Community bank executives live on an economic level far removed from that of lofty megabank executives. But community bankers are keeping company with the maligned billionaires in at least one respect – in many cases, their compensation packages took a hit.

Susan O’Donnell, managing director with Southborough-based Pearl Meyer & Partners, said her research so far this year echoes the results of a survey her company completed in early 2009. The results: base salaries are largely flat or slightly increasing, and many executives got smaller bonuses or none at all.

In the February survey, in which 61 banks discussed their plans for rewarding executives, about 37 percent of respondents were planning, or thinking about, freezing executives’ base salary.

That kind of talk exasperates Arthur Warren of Walpole-based Arthur Warren Assoc., who says the diminished compensation packages affect both stock and mutual banks.

More is expected of bank executives these days, so now is hardly the time to be cutting their compensation, he said. Most community banks are seeing strong growth, as depositors and borrowers turn away from hampered financial giants and take their money closer to home.

‘It’s Stupid’

Despite positive trends for many banks, regulatory scrutiny has bank boards running scared. Some compensation reductions are justified, Warren said, but in some cases is not, and might contribute to a bank’s underperformance.

It’s “putting your head in the sand from a compensation standpoint,” he said. “It’s stupid.

“Boards need to stand up and reward executives for the extra effort and energy that needs to be applied to cull through this extra business that’s coming in.”

Charles Coldwell, a vice president with Connecticut-based Glenn G. Geiger Co., said public perception definitely bears some of the blame.

With the public outcry over hefty compensation packages, board members are keenly aware their actions are in the spotlight, and they’re responding by holding off on putting supplemental retirement plans in place, or bringing in multiple compensation consultants in for more input on what to do.

“Everybody’s taking a much harder look,” he said.

Many of New England’s banks are mutuals, and therefore their compensation packages are hidden from public view. As for stock banks, public filings that discuss compensation were recently filed for 2008 and don’t necessarily reflect the past few months’ events, O’Donnell said. In addition, some boards decide to base their packages on different metrics of success, and each individual’s pay depends on their individual contribution – which might differ from bank income overall.

Boards often decide compensation packages for the prior year between the months of January and March, she said, and generally they’re comprised of base salary, short-term incentives such as bonuses, or longer-term incentives.

No Problem

Still, the basic formulas for executive compensation are remaining largely intact, said Peter Ostrowski of Connecticut-based Ostrowski & Co.

Boards are doing their duty by looking into these issues, he said – they’re worried about regulators and perception, and rightly so. But Ostrowski says in many cases after taking the magnifying glass to the bank’s procedures, they come back satisfied their policies aren’t a problem.

Warren says the concerns over compensation perceptions are particularly strong with public banks, but that even mutual banks aren’t spared.

Everyone is treading lightly – while mutual banks don’t have to worry about public filings, anything can happen in this environment. Lawmakers and regulators could change things up to require more transparency from mutuals, Warren said, so mutuals are being cautious as well.

“Right now, no one knows where the radar screens are going,” he said.