

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DETAILS OF PRSU AWARDS, 2021-2023 PERFORMANCE PERIOD

Prior to 2021, our PRSU performance metrics included ROAA and absolute cumulative EPS, each measured on a standalone basis, and TSR, measured relative to KRX Bank Index members on a percentile basis. In 2021, we revised our PRSU performance metrics to PPNR and TSR, each measured relative to the KRX Bank Index members on a percentile basis, in order to better align pay and performance, and better align executive officer interests with the interests of our stockholders. The performance metrics established for the 2021-2023 performance period are as follows:

At the end of the three-year performance period, the CNG Committee will assess the Company’s PPNR and TSR performance relative to KRX Bank Index members on a percentile basis.

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PPNR will be determined using the following methodology: net income + loan loss provision + income tax expense. The cumulative PPNR for fiscal years 2021, 2022, and 2023 will then be used to calculate the percentage change compared to the base year ending December 31, 2020. The percentage change will then be measured relative to KRX Bank Index members on a percentile basis to determine payout.

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TSR will be determined consistent with the “cumulative total return” table as presented in the Company’s annual Form 10-K filing, except the “Beginning Stock Price” will be based on the average closing price of the Company’s common stock from October 1, 2020 to December 31, 2020 and “Ending Stock Price” will be based on the average closing price of the Company’s common stock from October 1, 2023 to December 31, 2023. The difference between the Beginning Stock Price and the Ending Stock Price will then be measured relative to KRX Bank Index members on a percentile basis to determine payout.

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In the case of our CEO, PRSU vesting can range from 0% to 100% of target based on achievement of the foregoing performance metrics, as follows:

In the case of all other executive officers, PRSU vesting can range from 0% to 200% of target based on achievement of the foregoing performance goals, as illustrated in the graphic below.

If a performance metric falls between two levels, a straight-line interpolation between PRSU vesting percentages is used to determine the vested number of such portion of the PRSUs for the three-year performance period.

 

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The following graphic illustrates the calculation of PPNR and TSR PRSU vestings for all executive officers other than our CEO:

2021 LONG-TERM INCENTIVE AWARDS

The 2021 LTI awards granted to each NEO were as follows: